Founded in 1670, HBC filed for bankruptcy protection on March 8 under the Companies' Creditors Arrangement Act (CCAA). The country’s oldest, continuously operating company hopes to keep six of its 74 stores open, but most of its 9,300 employees are expected to lose their jobs.
Veteran labour and employment lawyer Lior Samfiru, a founding partner with Samfiru Tumarkin LLP, calls the scenario yet another example of how Canada’s bankruptcy laws fail workers.
Labour lawyer Lior Samfiru, Samfiru Tumarkin LLP
In recent days, two of Canada’s largest labour organizations, the Canadian Labour Congress (CLC) and Unifor, have released statements condemning HBC and pointing to bankruptcy filings that indicate company executives will receive up to $3 million in bonuses to oversee the bankruptcy while former employees are left without severance pay.
“This situation is yet another example of why Canada's unions have long advocated for changes to federal laws like the Bankruptcy and Insolvency Act and the Pension Benefits Standards Act,” the CLC said in a news release.
“For decades,” it added, “we have fought to protect workers and ensure that they are not left at the back of the line when companies go bankrupt, forcing them to wait behind lenders, suppliers and tax collectors for the wages, severance and pensions they are entitled to.”
Canada’s bankruptcy regime is governed by federal statutes under s. 91(21) of the Constitution Act, 1867, which grants Parliament exclusive authority over bankruptcy and insolvency.
In 2017, following the controversial bankruptcy of the Sears Canada department store chain, Samfiru proposed what he called the Sears Act, which contained potential amendments to the CCAA to better protect employee compensation during corporate insolvencies.
After 65 years in operation, Sears Canada filed for bankruptcy protection in June 2017 under the CCAA. It initially closed 59 stores and cut 2,900 jobs, but eventually closed its remaining 130 stores, resulting in the loss of nearly 12,000 jobs. The retailer’s pension plan was underfunded by nearly $270 million.
Moved by the workers’ plight, Samfiru drafted the Sears Act, and the firm actively promoted it through a media campaign and direct outreach to all 338 Canadian MPs.
In his email to Law360 Canada, Samfiru explained that the proposal calls first for employees to be given priority status in a bankruptcy proceeding, making them secured creditors like banks and other lenders so they’re not last in line for compensation.
Secondly, the Sears Act, if it were ever passed, would amend the CCAA to make officers and directors personally liable for severance.
The plan failed to gain traction, but Samfiru continues to promote it — and in a recent posting on the firm’s website, he once again called for its implementation.
“Unfortunately, the Act never advanced,” he told Law360 Canada. “But the need for reform has only grown.
“Here in Canada, employees go from having clear legal rights to hoping for scraps,” he added. “It’s an outdated system that routinely lets major employers off the hook, while loyal employees are left behind.”
While the CCAA process is ongoing, employees are effectively without legal recourse because a court-ordered stay of proceedings prevents them from suing the company for unpaid wages or severance.
In the Sears Canada bankruptcy and when Nordstrom Canada wound down its 13 stores in 2023, the courts appointed an employee representative counsel to negotiate on behalf of affected employees. In the Sears case, a $500,000 employee hardship fund was established to help former employees, while an employee trust was formed in the Nordstrom case to ensure employees received termination entitlements, including severance and mass layoff pay.
For additional financial assistance, laid off employees may also have the option of applying for federal employment insurance or seeking some compensation through the federal Wage Earner Protection Program (WEPP), although any payment is typically a fraction of what they are owed.
Samfiru said some other jurisdictions have been more successful in advancing workers’ rights in bankruptcy cases. He pointed to the United Kingdom, where employees can receive statutory redundancy pay worth up to tens of thousands of dollars and often pursue additional compensation through severance or breach of contract claims.
“It’s a more balanced and realistic system,” he said. “One that reflects the real impact of job loss.”
Labour advocates, including the CLC, say hopes for enhanced worker protection improved in 2023 when Parliament passed the Pension Protection Act, but its measures will not come into effect until April 27, 2027.
The Act amends the Bankruptcy and Insolvency Act and the CCAA to give pension deficits priority over most other creditors during bankruptcy proceedings. The Pension Benefits Standards Act was also amended to require annual reports on the solvency of pension plans. Existing pension plans as of April 27, 2023, are subject to a four-year transition period before the new rules take effect. Plans established after this date will immediately be subject to the provisions.
With the current U.S.-Canada trade war potentially jeopardizing the future of many companies, the CLC said improving worker protections should be an election issue.
“Every leader in this election must be asked what they will do to strengthen protections for workers and their livelihoods,” said the CLC. “Workers deserve respect, security and the dignity of knowing they won’t be abandoned in a difficult economy.”
It’s a view that’s shared by Samfiru.
“Governments have allowed this pattern to repeat itself — at Sears, at HBC, and at countless companies before,” he told Law360 Canada. “If they’re serious about fairness and dignity in the workplace, this is where real change must begin.”
If you have any information, story ideas or news tips for Law360 Canada, please contact John Schofield at john.schofield1@lexisnexis.ca or call 905-415-5815.