Bankruptcy: Best practice for worst-case scenario

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It’s an untenable situation: how do you tell 3,000 staff they’re out of work when negotiations fall through and your company is out of cash?

Aveos, the plane service company for Air Canada, announced in an open letter on its website that “all employees… effective immediately your employment with Aveos Fleet Performance Inc is terminated. You are no longer required to report to the workplace.”

Already facing two arbitrations over labour disputes, the company now faces 2,600 angry union members who claim they were let down by Aveos and former parent company Air Canada. The Quebec national assembly has stated it will approach Air Canada and the national government about whether Aveos has breached legislation.

But is there a best practice for this worst-case scenario?

“If you know well in advance and the company is aware this is coming down the pike, you can plan and put whatever resources you have left into helping the employees through job transition,” says lawyer and Queen’s School of Business aassistant professor Shai Dubey. “The problem in a situation like this is they were negotiating right to the end. If the deal comes apart and unfortunately there’s no money then you have a problem.”

HR often finds itself in the middle, trying to balancing company and worker needs. Contributing to the problem is the fact that the HR department might not know any more than the rest of the staff. Depending on the strategy developed at the highest level of the company, the HR department may be left with few options.

“If you at least have the resources within your HR department to make sure you can put people in touch with the right folks, that might be the best you can do,” says Dubey, who teaches business ethics. 

Union workers have something of an advantage because resources are usually set aside to help them through unemployment and job hunting. Unfortunately, non-union staff are likely limited to the government websites and support.

Another key decision is how much information to give employees throughout the process.

“It can depend on the business culture – if it’s an open culture then yeah, maybe you need to let them know so they can work together … That’s a strategic or tactical decision that senior management have to make,” Dubey says.

Changes to legislation since Nortel filed for protection from creditors mean employees are now considered high-priority creditors, where in the past they were included with unsecured creditors and often ended up with no payout from their employers. This could motivate companies to quit while there was still something to offer their workers.

“It compensates eligible workers for unpaid wages, vacation and severance and termination pay when their employer declares bankruptcy,” Dubey says. “They’ve got to choose – do we continue to operate and keep losing money and maybe there will be nothing left, or at what point do we say we can’t continue and how do we at least get something into the employees’ hands.”

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