Industry Committee on Nov. 30th, 2010

[The Chair, Conservative, David Sweet]

Good morning, ladies and gentlemen. Bonjour à tous. Welcome to the 48th meeting of the Standing Committee on Industry, Science and Technology.

We will be going until noon today. We were supposed to have two witnesses, but I see that we only have one, Anne Clark-Stewart. Hopefully Mr. Benson is on his way.

For the purposes of time, we'll begin now.

Madam Stewart, please go ahead for five minutes.

[Anne Clark-Stewart, Member, Nortel Retirees and former employees Protection Canada]

Good morning, members of the committee.

First of all, I would like to thank you for making the amendment as outlined in the reference document submitted by Mr. Rafferty. We are pleased to see the inclusion of the unfunded liability or solvency deficiency in the amendment to Bill C-501. We feel, however, that these changes do not go far enough to secure pensions for Canadians caught in the lack of justice for employees and retirees in bankrupt companies.

Why do I refer to justice? It's because justice underpins every functioning society. Justice allows us to cooperate, to subjugate our self-interest for a greater common good, knowing in the end that not only we will be treated fairly, but that we will all be better off. And it is our laws that must deliver the justice that we are commanded to seek. In a nation's laws, one finds its true soul.

Professor Sandel of Harvard in his class on justice defines justice as “getting what you deserve”. Let's use that definition to look at how current federal bankruptcy law treats our pensioners.

Once a company files for creditor protection, that law pushes all pension and employee claims to the very bottom of the creditor heap. The elderly and disabled are forced to slug it out with sophisticated junk bondholders for the last scraps of company cash.

Is this justice? Is everyone getting what they deserve?

We believe all employee-related claims, for pensioners, the disabled, and terminated employees, should have preferred status in bankruptcy.

The proposed amendments are correct to require the funding of unfunded liabilities or solvency deficiencies. To be clear, once a company enters CCAA or BIA, the solvency deficiency is the amount to be addressed. By definition, “unfunded liabilities” assume that the company is a going concern, which is not the case once CCAA or BIA has been invoked.

Once a company enters CCAA or BIA, solvency deficiencies can be very large, and under current rules, top-up by the company is not mandatory and pensioners are left holding the bag.

The amendment refers to inclusion of the solvency deficiency as determined at the time of bankruptcy. To be clear, it should be specified that such payments must be for the full amount of the deficiency under windup assumptions, and the full responsibility must be attributed to the company as soon as it enters CCAA or BIA, should be fully payable before it exits CCAA or before it ends its responsibility for the pension plan, and must be based on current valuations of the plan.

In the case of Nortel, the gap between the solvency deficiency and the windup deficiency will be in the range of $1.2 billion on a $2.5 billion funded pension plan, a huge impact to pensioners.

Our former colleagues in the U.K. and the U.S. have virtually 100% pension protection, because all their pension deficit is covered. Their governments have recognized the fundamental immorality of depriving pensioners of their retirement incomes, which are in fact deferred wages.

Canada must be no different. We are actually one of the few major industrialized countries not to have pension protection for all workers in bankruptcy, another black eye for Canada on the world stage.

Bill C-501 as it stands will not help Nortel pensioners, because it does not apply to companies already in the bankruptcy process. Minister Bairdhas been recorded as saying that it would be unconstitutional to make Bill C-501 retroactive.

Our legal advice says he is wrong. A recent Supreme Court of Canada decision, in British Columbia v. Imperial Tobacco Canada, has authoritatively resolved the constitutional ability of any legislature, either federal or provincial, to enact retroactive legislation. The Supreme Court clearly and unequivocally held that except in the area of criminal law there is no constitutional requirement of legislative prospectivity. The court confirmed that if the intended retroactive effect is expressed sufficiently clearly, the statute is effective according to its terms.

The Supreme Court acknowledged that retroactive legislation can overturn settled expectations and may sometimes be perceived as unjust. Nevertheless, it is held that except in the area of criminal law, there is no constitutional impediment to retroactive legislation.

To save time, I have e-mailed copies of this ruling to the clerk of the committee for your information. Therefore, if the political will exists within this room, retroactivity could be added to Bill C-501 and Canadian pensioners would receive justice in bankruptcy.

