A Hudson’s Bay store in Montreal. Two employees at the insolvent retailer are seeking legal action regarding their pension plan surplus.Graham Hughes/The Canadian Press
Two former Hudson’s Bay Co. employees are seeking to launch a class-action lawsuit, arguing that thousands of retirees – not the insolvent retailer – are entitled to receive the surplus in their pension plan.
The proposed class action was briefly mentioned during a separate court hearing Monday, where Hudson’s Bay was granted an extension in the court process in order to settle remaining asset sales and wind up the business.
The notice of application in the lawsuit, which was filed with the Ontario Superior Court of Justice in June, names as defendants Telus Health Ltd. – the pension plan’s administrator – and RBC Investor Services Trust, which is holding the assets of the plan in trust. The class action has not yet been certified by the court.
The applicants are seeking damages amounting to the pension surplus and asking for a court order directing Telus Health and RBC to distribute those surplus assets to the retirees and beneficiaries of the plan.
Facing a financial crisis and carrying more than $1-billion in debt, Hudson’s Bay was granted court protection from its creditors in March. Unable to obtain financing or new investors to restructure the operations and save even a handful of its stores, Canada’s oldest retailer was forced to close all its locations. Thousands of people lost their jobs as a result.
In early September, the Financial Services Regulatory Authority of Ontario, which regulates registered pension plans, issued a notice of a decision to wind up the Hudson’s Bay pension plan. The plan is fully funded and in a surplus position.
“So this is not a Sears situation,” said Elizabeth Pillon, a lawyer with Stikeman Elliott LLP, during a court hearing in March, referring to the 2017 liquidation of Sears Canada, when many retirees saw their pensions cut owing to a funding shortfall.
The wind-up of the plan will involve purchasing annuities for plan members or making lump-sum payments in some cases to ensure pension benefits continue. Once that process is complete, the surplus will be distributed.
Hudson’s Bay has said it intends to seek court or regulatory approval to withdraw the surplus and use the funds to pay down debt. That is what the proposed class action seeks to oppose.
The plan includes both a defined benefit component, in which an employer pays out a set amount to retirees, and a defined contribution component, whereby the amount retirees receive depends on the performance of investments made under the plan.
In the Bay’s case, 4,000 people had defined benefit entitlements and 17,000 had defined contribution entitlements as of Dec. 31, 2024, according to court documents filed by the company in March.
As of Jan. 1, 2024, the plan had approximately $460-million in assets, according to the class-action application, and the surplus amounted to roughly $167-million.
In 2018, long before the retailer’s insolvency, Hudson’s Bay restated the text of the pension plan, according to the application, and specified that in the event of a wind-up of the plan, any surplus funds would revert to the company. But the proposed lawsuit argues that contradicted a previous court decision.
That previous decision was the result of another class action, launched by former employees of Simpsons Ltd. in 2005. Hudson’s Bay acquired Simpsons in 1979 and subsequently absorbed its pension plan into the Hudson’s Bay pension plan.
The former Simpsons employees filed their lawsuit because they objected to Hudson’s Bay using the surplus from the Simpsons plan to pay its contributions to the defined contribution accounts of its Zellers and Kmart employees.
The judge in that case ruled there was no separate trust fund limiting the beneficiaries to members of the former Simpsons pension plan. But the current proposed lawsuit focuses on another portion of the ruling, which stated that the Bay was not a beneficiary of the plan – and that plan members would be entitled to surplus assets if the plan was ever wound up.
In May, the court appointed Ursel Phillips Fellows Hopkinson LLP to represent the current and former employees of Hudson’s Bay during the creditor-protection proceedings. However, the law firm’s role does not include matters related to entitlements under the pension plan.
Lawyers from Koskie Minsky LLP – a firm that had been seeking to act as representative counsel for the employees before the appointment of Ursel Phillips – are representing the applicants in the proposed lawsuit.
Hudson’s Bay sponsored two pension plans for its employees, and unlike the plan affecting most employees, the much smaller “supplementary executive retirement plan” (SERP) was not fully funded. In April, the company informed members of the SERP that it was cutting off all payments under the plan and winding it up. The SERP is not at issue in the proposed class action.