Industry Committee on Nov. 18th, 2010

[The Chair, Conservative, David Sweet]

Thank you, Mr. Wacheski.

Now we'll go to Mr. Hanlon for five minutes, please.

[Joe Hanlon, President, Local 2693, United Steelworkers]

Good afternoon.

I would like to thank John Rafferty and the NDP for introducing this very important bill. I would also like to thank the committee for this opportunity to speak to you today on Bill C-501, a forward-moving bill that will correct a lot of the injustice that affects our members today.

I am Joe Hanlon, a representative of the United Steelworkers Local 2010. Nationally our union, the United Steelworkers, represents about 280,000 members, of whom about 50,000 work in the forest industry. Our local represents approximately 6,000 members in a large number of communities across northern Ontario. The vast majority of our members work in the forest industry, or, should I say, used to work in the forest industry: we have about 4,000 members who are laid off. Our members and their families and communities have been devastated by the recession. We are talking about thousands of people who are unemployed, people with families, who have lived most, if not all, of their lives in these communities.

These are members who believed in the system. They believed that if their operation ever shut down, they would receive termination and severance pay to assist them through difficult times. That is the part of Bill C-501 that I would like to speak to.

Others have spoken on, or will speak on, the importance of pension. Don't get me wrong: that is extremely important also, because people believe that as they grow older and retire, their pension will be there for them in the future. Why not? It was part of their wage package, and we all expect to be paid properly. It's the same as termination and severance pay, which is also part of the agreement employees have with their employer. Employers have to give their employees notice of layoff or pay them in lieu of notice. What is also understood and agreed is that should a temporary layoff extend into a long-term layoff or a closure, the employee will receive severance pay for each year of service.

The reality is that employees don't want termination and severance pay; they want jobs. However, at this time they need to pay their bills and support and clothe and feed their families. How do they do that? They cannot get another job, especially because a vast majority of our members live in one-industry towns. Their EI has run out. They have used up all their life savings and cashed in their RRSPs. They can't sell their house. No one wants to move to a community where there's no employment. Some people have lost their homes. They've lost their automobiles. They have had to stop their children's education. Families have split up. People have turned to drugs or gambling or both. Unfortunately, some have paid the ultimate price and have taken their lives.

A lot of our members have exhausted everything except termination and severance pay, because their employer has not given it to them. Some employers have threatened bankruptcy, while others have gone into bankruptcy. Some employers have worked out arrangements to pay in instalments or to pay a lesser amount. No matter what, a large number of employees are not getting what they have earned or deserve for the years of dedicated service to their employer.

Let me give you some examples. JF Thompson is a woodlands operation that couldn't continue to operate. The company shut down with no notice of termination and no severance pay. When the employees requested payment, the employer threatened bankruptcy. Our members in the operation agreed to a settlement based on 29 cents on the dollar for what they were owed.

We have members with the Buchanan group of companies. They were employed at McKenzie Forest Products, Atikokan Forest Products, Dubrueil Forest Products, Nakina Forest Products and Solid Wood Products and have not received any termination and/or severance pay, even though some of these operations have been closed for over three years. Some members are waiting for the operation to reopen, while others have moved on with their lives. The members who are not returning want their termination and severance pay, and rightfully so. However, the company says it has no money. The unfortunate thing is that these companies will more than likely declare bankruptcy in the near future. Again, employees are left with nothing.

We had employees at Dorion Fiber Tech, Sturgeon Timber, and Atway who requested termination and severance pay, only to be told that the company had no money to pay them. They had enough money to declare bankruptcy, which they did, and our members received nothing for all the years they had devoted to their employer.

We had two members at AbitibiBowater in Thunder Bay apply for severance on the same day. Because one wanted to place his into an RRSP, he needed to get forms filled out at the bank. In April of that year, without warning, AbitibiBowater applied for CCAA, only days following their application for severance. The member who wanted his severance put into RRSPs will receive about 35 cents on the dollar, while the other member, who received his cheque prior to the filing of CCAA, received 100%. Where is the justice?

There are other examples of employees not receiving the money that is owed to them. We are only a small local in the bigger picture; if this is happening in one local in northern Ontario, imagine all the people who are being affected across Canada. We need to ask ourselves how this can happen in our country. How can we let employers walk away from their employees, walk away from their agreements and commitments?

Nevertheless, that is why we are here. We are here to correct the injustice that workers are facing. We are here to ensure that we are doing everything in our power to move workers to the front of the line. Why not? Employees have made many sacrifices in their working careers to help build these companies. Employers have made profits from the hard work and dedication of their workers over the years. Now that we have a downturn in the economy, workers need to be recognized for their sacrifices, not made to suffer more.