However, legal precedents and numbers don't begin to describe the desperation spreading across the country. Angry widows and pensioners, led by Gladys Comeau, whom I know you all know, are withdrawing funds from the Royal Bank and changing their Bell-related services, as they don't like the attitudes their representatives presented at INDU, the industry committee, in hearings earlier this month. They hope their gesture will stimulate the banks and big business to have a change of heart regarding the passage of Bill C-501.

This bill represents a significant step towards protecting pensioners from a harm that many other civilized countries have already recognized and addressed. It should be suitably amended as described, with the inclusion of windup assumptions and retroactivity, and passed into law as soon as possible. We hope the committee will undertake its duty to Canadians and find the wording to make it applicable to companies already in bankruptcy process and thereby bring Canada into the 21st century. There is no impediment in law to doing so.

Thank you for listening to our concerns and our recommendations.

[The Chair, Conservative, David Sweet]

Thank you, Madam Clark-Stewart.

We'll go to our rounds of questions now.

Although we are going until noon, we'll be able to return to seven-minute rounds, I think, starting with Mr. Rota for seven minutes.

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

Thank you, Mr. Chair.

Thank you, Mrs. Clark-Stewart. Thank you for being here today.

We've been going through a lot of different questions. I would tend to agree with you that pensions are deferred wages; they're just put off, through agreements that have been made between the employees and the employer, to be paid at a later date, and they are there.

One of the big things that sparked this was the fact that Nortel employees were, I guess, cheated of a retirement, for lack of a better word. I just want to clarify: you mentioned earlier that this bill will not affect Nortel workers, but you mentioned that there was a ruling in B.C.--

[Anne Clark-Stewart]

Yes.

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

—that could make this retroactive.

Could you elaborate on that a bit? That's something that would affect Nortel workers.

This bill has been a bit of a struggle right from the beginning. There has been some misinterpretation, some changes. Maybe you can comment on the security of pensions and the security of companies, if we were to go retroactive with this bill.

[Anne Clark-Stewart]

If you did go retroactive with this bill, what would happen is that the company would be held liable for its commitments to its employees; that the funds for their pensions would come out of the asset sales of the company. And it's a commitment of long standing that they made when those employees started working for them.

I worked forty-two and a half years for Nortel. I know I don't look it—everybody tells me I'm too young to have worked that long—but I did. I never expected, after forty-two and a half years, to be in this situation. I built my whole retirement based on the fact that I would have a retirement pension from Nortel.

The other thing that hits us is that we had a reduction in the amount of money we could put into an RRSP because of the pension adjustment that was put in place by the government in 1974. So we have a double whammy, because now we don't have a pension and we don't have RRSP money.

In this particular case, the onus should be on the company to pay for the commitments they made to their employees. Their employees committed to work hard for them, to work for long years for them. You'll find lots of people who have worked 40 and 45 years for the company, and we all worked hard.

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

There's no question that everybody worked hard, and I think what we're looking for is fairness. That's why working with this bill in particular makes it that much more difficult, because it could have other influences or unintended effects.

[Anne Clark-Stewart]

With regard to this Supreme Court ruling—

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

Yes, please, if you could, elaborate on that.

[Anne Clark-Stewart]

--British Columbia put in a statute called the Tobacco Damages and Health Care Cost Recovery Act. Imperial Tobacco took them to court, and it went all the way to the Supreme Court of Canada. The Supreme Court of Canada ruled that provinces and the federal government can put in retroactive legislation. In this case, they put in legislation to cover the costs of past, current, and future damages. And they didn't have to do it on an individual by individual basis; they did it on a gross basis, looking at the amount of health care funds that were going to be required to cover the costs of people who were affected with illnesses due to smoking.

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

Was this based on the fact that maybe tobacco manufacturers or cigarette manufacturers had hidden facts or had misrepresented the facts?

[Anne Clark-Stewart]

They had misrepresented and hidden facts, yes.

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

Is there something in the Nortel situation that would apply similarly?

[Anne Clark-Stewart]

I really don't know whether I can answer that particular question. I don't know the details of the running of the company. Although I was formerly an assistant vice-president, we never got into the nitty-gritty financials of the company.

