A lawyer representing Target employees says those workers are relatively lucky despite the company’s abrupt Canadian retreat and their impending unemployment.
Last week the the U.S.-based retail giant announced it would close all 133 of its Canadian locations, laying off more than 17,000 workers. However, the company softened the blow by revealing a $70-million “trust fund” to cover severance pay for terminated employees.
Susan Philpott, an insolvency expert with Koskie Minsky LLP in Toronto says Target employees don’t yet realize how well they’re being looked after.
“I don’t know that they fully appreciate how good this is,” she says. “Usually you walk to work one day, the doors are locked, you don’t get a paycheque and you have to deal with it at that moment.”
Philpott says Target’s intention to give every employee a 16-week severance package is “huge in an insolvency.”
Target has filed for protection under the Companies’ Creditors Arrangement Act, which can typically be bad news for employees. When a company files for bankruptcy protection, it first covers debts to bondholders, suppliers and other creditors. Employees are sometimes paid pennies on the dollar, if they’re paid at all.
A recent Canadian case was the disastrous 2009 bankruptcy at Nortel, in which thousands of employees were left with no severance packages or medical benefits and drastically reduced pensions.
“Nobody got paid their termination pay after the [bankruptcy] filing in January 2009… they still haven’t been paid,” says Philpott, who also represented Nortel workers. “Today, six years later, those claims are sitting in a claims pool waiting for the assets to be allocated and they won’t be paid 100 cents on the dollar, they’ll be paid something much less. People at Nortel lost their jobs, lost their payments, lost their wages, lost their entitlements the day the doors closed.”
Philpott praised Target’s efforts to make the insolvency as smooth as possible for those affected.
“From my perspective, [Target] has been very cooperative and helpful and generous, if I can use that word, in setting up this trust fund,” she says. “Certainly it recognizes their legal obligations which would exist in any event, but they’ve made an effort to actually meet those legal obligations, which is more than I can say for other companies who’ve done this.”
Philpott believes Target “genuinely cares” about is employees, although acknowledges there are other benefits to ensuring employees are properly compensated, including “brand reputation reasons” and staving off the sort of legal claims that continue to dog Nortel.
Philpott’s firm is currently assembling a committee of seven Target employees to act as representatives during the CCAA proceedings.
Given the suddenness and sheer size of the layoff — approximately 17,600 workers — Ottawa has also promised “direct assistance” to Target workers, although so far it’s mostly geared toward helping them find new work. Unifor, Canada’s largest private sector union, has urged Ottawa to provide emergency EI to the laid off workers.
Some private companies are also stepping up to assist Target employees. Starbucks announced it will prioritize applicants from the dissolving chain and Sears is also offering positions for soon-to-be unemployed Target staff.
The court-supervised liquidation period is expected to last four to five months.