Long-term disability benefits at risk in Nortel bankruptcy

In the business world, there is an underlying tension between employees and investors. While neither will survive, much less thrive, without the other, budget considerations often come down to what’s good for the investor or what’s good for the employee. Right now, telecommunications company Nortel Networks Corp. is between that rock and hard place, and its long-term disability benefits and retiree health care plans are both at risk.

Discussions between the company and its disabled and retired employees have been tough. (The retiree benefit program includes long-term disability benefits.) One reason is that the company never purchased a long-term disability plan. Instead, Nortel kept disabled workers on the payroll. While it lasted, the program was generous. Now that Nortel is liquidating, the program participants could quickly land on public assistance.

The story is a little different for retired employees in the U.S. By law, the company is not allowed to cut off retiree benefits without consulting with the retirees first.

At the same time, Nortel’s retired employees elsewhere in the world are trying to set themselves up for some of the liquidation funds, but they have a major barrier to overcome. The barrier? The company kept the disabled on the payroll.

The company’s United States arm is asking a neutral mediator to help settle the problem, but Nortel will more than likely need to pay billions to its creditors, employees and ex-employees. The money left over will be provided to debt investors that have continued to remain unidentified.

Currently, Nortel is dealing with a round-the-world bankruptcy liquidation, and it has had to sell almost $10 billion of its businesses. This could satisfy the debt investors, but it may not take care of the company’s creditors. And the question of the retired and disabled is still out there.


Alan Olson practices employment law throughout the United States from his offices in New Berlin, Wisconsin. Attorney Olson may be contacted at [email protected] with questions about the information posted here or for advice on long-term disability benefits claims.

Source: Total Telecom, “Nortel turns to mediator to resolve disputes with ex-workers,” Peg Brickley, April 13, 2012


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