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

Okay.

One of the issues that comes up often and that we've heard often is that other countries have pension protection. We see that and we hear it. You mentioned the U.K., where all pensions are covered. Maybe you can elaborate a little bit on that. What is the difference between, say, the U.K. system and the Canadian system? And what would you see coming to the Canadian system that could be used that is now in the U.K.?

[Anne Clark-Stewart]

In the U.K. system, they have the pension benefit guarantee, and that unit of the government guarantees the pensions of the employees of any company that goes into bankruptcy. They're guaranteed up to £28,000 per year.

They also guarantee the pension deficits, and they're going after the Canadian estate for that pension deficit.

The only plan that is similar in Canada, in certain regards, is the pension benefit guarantee fund in Ontario. That guarantees $1,000 a month of pension for companies in Ontario, and you have to have had your work service in Ontario. But when we get into it now with the FSCO, which is the Financial Services Corporation of Ontario, and with Morneau Sobeco, which is now administering the Nortel pension fund, we're finding that there are all kinds of little hidden things that aren't really outlined until you get to that point.

Some of the Conservative ministers are saying, oh, your pension fund is up to 82%. Mr. Clement is one of the ones who's saying that. Our pension fund is not at 82%.

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

What is the exact number you're seeing it at?

[Anne Clark-Stewart]

We're seeing it at 65%.

And when the pension benefit guarantee fund gets applied to us—we have an indexed pension—they've informed us that they can't provide indexed pensions, because the Canadian market can't supply them.

We're looking at $2.5 billion in annuities. Trying to put that amount of money into annuities at this time will cripple the market, especially when the market for annuities is so low. They'll have to do it in batches over five to ten years, to put all of our pension money into annuities. We're trying to get that to stop.

The $1,000 isn't really $1,000; they're looking at the difference between the $1,000 and what the pension fund is at. So they're trying to make that number as high as possible so that they have as little as possible to put in.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Rota. You are over time now.

You have the floor for seven minutes, Mr. Bouchard.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Thank you, Mr. Chair.

Good day, Madam. Thank you for coming here to testify this morning.

You stated that there was a retirement fund in Ontario that provides $1,000 a month in benefits to recipients. In other words, if recipients are drawing $600 in pension benefits, this fund provides additional compensation up to a maximum of $1,000. Do you think this kind of provision could be beneficial or more attractive than Bill C-501?

[Anne Clark-Stewart]

I wouldn't say it was more attractive than Bill C-501, because it only affects the people who work in Ontario.

In the Nortel case, where we had people working all across Canada--we have huge populations in Calgary and Edmonton, and 30% of our employees work in Quebec--they will not get any of that pension benefit guarantee.

So if they only have a $600-per-month pension, that's all they get.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Suppose the federal government were to bring in this measure which now applies only in Ontario and made it part of Canadian legislation? Do you think that it would provide broader protection than Bill C-501?

[Anne Clark-Stewart]

I don't think it would be better protection than that under Bill C-501 even if it were all across Canada for $1,000 a month. That legislation in Ontario was put in place in 1980 based on 1980 salaries and norms.

There was a report put together by Professor Harry Arthurs, which was submitted to the Ontario government in 2008. In it he recommended that the pension benefit guarantee fund be immediately upped to $2,500 a month. The Ontario government is not pursuing that recommendation.

He made 144 recommendations with regard to pensions and bankruptcy in Ontario. I read those recommendations, and if four or five of them had been in place before Nortel declared bankruptcy protection, we wouldn't be in this room.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

You talked about the pension fund. When a company goes bankrupt and is placed under the protection of the Companies' Creditors Arrangement Act, that company's debt becomes an unsecured debt, as opposed to a secured debt. You talked about maintaining some protection for pension funds, but what happens to severance pay? You said you worked for 42 years. Surely you were entitled to severance pay. I don't think your employer took steps to protect your severance pay.

I can tell you about AbitibiBowater, a company located in my region. It was placed under the protection of the Companies' Creditors Arrangement Act. Under their collective agreement, employees were entitled to severance pay. However, the amount owed to them by the employer was deemed an unsecured debt.

Don't you think that employee severance should be considered a secured debt as well?