With bankruptcies, 'the mess is left to be dealt with by HR,' says employment lawyer
It was sad news for many Canadians recently when they heard that The Body Shop would be closing one-third of its stores in the country.
A staple of many communities in Canada since 1980, the beauty and cosmetics chain said 33 of its 105 shops would close as it seeks to restructure itself under the Bankruptcy and Insolvency Act.
The announcement came just weeks after its parent company filed for creditor protection in Britain, according to the CBC, though the Canadian arm was said to be doing well financially.
The news was no doubt devastating for many employees of the retailer.
And it’s a challenging situation for anyone in HR, says John Hyde, partner and chair of the management-side labour group at Hyde HR Law in Toronto.
“In a lot of cases, there's no advance notice that you can give employees, practically speaking, because bankruptcy is one of those things that gets sprung on everyone at once,” he says.
“If you're looking at a situation where you've got receivership or bankruptcy… the company gets before a court to get the requisite orders in place. And that's usually done before the employees find out, and often before HR finds out. So then the mess is left to be dealt with by HR. So HR, in these particular cases, they have a particularly difficult burden to bear.”
However, there are several important steps HR should take to both support employees and ensure legal compliance.
Notifying employees about layoffs
One of the key steps is notifying employees once they know the end date, both for the employer’s and the employees’ benefit, says Hena Singh, partner at Singh Lamarche in Toronto.
“If the employer knows ‘As of this day, we are no longer going to be functioning’ [they should] give the employees as much advance notice as possible of that, because some of the employees will then resign, move on to other employment, which will reduce the employer’s liability as well,” she says.
By minimizing the amount of notice that they'll have to provide after the stores are closed, the employer also give employees time to find another job, says Singh.
“Working notice is great, because while you can still be looking for another job, employers are still getting value for the money that they're paying to employees.”
But notice has to be given in writing, with the effective date of termination – and definitely not through the news, which “creates so much uncertainty in the workplace that people start to lose focus of the work,” she says.
Communicating the employee terminations
Of course, in a retail environment, employees are spread out at different locations, with different shifts, so notifying them of the company’s closures is more challenging.
Having a communication plan is absolutely essential, and that has to be addressed down to the manager level so they can convey the information – unless head office decides it wants to handle that component, says Hyde.
“The proper plan would be to individually assess what people are going to receive under the circumstances, if anything, and be open and upfront with employees, because the worst thing you can do is keep employees in the dark.”
That can be done through a mass announcement, followed by one-on-one meetings. And in this day and age, Zoom calls have become more acceptable when it comes to terminations, says Singh.
“I've heard of companies doing these group terminations. And there's nothing inherently legally wrong with it, but it does invite a lot of questions and uncertainty and it's really callous,” she says.
“That doesn't give people the recognition of their contribution to the company or give them the opportunity to feel like they're an individual that's actually impacted by this.”
Defining mass termination
When it comes to determining who is owed what, there’s “a very complex system” to consider in doing employee terminations: the employment standards, the bankruptcy component and common law, says Singh.
The Employment Standards Act covers regular notice and severance, along with extended notice periods required for mass termination.
One of the first considerations for a retail closure is whether this entails a mass termination. For example, in Ontario, that means you are terminating 50 or more employees at your establishment within a four-week period.
Separate locations can be considered one establishment if they are located within the same municipality, or an employee at one location has contractual seniority rights that extend to the other location, allowing the employee to displace another employee (“bumping rights”).
But it’s not a straightforward decision, according to Hyde, as it may also involve people within a number of stores within the same municipality; those stores could be considered one establishment for the purposes of the assessment of mass termination.
In Ontario, in a mass termination, the amount of notice employees must receive is not based on their length of employment, but on the number of employees who have been terminated. An employer must give:
- eight weeks notice if the employment of 50 to 199 employees is to be terminated
- 12 weeks notice if the employment of 200 to 499 employees is to be terminated
- 16 weeks notice if the employment of 500 or more employees is to be terminated.
“You have an enhanced notice period or pay in lieu of notice periods,” says Hyde.
Employment contract considerations
Another component to consider is the employment contract, if people actually have one, says Singh.
“The Employment Standards Act sets the floor of what employees are entitled to upon termination, they don't set the ceiling. So we don't assume that employees are entitled to the floor, unless there's a contract, an enforceable contract,” she says, adding many contracts have become unenforceable lately because of changes to the law.
If there is no contract or the contract is unenforceable, then we look at common law, she says.
“And the common law is an assessment of how long each individual will take to find another job. And that's how long the employer is obligated to pay them for. So someone who has worked for the company for 27 years and is 67 years old would be entitled to something different than someone who has worked for the company for three years and is 33 years old. So we look at age, years of service, their position and the availability of similar employment — that would be an ideal assessment for a viable company.”
The same is true when it comes to retail employees like those at the The Body Shop, though the assessment might be somewhat different. For example, it might be easier for a retail worker to find another retail job, or for a part-time worker to find another part-time job, she says.
“And the time of year [might] impact that, because if you're looking for a job around the quarter leading up to Christmas, everyone's hiring for a retail job. And so .... the assessment would be that it'd be quicker for them to find another job.”
Bankruptcy protection and employee terminations
Sadly, when a bankruptcy is involved, there might not be enough money for everyone. In those circumstances, there's a list of debtors and employees are generally at the top end of this in terms of their Employment Standards Act entitlements, but then they are lower on the list in terms of notice under the common law, say Singh.
“You can’t squeeze blood out of a stone — if there's no money left in this company, how are they going to pay this out? So we would be starting with the Employment Standards Act minimums, and if there's anything left, then people can start pursuing more entitlements.”
A bankruptcy can mean no severance for employees, as any remaining funds go to secured creditors, then employees, then unsecured creditors, says Hyde.
“Chances are there'll be at least statutory monies for employees — hopefully — including statutory severance pay,” he says.
“You might get employment standards if there's enough money to go around after the secured creditors are taken care of. But… individual contracts don’t have greater rights and benefits beyond the ESA, and do not move ahead of secured creditors.”
The other consideration is that all wages have to be paid up to date because there can be liability for officers and directors, for up to six months, says Hyde.
