Is $70-million employee trust as generous as it sounds?
When the news broke, it was a shock — Target Canada announced in January it was closing, putting 17,600 employees out of work.
“The Target Canada team has worked tirelessly to improve the fundamentals, fix operations and build a deeper relationship with our guests. We hoped that these efforts in Canada would lead to a successful holiday season, but we did not see the required step-change in our holiday performance,” said Brian Cornell, Target chairman and CEO. “There is no doubt that the next several weeks will be difficult but we will make every effort to handle our exit in an appropriate and orderly way.”
That exit includes a minimum of 16 weeks’ compensation to workers, apparently backed by a $70-million promise in the form of an employee trust.
“What they’ve agreed to do is use this trust, which is funded by the U.S. company, to satisfy the vast majority, and hopefully all, of the severance and termination entitlements. So, from our perspective that’s good,” said Susan Philpott, a partner at Koskie Minsky in Toronto, which is representing Target employees in the proceedings.
The fund is also unusual in the context of an insolvency.
“Usually… employees are often fighting with the other unsecured creditors for pennies on the dollar for their entitlements,” she said.
Since a lot of the Target workers are short-service employees, it is a reasonable amount. But it also coincides with their statutory entitlements, said Philpott.
“And the vast majority at the store level have signed agreements agreeing to the minimum standards as their termination and severance entitlements, so it’s a pretty neat package.”
Entitlement to termination pay varies depending on the minimum statutory requirements in the province of employment, said Clio Godkewitsch, an associate at Koskie Minsky in Toronto. Given the number of terminations at play with Target, the group termination provisions are triggered in most provinces and in some cases the entitlements of employees are in fact 16 weeks (such as Ontario), but in some places significantly less (such as Alberta). But all Target employees will receive at least 16 weeks’ pay, she said.
Severance pay and termination pay are commonly used to mean the same thing but in fact have different meanings under statute in Ontario, said Godkewitsch, and almost one-half of Target’s employees are in Ontario (8,011) where entitlement to severance pay requires at least five years of employment.
Without the employee trust, Target workers would be considered unsecured creditors and have no priority status, said Godkewitsch.
“Nothing’s guaranteed in an insolvency... it’s true that 16 weeks isn’t necessarily generous for all employees because some are in fact entitled to 16 weeks anyway but the point is they’re actually going to get it.”
There is, however, a cap on the funding to the trust, which is flexible, said Philpott.
“What we have been advised is that it’s almost certain to be enough but there’s no guarantee on that, so there could be an outside possibility of it not meeting the needs. But we’re told that on all of the information they have and what they anticipate to happen, based on their projections, that the $70 million will be more than enough.”
For now, it’s a salary continuance for all employees. The notices of termination went out on Jan. 15 and 16 and the effective date of the notice was Jan. 24. It’s only after that point that there will be decisions made on an individual basis about who’s going to stay and for how long, she said.
“The expectation is that most employees will continue working for a period of time through their notice period, so they’ll be paid for that, and then when they’re no longer needed at the store or head office or wherever they’re working, they’ll be advised and then they will get a continued payment from the trust,” said Philpott.
“The anticipation is it will be like a weekly payment — it’ll be like a paycheque, rather than a lump sum.”
Target workers will be paid in the usual manner for the hours they work, but if someone works fewer than their normal hours, their earnings will be topped up by the trust as pay in lieu of notice.
“Top-ups are individually determined and are based on the employee’s regular work week and regular wages,” said Godkewitsch.
And if an employee refuses to work when required to by Target, he will be treated as having resigned employment with no further entitlements, she said, adding this reflects the law, both under statute and common law.
In addition, the retailer plans to have a key employee retention plan funded up to $6.5 million “to facilitate and encourage the continued participation of senior management and other key employees... to guide the business through the contemplated orderly wind-down process and preserve value for shareholders,” according to an application to Ontario Superior Court.
‘Mixed bag’ approach
It’s a mixed bag approach, according to Anil Verma, a professor at the University of Toronto’s Rotman School of Management and Centre for Industrial Relations.
“There’s some things that look like they’re a step forward in the direction of employee interest, but there are some things that I would have said they should have stayed away from.”
The whole idea of severance is to help workers find employment, and having to work for 16 weeks makes that a challenge, he said.
“You have some notice period but job hunting can be time-consuming, you have to go for interviews and if you’re working, perhaps you can’t get time off to go and look for a job,” he said.
“My motivation to do a good job for Target would be pretty low during these 16 weeks, so there would be low morale, low productivity and, in the worst case scenario, maybe even sabotage of some kind.”
Instead, Target should offer retention bonuses to all employees, not just managers, he said.
“Managers are important for an orderly winddown but I’m sure that some employees are also going to be important,” said Verma. “There is some math in there that you can do to offset the potential loss of productivity and balance that against the increased cost of paying some severance but having higher productivity.”
On the other hand, the fact that Target set aside money in a trust fund is a good move, he said.
“Target’s intent here is to run full speed and have sales and really sell out their stock, so that they are trying to minimize the cost of closure. And I think, in looking down the road, they might also be trying to not burn their bridges too much so that, let’s say two or five years from now, they decide to come back to Canada, people will remember some of these things.”
Sixteen weeks’ pay makes Target look better than it would otherwise, said Peter Saulnier, Vancouver-based partner at Logan HR, a member of Verity Filion.
“It’s a business issue as opposed to just an HR issue,” he said. “They want to be aware of the brand equity they’ve built up very successfully in the U.S., even with Canadian customers.”
The $70-million fund is unusual, especially in the retail sector, said Sheryl Boswell, director of marketing at Monster Canada.
“It does show that they do care about the employees that are going to be affected,” she said, and it’s “absolutely” good for the brand.
But whether it involves 17,000 employees or one individual, the best way to handle layoffs is with care and integrity so they are treated with the respect they deserve, said Bram Lowsky, executive vice-president at Right Management in Toronto.
“(That involves) communications, which should be transparent, frequent and honest, or it’s the severance that you’re offering, which certainly has some legalities to follow along employment standards minimums and common law (or) providing them with outplacement support to help them restart their careers as quickly and successfully as possible.”
