Report details how Laurentian shortchanged its employees

Since mid-September, Laurentian University's terminated faculty members have known that they would only be repaid 14.1 to 24.2 per cent of the severance owed to them.

With the release of the Auditor General's report on Laurentian's financial downfall on Thursday, it's clear that the consequences could be even more far-reaching for former staff.

On Sept. 14, Laurentian's creditors, which included terminated and retired employees owed compensation, voted to approve the university's Plan of Arrangement. The plan outlined a roadmap to repay its debts, to allow the university to emerge from insolvency and lift creditor protection under the Companies' Creditors Protection Act.

In the plan, Laurentian agreed to repay affected creditors on a pro rata basis, over the course of three years. As a result, terminated faculty will only be repaid 14.1 to 24.4 per cent of what they're owed.

According to the Auditor General's report, that amounts to approximately $42,000 to $72,000 per person.

Bonnie Lysyk, the Auditor General of Ontario, has said repeatedly that her office's audit of Laurentian's finances and conduct indicate that the decision to pursue the CCAA process was strategically planned and deliberate.

"Our audit found that, under that guidance of external counsel, senior administration and the Board of Governors were more focused on pushing Laurentian into the CCAA process, and less on working transparently with the Ministry, and faculty and staff labour unions," said Lysyk. "Quite frankly, one has to question whether paying more than $30 million and counting for external legal and financial advisors would not have been better spent on educating students."

According to the report, filing under the CCAA process did have surface-level benefits in the view of administration and the board. But those benefits lacked consideration for long-term consequences and came at the expense of dozens of employees.

CCAA process used to save on severance

Through the CCAA process, Laurentian was able to avoid many of its contractual obligations with its labour unions - the Laurentian University Faculty Association (LUFA) and Laurentian University Staff Union (LUSU).

The university's collective agreement with LUFA, for example, included a financial exigency clause, which is meant to be invoked during a financial crisis to offer a collaborative and transparent method for terminating employees.

The report found that LUFA requested that Laurentian invoke the clause in 2016, 2017, and 2020. In all three instances, Laurentian refused, then failed to address grievances from the union related to the decision.

"Laurentian specifically wanted to avoid using the financial exigency process," said the report.

For one, university officials would have been required to maintain full transparency with labour unions. They also wanted to maintain unilateral control over decision-making and avoid the public nature of the process, which they felt could damage their reputation.

In addition, Laurentian wanted to avoid the significant severance costs they'd need to pay to terminated faculty under the exigency process.

"Using the CCAA process enabled Laurentian to reduce the severance payments it would have been required to pay to terminated faculty," said the report.

In April 2021, Laurentian laid off 195 full-time employees, including 116 full-time faculty members and 42 unionized staff. The employee restructuring and termination liability costs resulting from CCAA filing were estimated at $44.7 million.

Under the CCAA process, the report said Laurentian worked with its court-appointed monitor, Ernst and Young, to develop a method for calculating severance. Under that method, terminated faculty were calculated to have $32.8 million owing for termination, or $301,000 per person.

Under the plan of arrangement, terminated faculty will see less than a quarter of that amount.

Of terminated professors, who account for most of the laid-off staff, 76 per cent were associate or full-time professors, with an average of 21 years with the university.

Under the plan, a 60-year-old professor who spent 30 years at Laurentian may only receive $90,000 to $150,000, despite being owed over $630,000.

Mismanagement means retirement benefits on the line

It isn't just severance pay that will be lacking, according to the report.

Due to "inappropriate misuse" of restricted funds by the university, many retired and former employees will be without retirement health benefits, despite years of overpayments.

In 1998, the university introduced the Retirees Health Benefit Plan (RHBP).

From that time, employees could contribute to the plan, which then allowed them access to a fixed amount of funds for health expenses after retirement.

Over the years, employees paid $2.3 million to the plan, and retirees have claimed $3.1 million in medical expenses.

But according to the report, Laurentian didn't comply with the provisions of the agreement.

For one, many employees overcontributed to the plan without their knowledge. The report found the university deducted $73,305 more from faculty salaries than was allowed.

It also failed to meet its own contribution obligations. While they did contribute $1.1 million since its implementation, the university didn't consistently contribute the required $25,000 annually. On four occasions, it didn't contribute at all (2007-08, 2018-19, 2019-20, and 2020-21).

In addition to these contractual violations, the university's misuse of funds also means hundreds of retirees have already lost access to the plan, and many more may never get their contributions back.

Retirement funds used for capital projects, operations costs

As its financial situation worsened in the last decade, Laurentian struggled to access funds for its major capital projects. In 2016, its primary lender, Royal Bank of Canada, declined to provide Laurentian with more long-term debt, and its unrestricted reserves were dwindling.

With its pricey capital investments taking top priority, Laurentian instead decided to dip into its restricted funds to make up for the shortfall.

"This improper use of restricted funds was partly obscured by the fact the administration inappropriately labelled the use of the funds 'internal financing,' because it did not follow best practices to segregate the restricted funds into separate bank accounts," said the report.

The Auditor General's office found that this had been ongoing since at least 2007.

Over $37 million were in those funds, earmarked for other purposes, including employee retirement health benefits.

As of April 30, the university had used $2.6 million labelled "internal financing" for capital projects. But because the university commingled restricted funds with cash and short-term investments for operations, it’s difficult to say how much had been used in any given project.

But of the $2.6 million for capital projects, at least $1.2 million was restricted.

Now, current and former employees who paid into the RHBP may not be able to make their contribution back or access their health benefits.

According to the report, as of February 2021, at least 360 eligible retirees and their families no longer have access to the benefits. Another 1,750 may not have access to those medical benefits when they retire.

In a statement released Thursday, LUFA president Fabrice Colin said the report was a validation of the union's position, and the suffering terminated and current faculty have endured.

"It is shameful that the university administration has spent so much effort ignoring, scapegoating, and gaslighting faculty throughout this process," he said.

"There is simply no excuse for the Laurentian administration’s dubious and irresponsible decision-making, which has led to needless cuts and suffering. Students, staff, and faculty deserve better. We expect the Laurentian University administration to act swiftly on the recommendations in this report and ensure that faculty are meaningfully involved in building a more inclusive and democratic shared governance structure at Laurentian."

In response to the report, Laurentian University has stated that it "embraces the Auditor General's recommendations."

"It is now incumbent on us to learn from her advice and, most importantly, accept and implement each of her recommendations," said board chair Jeff Bangs. "We are committed to beginning the University’s next chapter on a solid financial footing and ushering in a new era of accountability. The students, staff and faculty of Laurentian deserve nothing less.”

The Local Journalism Initiative is made possible through funding from the federal government.

mjensen@postmedia.com

Twitter: @mia_rjensen

Mia Jensen, Local Journalism Initiative Reporter, The Sudbury Star