That is why I'm here. I'm here on behalf of workers to ask all parties to unite to support and pass this important bill. Bill C-501 will ensure that workers receive what is owed to them, not only termination and severance pay, but also in pensions.

Thank you.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Hanlon.

Now we'll go to Madam Comeau for five minutes, please.

[Gladys Comeau, As an Individual]

You surprised me.

[The Chair, Conservative, David Sweet]

Would you like me to go to somebody else first?

[Gladys Comeau]

It's fine.

Good afternoon, distinguished committee members. Thank you for asking me to appear before you today.

My name is Gladys Comeau. I am a simple woman of a certain age and the widow of Gilbert Comeau, a retiree who worked for Nortel loyally for 40 years.

I need not repeat the statistics; you have heard all this before. This is not for me. I wish to make a positive contribution to the visibly humane side in order to effectively finalize Bill C-501. For some reason, I would be insulted if I proposed that it was no good. You are here to debate, and I'm sure that you can do the appropriate thing. Modify this now for Nortel. Right this wrong. Am I right? It was a wrong.

When I first was told by the monitor's letter on January 14, 2009--22 months ago; remember that--I phoned the office of my MP, Marlene Jennings, and asked what government documentation there was in this regard. They sent me a small document on the effects of bankruptcy on company-sponsored pension plans. I asked the very nice lady if they had had many calls. She said no, that I was the first. In all the years since 1867, with all the companies gone down, I was the first to call?

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

I have a point of order, Mr. Chair.

I want to point out that Marlene Jennings has not been around since 1867, just for the record.

[A voice]

Don't tell her.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

Those are fighting words.

[Gladys Comeau]

There I go, putting my foot in my mouth. It's a certain age.

Gilbert worked for his pension. It was not a gift. Gilbert opted for a reduced pension, a negotiated pension. He signed to secure my financial protection in the event that he passed away before me. According to the agreement, the resulting survivor pension amounts to 60% of the monthly reduced payments he received.

Now that Nortel has abandoned its pension plans on September 30, we are faced--you've heard this before, but I'm saying it again, if you don't mind--with an additional projected pension reduction of 35% to 50%. Ce n'est pas supportable, pas du tout.

We never envisioned that Nortel would default from its contracted obligation. Now I am faced with this pension reduction and the loss of medical benefits as of December 31. I am not going to buy private insurance. It would cost too much.

I represent the Nortel pensioner survivors who could heretofore rely on a dependable budget and guaranteed medical benefits to secure an autonomous and healthy way of life. Many will suffer physically as well as financially when they no longer can afford their medication and are faced with the prospect of losing a quality of life that is the result of hard and honest work.

I am fortunate because my health is not too bad, but I don't know for how long, and I don't know when He will call me. What if I live to be 100?

The telephone calls that members of the Nortel retirees' protection committee have received are truly heartbreaking. You've heard other stories, and this is true. I am not stretching the truth.

I would say that the truth was perhaps stretched by the people who were just here. I thought, “Capital investment”. Do you know the first word that came to my mind? Am I wrong? It was “threatening”. I thought it was threatening. They said we won't have the workers if we don't invest. I invested $4,000 in Nortel. That's nothing to you, but it was a lot to me. It was a risk. Of course, I lost it. Don't you, when you invest? Don't you lose it if something happens?

Lest you forget, moneys from Nortel sales are deferred wages that belong to us. I am worried. As I said, I don't know how long I will be on this earth.

Finish writing this bill. Give us the justice we deserve. Please don't tell me that you can't change all of it and you'll throw it out. Your duty is to protect us. The one thing I heard on Tuesday was the word “can't”. I don't think a government would be in place if it “can't” do something--no way.

If you were in my position, would you expect anything less than what I am asking from my government? What more can I say?

Thank you.

[The Chair, Conservative, David Sweet]

That is all the time you have. Thank you. I'm sorry; time is always our enemy here.

Go ahead, Mr. Phatak, for five minutes.

[Prabhakar Phatak, As an Individual]

Thank you, sir.

I would like to introduce myself. I am rather old--I am approaching 84 now--and fairly literate and numerate. These days I am an observer of the pension plan business. At one time I used to be the treasurer of a company, and for seven years I was deeply involved in pension management of a mid-sized pension fund.

For the last 20 years or so I have been receiving a pension from that same pension fund, and I have some perspectives about some government policies that have affected the fortunes of the pension industry simply by an often ignored means. I'll outline that to you in a couple of moments.

