U.S. engineering company Shaw Group Inc. unlawfully put its Canadian wing into bankruptcy to avoid paying severance and pension costs for 125 employees when it closed its Mississauga, Ont., office earlier this year, a lawsuit alleges.
Lawyers acting for a group of former employees filed a lawsuit on Thursday in Ontario Superior Court against Baton Rouge, La.-based Shaw Group, demanding $39.25-million in severance pay, pension-plan contributions and punitive damages.
None of the allegations have been proven in court. The lawsuit, which followed failed talks over the dispute, alleges that Shaw Group, a Fortune 500 company with 25,000 employees worldwide, breached its employment contracts and its fiduciary duty to the members of the company's pension plan.
How to make up the shortfalls in workers' pensions when a company goes bankrupt has been a hot topic in recent years, in the wake of the fight waged by pensioners of Nortel Networks, who saw their benefits slashed after the company went under. Canadian courts have since been wrestling with the issue.
The statement of claim alleges that Shaw Group and a list of its board members "conspired to … wrongfully dismiss the employees of the Canadian office of Shaw Canada to avoid paying severance and amounts owing to the Shaw [pension]."
The claim alleges that Shaw Group stripped Shaw Canada of its "revenue-generating assets to render it insolvent" in order to sell the rest of its energy and chemical division to a French firm.
Shaw Group officials declined a request for an interview. In an e-mail, Gentry Brann, the company's vice-president of investor relations and corporate communications, said the company does not comment on pending or current litigation.
The company, which recently announced that it is being bought by Chicago Bridge & Iron Co. for about $3-billion (U.S.), put its Canadian office into bankruptcy in August.
The plaintiffs allege the company gave no notice, and immediately terminated all of its Canadian employees without $13.5-million in severance pay, leaving an underfunded pension plan short $5.7-million. The lawsuit also demands $20-million in aggravated and punitive damages.
The lawsuit alleges that Canadian employees became concerned about the future of Shaw Group's operations here in May, after the company announced it was selling the rest of its energy and chemical division to Paris-based Technip, in a deal that did not include its Canadian office.
Work was transferred to Shaw Group's British and U.S. offices, leaving little for the Mississauga office to do.
A group of employees hired a lawyer, Andrew Hatnay of Koskie Minsky LLP, and wrote to the U.S. company, expressing concerns that the Canadian wing was being stripped in order to "contrive a bankruptcy" and avoid paying severance to employees.
According to the statement of claim, Shaw Group told the employees to "sit tight." But later, the company hinted in a U.S. Securities and Exchange Commission filing that it might bankrupt its Canadian arm.
In an Aug. 31 letter, Shaw Group denied it was stripping the company of assets, and did not mention any impending bankruptcy, the lawsuit states. However, on the same day, Shaw Canada LP was assigned into bankruptcy, according to the statement of claim.
The lawsuit was filed on behalf of all of the company's Canadian employees and pensioners, by employees Ian Sansom, Robert Lukas and John McNab, and retiree Ed Dorr.
Shaw Group acquired the previous Mississauga office of Stone & Webster, when it acquired the U.S.-based company in 2000.