Employees 'get in line' behind other creditors, says employment lawyer, offering tips for HR

Hudson’s Bay Company (HBC) made headlines recently after it filed for bankruptcy and started liquidating its many stores.

Also making headlines? The fact that roughly 9,300 employees to be laid off in the next few months will not receive severance pay.

Stuart Rudner, managing partner at Rudner Law in Toronto, does not find it surprising.

That’s because in regular mass layoffs, employees are generally given a certain amount of notice, and sometimes, based on the number of people let go over a certain time, additional severance pay — but a bankruptcy filing "changes everything," Rudner says.

Bankruptcy layoffs vs. mass layoffs

If a company files for bankruptcy protection and that protection is granted, their obligations under employment standards laws would not necessarily apply, says Rudner.

He also adds that businesses and companies are saved from employees or other creditors suing them for any owed wages or money.

"Basically, there will be a trustee appointed which would look at all the assets you have and look at all of your liabilities and try to figure out if some or all of the creditors can actually get their money," explains Rudner.

"[Employees] just get into line with all the other creditors, and they're not preferred creditors."

Secured or preferred creditors, such as banks, are first in line to be paid from company sales and assets, while employees tend to be last.

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