A PDF of the White Paper entitled “The Value of Treating Employees Fairly During Bankruptcy Protection” can be found here.
To: Mike Zafirovski, Nortel Board of Directors, and Other Officers of the Company
Cc: Ernst & Young Monitor
From: Recently Severed Canadian Nortel Employees
As a follow-up to our memo from January 26th, we wanted to provide you with some research findings that might help convince you that not only is paying severance the morally right and ethical thing to do, but that it is an essential step to realizing your stated goal of emerging from creditor protection as a strong and healthy entity.
Armed with the information and research we are sharing with you today, we hope you will step up to show the kind of leadership Nortel’s current employees can respect and rally behind, by recommending to the Courts that signed severance agreements be honored and that some financial provision be made for current employees who are laid off in coming weeks and months. This action would help stabilize Nortel’s business and would prove you truly do understand that employees are the critical asset of a knowledge-based company and are critical for the future success of Nortel.
In an effort to identify potential ways forward for Nortel, our group has investigated cases of other companies in creditor protection and has identified best practices and outcomes that may be useful for Nortel to consider. From this research, it is clear that employees are unlike any other unsecured creditor – a reality increasingly being recognized by progressive companies, governments, and courts – and should be given special consideration when a company enters bankruptcy protection. The evidence also clearly shows that the fair treatment of employees is in the interests of all stakeholders who want to see Nortel emerge from the process as a viable entity.
Among the key points from the group’s paper, called The Value of Treating Employees Fairly During Bankruptcy Protection, which you can access in full here, are the following:
- Lay-offs have been found to not only have negative impacts on ex-employees but also on the “survivors” still employed within the company. How the survivors perform and their perception of the company during the lay-off period and well into recovery are, in large part, determined by how their ex-colleagues were treated when they were let go from the company.
- Many companies that have stopped payments to all creditors during their initial creditor protection filing, have – upon reflection of the impacts on their business – chosen to go back to the courts and argue that employee obligations, including those to dismissed employees, be met. Courts have agreed and supported this move as a way to de-risk the company’s recovery plan.
- Severance today is about much more than just compensating employees who have lost their jobs. A severance agreement is a contract between the company and the ex-employee that results in many positive benefits, including a reaffirmation of non-compete agreements and the protection of intellectual property. It also helps protect the reputation of the company as an employer, encourages employees to speak positively about the company, and helps ensure that former employees who become customers, suppliers or regulators behave favourably towards their former employer in future business situations.
- Even governments are increasingly recognizing the obsolescence of current employment laws, especially in this era of a competitive knowledge economy, where people – not factories – are a company’s primary competitive assets. In recognition of this reality, progressive governments have been modernizing the laws to protect vulnerable employees, including limiting a company’s ability to unilaterally repudiate employment agreements under CCAA or Chapter 11 and in giving employees “super-priority” in the event of bankruptcy.
The paper makes many other points as well, and includes references and links to our sources of information. We hope that you will find this helpful in addressing the employee aspects of recovery in your plan.
We certainly understand the seriousness of the business challenge before you, particularly in terms of addressing employee morale. The company has also obviously recognized the current state of crisis in the employee ranks, and has taken some small steps to address this, as reflected by the effort to retain some programs, such as the Excellence@Nortel Reward program. A program that enables employees to collect small-dollar-amount gift certificates, however, hardly meets the needs of current employees, who are first and foremost concerned about their livelihoods and income particularly given the fact that they know if they are laid off they will receive no financial support whatsoever from Nortel and their benefits will be terminated immediately.
Added to this is employee embarrassment. In national and local media, on YouTube videos, in blogs, and in business and social conversations across the country, people are discussing Nortel’s unfair labour practices and unethical treatment of employees as the company goes about “business as usual” as it continues, in your words, “to benefit from the protection offered by CCAA in Canada.”
How much better it would be if these groups – and Nortel’s own employees and ex-employees – could start to say good things about the company. Until this issue of severance is resolved, however, any good news about customer wins or technology breakthroughs or financial gains will fall on deaf ears and will be masked in a cloud of negativity.
In order to stabilize Nortel’s business, which you have identified as your top priority, you need to stabilize the workforce – ASAP! Although meeting current commitments to severed employees will cost some money, it is perhaps the best, most expedient and most valuable investment you can make in the short term. Fair treatment of recently severed employees – and good-faith negotiations with any potential future employees who are laid-off – will go a long way to stabilizing the workforce and maximizing the probability of Nortel emerging from creditor protection as a viable entity.
In your January 30th e-mail to current employees, you indicated that the company’s decision to not pay severance was made because “our financial advisors, hired by the company and Board to guide us through this process, made it very clear: the creditors would never accept it and the company could not afford it.”
We have two questions related to that statement:
- How can you be so confident about the Courts not accepting to honour severance agreements when the Company hasn’t even made the effort to put forward a compelling argument about why it would be in the interests of all stakeholders? As we’ve pointed out in the paper mentioned above, other progressive companies have asked the Courts and been granted permission to honour severance obligations during creditor protection. We urge you to seek the same.
- With respect to the statement “the company could not afford it,” our question is: how can you not afford to send a strong signal of moral and ethical integrity to reassure existing and future employees that Nortel respects its employees and their contributions and honors pre-existing agreements that were negotiated in good faith? Moreover, the latest Monitor’s report shows that your cash reserves were stronger than expected in the first three weeks of January. Instead of a projected $80-million deficit in January, the company is $184 million in the black. That would cover many times over the severance promised to Canadian employees who were recently severed.
Nortel’s historical strength has been the loyalty of its employees. Without the goodwill of employees and ex-employees, there will be no Nortel. We ask you – again – to do what is right to protect this valuable asset by extending fair treatment of your current and ex-employees.
Yours sincerely,
The Steering Committee of the Recently Severed Canadian Nortel Employees