Pension fund management is a business that is essentially a liability-driven business. You employ a person, especially if he is a young man of 25 or 30, and you provide for a liability that you will pay after 40 years. He will work for you until about age 65, and then as the lifespan is expanding, you will probably keep on paying him after he retires. At one time it was for seven years. When I retired, you were expected to get your pension for about 10 years or so. Now I am virtually 84, and I have been enjoying my pension for the last 20 years. If I live long enough, I will have enjoyed a pension for about 25 to 30 years.

For us, managing that business then was a very ticklish problem. We ran after first-quartile performance. We ran after all kinds of standards that we tried to apply to results, but as I went through the logic of the pension business, I realized that it was a very dynamic situation in which we had to manage assets and liabilities in a very transparent way.

Liabilities were created first, and we had to manage them through the next 50 or 60 years by managing our assets in terms of cash flow, in terms of maturity, in terms of matching, and in terms of all kinds of little things that we had to worry about in relation to our assets. Our investment strategy at that time, in the 1980s, was gradually being developed away from mere equity performance standards and the standards you've heard about from different experts so far and towards the management of a liability-and-asset relationship.

Unfortunately, during the last 10 years this important function of pension management came under a virtual shock, simply because of the central bank's policies of reducing interest rates in the market. This policy started after 9/11 and the recession that came in. The banks started slashing interest and creating cash flows in the market. After the disaster of 2007 and 2008, they brought the interest rates down to virtually nil. We had 0% interest rates.

You may have heard the stories of people in the U.S. paying money to keep their deposits with the treasury free of interest for some time, an absolute reversal of the position. What that did to pensions was virtually shut off the question of the relation between fixed investment and equity investment, which is obviously more risky in this declining marketplace.

Because interest rates were down so badly, it also indirectly caused an increase in the present value of the pension liabilities.

[The Chair, Conservative, David Sweet]

Mr. Phatak, I'll have to interrupt you there. If you need to make further points, you can make them during the question period. We have other witnesses that we have to go to.

We'll now go on to Ms. Johannink. You have five minutes, please.

[Melanie Johannink, As an Individual]

Hi, there.

I come before you today as one of many thousands of Canadian workers who have been numbed by the abuse of the existing BIA and CCAA processes. I am the person who initiated the petition presented in the House numerous times to change the BIA and the CCAA to protect all Canadians impacted by a corporate bankruptcy to have a preferred status. Unpaid severance has long-term impacts on hundreds of thousands of people, as dipping into retirement savings becomes a necessity to pay mortgages and bills to avoid personal bankruptcy while looking for new work.

On the date of termination I and other severed employees lost all severance, including Employment Standards Act minimums, benefits, and an underfunded portion of my pension. I am downloaded onto the taxpayer's purse, and employment insurance is my only income. EI means barely living above the poverty line. During this global economic recession, a time when it is so difficult for many to get a new job, the government is failing to protect the EI fund and allowing employers to escape paying any severance. Taxpaying Canadians are left to fund the shortfall, despite companies' having billions of dollars on their balance sheets and paying millions of dollars in executive bonuses.

Severed employees are a separate group with no current recourse. Bondholders have access to credit default swaps, a form of insurance available to offset the credit losses and gain windfall profits. In bankruptcy, credit default swaps are an expropriation of an individual's net worth and are not a private matter; they are a public matter impacting thousands of Canadians who are harmed by bankruptcy, yet employees have no ability as such. How can the government allow the judges involved to interpret that it is the CCAA's and BIA's intent for me to be treated like a junk bond holder? The existing archaic acts are assisting foreign investors to reap an inappropriate share of the bankruptcy assets, and with the existing BIA and CCAA, the federal government is leaving me on the street.

In the Nortel case, the U.S. and U.K. unsecured creditors are also after the Canadian purse, with lawsuits against the estate in this specific bankruptcy. EI is paying severed employees in bankruptcy with taxpayers' money, and now there is a significant potential that estate funds will leave the country, as the federal government does not step up and block these out-of-country windfalls. It's the federal government's responsibility to change the act to protect all funds that are to be paid in Canada and to ensure they are kept in Canada. Nortel is a Canadian company, and now most of the financial estate is no longer here.

The hardest hit are employee-related claims. Once Nortel went into CCAA, an unsecured creditor committee was established to work with unsecured creditor claims, enabling other organizations to generate side deals to claim most of their money owed. Employee-related claims are the largest unsecured creditor claims at Nortel, and there is no seat at the table for us. How can this happen? The process is unjustifiable.

