Nortel workers protest for legislative changes
With a rally at Queen’s Park in Toronto and another expected in Ottawa near the end of October, employees and former employees of Nortel are voicing their frustration and anger with the provincial and federal governments when it comes to the loss of pensions, severance pay and benefits after bankruptcy.
Nortel was granted creditor protection in January, saying it planned to restructure, and in June announced it no longer planned to continue operations and would sell off business units.
“It was the crown jewel in Canada’s telecom and technology crown and a decade of mismanagement and fraud has brought it down to its knees,” said Michael Campbell, a member of the Nortel Retirees and former Employees Protection Canada (NRPC) steering committee. “This can happen to anyone, any reasonably sized company.”
Since the start of the year, about 1,000 workers have been laid off in Canada without severance pay, according to the Canadian Auto Workers (CAW), who also participated in the rally. Nortel also stopped paying special pensions and retirement allowances.
“This travesty is being ignored by the government of Ontario and the federal government,” said Ken Lewenza, national president of the CAW. “Governments in other countries where Nortel operated are taking action to secure pensions and not punish retirees for their years of service.”
Given the current environment, Nortel was unable to comment but stated: “We regret the tremendous impact our current situation is having on our hard-working and dedicated employees — both past and present. Despite every effort, we simply don’t have the financial flexibility to pay severances. This is an extremely tough but necessary decision (we) made, given our current situation.”
There are several groups involved: pensioners (about 12,000), deferred pensioners (5,500), employees on long-term disability (450), severed employees (about 1,500) and current employees, said Don Sproule, national chair of the NRPC. The group’s major priorities are to ensure Nortel retirees and former employees receive the benefits they were promised and to avoid the wind-up of the Nortel pension fund while it is underfinanced.
With a pension plan 69 per cent funded, “we’re looking at taking a 31-per-cent haircut,” he said. “This has all come as a tremendous surprise to people with defined benefit pension plans, which they thought would be protected.”
Employees should have a better understanding and a better voice around the security of benefits, said Sproule. It’s a very paternalistic situation, he said, with employers promising to look after workers.
“What’s happened is this low-water mark in the marketplace exposed a lot of companies, not just us, and this is a dirty little secret that’s been around for a long time and we’re actually relatively well-organized to try to become the poster child for what can happen for pensioners in general,” he said.
“What bothers me is pensioners and people like myself don’t have a seat at the table and now we’re scrambling, once this thing came up, to get organized.”
Unfortunately, most employees are not aware of their predicament until they seek advice when a company actually enters bankruptcy or Companies’ Creditor Arrangement Act (CCAA) protection, said Clarence Bennett, an associate with the law firm Stewart McKelvey in Fredericton.
Secured versus unsecured status
There are two key pieces of legislation that should be changed to protect workers and pensioners by granting them credit status above other groups, said Campbell: the Business Insolvency Act (BIA) and the CCAA. The latter allows a company to take itself apart under the guise of creditor protection and restructuring and not even pay the legal minimum for severance, he said. Campbell’s wife, for example, has been at Nortel for almost 30 years and will receive only vacation pay once she is laid off.
“That’s the prospect for many of the people working for Nortel, and there will be more layoffs coming,” he said.
The main problem for workers is their status as unsecured creditors, not secured creditors — which acquire a security interest in a company, much like a bank that has a mortgage on a house — meaning employees are at the end of the line when Nortel’s “pie” is divvied up.
“It’s more a question of the bargaining power they have, so usually it’s a big, institutional creditor who has security,” said Lionel Smith, a professor of law at McGill University in Montreal. “Smaller creditors would include employees… and of course employees have very little bargaining power.”
Further complicating the process is some creditors also take a security interest in a fluctuating pool of assets. In a bankruptcy, everything is frozen and “that secured creditor is basically going to come in and sweep everything up and probably get almost everything owed, leaving almost nothing for unsecured creditors,” said Smith.
WEPPA provides some relief
There has been some good news for employees with changes to the Wage Earner Protection Program Act (WEPPA) and the BIA, which came into effect in July 2008. These give employees “super-priority” for claims of outstanding wages from Service Canada and a company estate after a bankruptcy or receivership. Wages can include salary commissions, compensation, unpaid pension contributions, unremitted employee pension deductions and severance and termination pay, with maximums of about $2,000 and $3,250, depending on the type of claim
This is quite important for employees, said Smith, putting them ahead of other creditors.
“It gives the employees a priority claim even though their claim is considered unsecured — it bumps them up to the head of the line.”
However, the amounts can seem small to long-time workers.
“Practically, it’s useless,” said Campbell. “I mean, it’s a nice thought but the levels proposed there, for people who are on pensions, for people who are owed literally hundreds of thousands of dollars in severance and other commitments made to them — and certainly are legally there based on common-law precedence in the province and in Canada — it’s a drop in the bucket, unfortunately. It’s window dressing.”
It’s difficult to put employees ahead of other creditors outside the protection provided by WEPPA simply because the claims are very difficult to quantify, said Bennett.
“I don’t think there is much appetite for changing the BIA and CCAA to ensure greater protection for employees.”
It’s also hard to say whether the WEPPA is sufficient protection for all employees because of the variation in career lengths, but it’s a start, said Bennett.
“An employee with 30 years of service simply will not find much comfort in the $3,000 offered by WEPPA.”
