Law Times

Law Times • OcTOber 16, 2017 Page 5 www.lawtimesnews.com Money from hardship fund must be claimed as income Sears Canada bankruptcy to have spinoff effects BY MALLORY HENDRY Law Times S ears Canada announced its intention to apply to the Ontario Superior Court of Justice for ap- proval to begin liquidating its remaining 130 stores and assets, potentially as soon as Oct. 19. The Oct. 10 announce- ment impacts approximately 12,000 employees, who will join the ranks of the 3,000 others laid off earlier in the year. Liquida- tion sales are predicted to last 10-14 weeks. Sears Canada — which has been in court-approved creditor protection since June 22 — had received court approval for a sale and investment solicitation pro- cess, but "following exhaustive efforts, no viable transaction for the company to continue as a going concern was received," ac- cording to a news release. None of the laid-off employ- ees will receive severance pay or extended benefits, which Keith Murray, partner at Mathews Dinsdale & Clark LLP's Van- couver office, says is a typical outcome when a company goes into receivership or bankruptcy. The chances of employees getting anything "are very slim; even if they got anything it would be pennies on the dollar. "Employees are secured cred- itors for any wages that are ow- ing for time they have actually worked, but for any severance pay, whether its statutory sev- erance pay under employment standards or whether it's com- mon law notice, they are unse- cured creditors," Murray says. Being designated unsecured creditors puts them in a diffi- cult situation, he adds, noting that they'd "have to stand in line behind the secured creditors." People will lose their extended benefits whether they are already retired or not because the com- pany "simply won't be continuing to fund that obligation," he says. Toronto employment lawyer Andrew Monkhouse says most Ontarians are unaware that they may end up not receiving com- pensation after working for an employer for an extended period of time. He says that while provincial laws give unionized workers protections such as full compen- sation when terminated, non- unionized employees will likely get nothing. Monkhouse says this has created a two-tier sys- tem when it comes to successor employers and asset purchases. "It's to some extent shocking legislation hasn't been changed," he says. The company has already closed 58 stores and laid off al- most 3,000 employees. In July, Sears offered $9.2 million in re- tention bonuses to top manag- ers despite employees receiving nothing. Ursel Phillips Fellows Hopkinson LLP, the law firm representing Sears employees, argued for a hardship fund, and Sears set it up in August. Murray says the fund, which entitles eligible recipients to amounts of up to $1,200 a week for eight weeks, is unusual and it's not clear to him whether or not it will continue to exist "with the current situation; hopefully, it will." Originally, Sears executive chairman Brandon Stranzl said he would donate the fund's full $500,000. So far, $300,000 has been contributed and 22 people have applied for the fund. Any money from the hard- ship fund, however, must be claimed as income, which means any employment insurance ben- efits former Sears employees are getting are reduced. Ursel Phillips Fellows Hopkinson is reportedly in talks with Service Canada to have the hardship fund money designated as a re- lief grant, which is exempt from being declared as income. Eighteen thousand Sears Canada retirees and their ben- eficiaries are facing a possible re- duction in pension payouts due to the retail chain's insolvency. Murray says the company's situ- ation "certainly has the prospect of affecting or reducing their pension entitlements." Pensioners are fighting in court for payouts, but, "given the receivership or bankruptcy, the company is not going to have the ability to top up the pension," Murray adds. The Sears Canada Plan is currently underfunded by about $270 million, and On- tario Superior Court Justice Glenn Hainey has ordered that no other creditors in the com- pany's insolvency are to be paid until the issue is addressed. Ontario is the only province Murray knows of that offers a Pension Benefits Guarantee Fund, which the Ontario gov- ernment has reported will help mitigate the shortfall for Sears employees. Though hesitant to call it a positive point, Murray says what helps the situation a little is the fact that most of the employees at Sears aren't full-time workers. "It's still going to have a sig- nificant impact on people . . . but not as great as someone who's worked there full time for many years." — with files from Alex Robinson LT NEWS Andrew Monkhouse says most Ontarians are unaware that they may end up not receiving compensation after working for an employer for an extended period of time. Visit gpllm.law.utoronto.ca Questions? gpllm@utoronto.ca Apply today. ONE YEAR | PART-TIME | FOR LAWYERS AND BUSINESS LEADERS Master the Law. Canada's leading law school offers a graduate degree in four unique streams: Business Law Canadian Law in a Global Context Innovation, Law and Technology Law of Leadership Untitled-6 1 2017-07-27 2:46 PM People will lose their extended benefits. Keith Murray

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