Our duly appointed legal representation allowed people to be personally appointed, rather than committee voted, to represent me in an agreement related to a Nortel settlement agreement. The members were forced to sign a non-disclosure agreement that prohibited communicating to us on the Nortel progress. This agreement allowed me to get $3,000--a loan of my personal money owed to me--in exchange for allowing pensioners to have benefit coverages until the end of the year. I am now legally bound by an agreement without being consulted. To me, this is abusive. We were unable to choose our own legal counsel or our personal representation, and now we have no information on our situation because of the non-disclosure agreement. No other severed employees in other countries have been placed in this situation. Canadian severed employees' rights are now relinquished for another's gain.

I fully believe the federal government is legally able to make the CCAA and BIA amendments retroactive to all proceedings commenced prior to the implementation of an amendment in order to protect unpaid severance and unfunded pension owed for hard-working Canadians.

Unpaid severance and underfunding of my pension denies me the ability to save for my own retirement. Loss of severance means reduced retirement savings, reduced immediate savings, and a significant loss to the overall economy due to gaps and lack of process to protect employees in the existing BIA and CCAA legislation.

Severance is part of an Employment Standards Act minimum and a corporate responsibility. With existing federal acts trumping all provincial acts, we walk away with pennies as others receive a windfall. My unpaid severance and pension losses are due to an abuse; it's not a compromise I should be asked to make.

[The Chair, Conservative, David Sweet]

Thank you, Madam Johannink.

We will go on now to our last witness, Mr. Hanrieder. You have five minutes, please.

[Paul Hanrieder, Professional Engineer, As an Individual]

No other group is more deeply affected emotionally, financially, and psychologically by a bankruptcy than the employees of that company. I doubt you can fathom the heart-wrenching fear and panic that employees undergo at the moment they hear their employer has filed for creditor protection or bankruptcy. Their thoughts jump to the clear and resonating fact that they immediately have no income, benefits, or job to go to. Their job is the cornerstone of their financial security, and it is now gone. This comes to reality later that day when they find their office doors are locked. At that point, they are, by all means, thrown out onto the street. In most cases, this is without warning, planning, or compassion.

With many Canadian workers within two paycheques or less of dire financial distress, this terrifying path of discovery, disappointment, and growing disillusionment begins. As an employee of Nortel Networks for nearly 15 years, I have lived through this nightmare and can speak to every facet of this nightmare in detail.

Many severed employees will never recover from this process. With little or no money to retrain and next to nothing in EI income, many will take the first job they find and never recover financially or emotionally over the remainder of their working careers. Severance is a critical monetary payout that must be protected to allow an employee to transition during the huge upset a bankruptcy places on their lives. This is not the same as a layoff or other job loss event, as those events are legislated to provide a gentle transition to a new job or career. In a bankruptcy it is far from gentle, and it is extremely traumatizing to anyone who must go through it.

I am here to tell you that the bankruptcy process is being abused in Canada, and it needs to be fixed. This bill is a critical step in resolving this abuse and in making a safe future for Canadian workers. In Nortel's case, how can a company with over $2.4 billion in cash be led into bankruptcy? Bankruptcy and creditor protection are now tools used by lawyers and banking institutions to dispose of employee liabilities in the interests of larger gains for commercial creditors and shareholders. In Nortel's case these devices are also a means of making bondholders a substantial profit at the expense of those same employees. A new instrument, the credit default swap, is being used to make substantial profits from the downfall of this great institution and many more.

Left unchecked, this could be a disaster for our economy and for workers in the future. I am told the bankruptcy process has been carefully designed to ensure that all creditors are treated equally. I'm here to tell you that this is the heart of the law, but it is seldom followed in practice. I've been told as an employee that I have ranking equal with every other creditor of Nortel, but this is not true. As employees we have no one representing us, even in proxy, on the creditor committees. This is apparently reserved for people who have the most expensive legal representation. I also note that key suppliers had sufficient leverage with this process to ensure that their debts were completely paid as they held hostage the production of Nortel's products in their factories.

How many commercial creditors have only one client? Most are diversified and can readily survive the bankruptcy of a client. It is quite common in the business world to accumulate a bad debt; the debt can be then written off as a tax writeoff to minimize impact to that company. An investor can write off a bad investment against other gains as well. How many employees have more than one employer and can write off the nonpayment of their severance during their income tax filing? None.

This being said, I hope you can see that all creditors are not equal, and we as employees are honestly the very last in line at the trough. An employee has more to lose than any other creditor and has the least ability to recover from that loss, not to mention the fact that these employees are so focused on trying to recover their lives at this point that they are far from focused on trying to recover payout funds that may not appear for three or more years.

