Former Sears Canada Inc. employees are already feeling the impact of the company’s restructuring proceedings as they receive letters informing them of cuts to severance payments and health benefits along with bad news for those looking at commuting their pensions.

In one letter, the company informed an existing employee that “no further payments are going to be made by Sears into the pension plan, and that if the individuals feel there’s any amount owing to them, they should be contacting the monitor of the [Companies’ Creditor Arrangement Act] proceedings and filing a claim that way,” says Lior Samfiru, a partner at employment law firm Samfiru Tumarkin LLP.

Tumarkin notes about 40 affected employees have contacted his firm for help since Sears Canada filed for creditor protection last week.

Read: Sears faces $300M retirement benefit shortfall as retailer seeks CCAA protection

The company has also stopped providing agreed-upon severance payments, as well as group benefits contributions for laid-off employees. As for the concerns about pensions, the company confirmed the impact is on those commuting the value of their benefits due to the defined benefit plan’s underfunded status. “For those associates recently terminated, they would be able to elect to defer their pension, start a monthly pension or take a commuted value with an initial payment at 81 per cent of the commuted value,” said Sears spokesperson Peter Block. He confirmed the court’s initial order for creditor protection doesn’t affect monthly pension payments to current retirees in the defined benefit plan.

In the case of one 58-year-old employee offered a two-year severance package when the company laid him off four months ago, he has received a letter stating his severance payments would stop during the creditor proceedings, according to Samfiru. The letter also noted health benefits would stop for retirees and laid-off employees and advised them to seek their own coverage as they see fit.

Because Sears is under creditor protection, employees can’t take legal action against the company to recover their losses, Samfiru notes. “It would be completely illegal in the normal circumstances. There’d be easy legal recourse. . . . [But with CCAA protection], they can essentially do things they would otherwise not be allowed to do with impunity.”

Read: Sears Canada motions on pension, health benefits ‘concerning to retirees’

Samfiru argues the federal government should enact legislative changes to better protect employees. One option is to make employees secured creditors in terms of entitlements to severance, pensions and health benefits so they’re among the first in line in bankruptcy proceedings.

Alternatively, the government could make a company’s directors personally liable for severance entitlements, in addition to unpaid wages. “Somewhere up the food chain, someone who owns Sears has money, but they’re protected now because Sears is its own corporation,” he says. “If they were personally liable, I assure you that people would have gotten paid by now.”

Samfiru hopes the Sears Canada case will spark a conversation about employee protections during bankruptcy proceedings. But even if legislation eventually changes, “it would certainly be too late for the Sears employees,” he says.

Read: Sears Canada seeking to suspend special payments as pension found to be 81% funded

Copyright © 2018 Transcontinental Media G.P. Originally published on benefitscanada.com

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