Nortel Reaches Settlement With US Long-Term Disabled Workers

By Peg Brickley, Dow Jones Newswires
Wednesday 23 January 2013

Bankrupt equipment maker avoids trial.
Nortel Networks Corp. has reached a $28 million settlement with disabled U.S. workers, averting a trial over its treatment of some of its most vulnerable creditors.

Outlined in bankruptcy-court documents, the settlement allows Nortel to shut off pay and benefits to some 200 people with chronic disabilities at the end of May. They will get an unsecured claim in the former telecommunications equipment maker’s bankruptcy case instead.

What the claim is worth, and when the affected workers will be able to cash in on it, depends on the outcome of the dispute over the $7.3 billion raised in the bankruptcy sale of Nortel’s businesses and patents, court papers say.

A weeklong session aimed at trying to divide the sale proceeds among competing Nortel units in Europe, Canada and the U.S. continued Tuesday, with Chief Justice Warren Winkler of Ontario attempting to broker a settlement.

Nortel has been trying to shake off its obligations to U.S. disabled workers for some time, arguing that the company is slated for disappearance and simply won’t be around to pay.

Similar arguments fueled efforts to shut off health insurance for U.S. retirees. Earlier, Nortel came to terms on retiree benefits, agreeing to put up $66.9 million to be used to provide replacement benefits.

Some Nortel disabled workers have reached retirement age and may choose to sign on to the retiree settlement instead of the settlement for long-term disabled people, court papers say. Ten active Nortel U.S. employees and 129 people who are buying extended benefits are also affected by the settlement of the claims for continued long-term disability benefits.

The fate of Nortel’s workforce has been highlighted in bankruptcy, with the company claiming to have saved thousands of jobs by requiring buyers of business units to take employees onto their payrolls.

A group of disabled Nortel workers in Canada continues to campaign for better treatment, claiming they were cheated out of their due in Canadian insolvency proceedings.

In both the U.S. and Canada, Nortel’s unusual approach to disabled workers created problems. Unlike many corporations that rely on outside insurance to cover disabled workers, Nortel kept people on the payroll at reduced rates, and continued their benefits after they became unable to work.

Generous when Nortel was a thriving telecommunications company, the disability program threatened ruin to those dependent on it once Nortel collapsed. Instead of a comfortable, if reduced, standard of living, disabled workers were to be thrown onto the social safety net, forced to take government welfare.

Once the settlement is funded, it will be divided among the disabled workers, court papers say. Some of the $28 million will be absorbed by providing continued benefits until May 31 for the disabled, leaving a $26.64 claim to be pursued in Nortel’s U.S. Chapter 11 bankruptcy proceeding.

Both the retiree benefits settlement and the settlement with long-term disabled people must be approved by a bankruptcy judge before they go into effect.

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