All other creditors hire a lawyer to represent their interests; legal counsel representing us was appointed and paid by Nortel. Given a choice, would you select that option? Also of note is that legal means are being used to ensure we receive the lowest possible recovery payout in comparison to any other creditor group within Nortel. Debts have been artificially built into the Canadian estate for global restructuring to ensure less money is available for employee claims. Sales proceeds of R and D divisions based in Canada have been deemed property of the global estate and not the Canadian estate. Note also that all commercial creditors have the right to file their claims in the U.S. and Canada, but employees cannot.

Since ethics and common decency do not appear to apply or can be legally justified away in any of these processes, we feel we must stand up and fight to ensure our bankruptcy laws are amended to protect us and all Canadian workers.

I personally don't want my children to grow up in a Canada that can allow their futures to be pillaged in the pursuit of profit by investment interests. It's time for Bill C-501's reforms to be enacted into law to ensure that these loopholes in the heart and soul of our Canadian bankruptcy process are no longer left open for abuse and for profit.

I implore you to make the decent choice and ensure that Canadian workers and their families are protected.

Thank you.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Hanrieder.

Now we'll go to the Liberal Party. We'll have one round for each party, so please share your time accordingly.

Go ahead, Mr. McTeague.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

In this case there may be time for Mr. Rota at the end.

I'm sorry you've had to be here today. I think we all understand and we have a better picture, so we thank you for your efforts. They are not falling on deaf ears.

Mr. Phatak, you never had a chance to finish your presentation, but I thought it was interesting, as were all the others. One of the areas touched on by Ms. Johannink and Mr. Hanrieder was the issue of swaps and derivative markets. In particular, you all cited the concern you have with the credit default system.

This is not federal jurisdiction yet. It could be, but there is some debate about this, and the Province of Ontario has moved ahead, as has the U.S. government with the Dodd–Frank act, which apparently is not getting a lot of attention here in Canada.

As to specific amendments in that area, what, Mr. Phatak, would you propose the government do beyond Bill C-501? I think there is a general concern about the limitations going backwards for Nortel workers and for other workers as well.

[Prabhakar Phatak]

The question of going back is extremely difficult. How far you go back is a major problem. You may have to go back, if you really want to, all the way back to 2001-2002. One of the first few companies to go into a similar kind of liquidation was the Atlas steel company in 2001-2002. Do you really want to go back that far? I'm not sure.

That's the fundamental question the government will have to ask when they think of going back in time. How far has the damage reached? Is the damage still continuing? Can it be rectified?

In the case of Nortel, it's a very recent happening, and the damage can and should be rectified.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

This bill will not do that, but you're suggesting something far greater. I think Mr. Hanrieder and Ms. Johannink suggested something a bit more in the way of giving equity or fairness by ensuring a level playing field and putting it on the same footing as other creditors.

[Prabhakar Phatak]

The question of giving absolute priority may be difficult in the current marketplace. I thought it would be reasonable to offer status equal to that of the existing secure creditors of the company. That might work. It might eliminate the pressure on the interest rates, given the panicky conditions in the market today.

If open market rates are available at all--and today is not really an open market--you will find that companies work under high interest rates too. I remember we worked at 14% interest rates for a while.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

I suppose someone has to guarantee this at the end of the day. The marketplace cannot do it, because of all the reasons you've listed. It goes in ebbs and flows. The current system that protects creditors, swap defaults, etc., has proven itself not to be something that people recognize as secure.

I'll have to go to Mr. Rota. I know he has a question.

[Anthony Rota, Liberal, Nipissing—Timiskaming, ON]

Actually, I was going to touch on derivatives.

Mrs. Comeau mentioned deferred wages, which is what pensions are. It's a liability to employees. What Mr. Wacheski said is true as well: employees have few options. This is all they have. It seems that the previous panel talked about pension rules. They talked about Domtar being good and AbitibiBowater being bad.

Mr. Hanrieder and Mr. Phatak, what restrictions can we put on pensions so that employers actually put the money where it belongs? They should not be able to use it as a slush fund to keep operations going. I'm looking outside of Bill C-501. If we can make Bill C-501 functional, that would be great. We have to stop that money from being used as a slush fund to keep companies going. It's not an easy-credit place; it's a place where people put deferred wages. They should have that money back when they retire; they should be able to count on that money down the road.

[The Chair, Conservative, David Sweet]

We're actually over time, so be as brief as you can, Mr. Hanlon.

[Joe Hanlon]

I'll be very brief. Employers have an obligation to fund, but in relation to Bill C-501, if you take AbitibiBowater in the middle of the CCAA announcing that they're going to put $6 million as a bonus to their supervisors, why isn't that money going into individuals' pensions and severance pay, into the money that's owed the workers? Never mind the people who put the companies into the distress they are in today.