MEC lays off about 80 head-office employees ahead of privatization deal

MEC headquarters is seen in Vancouver, B.C. Tuesday, Sept. 15, 2020. The Canadian Press/Jonathan Hayward

VANCOUVER & HALIFAX — Beleaguered outdoor retailer MEC laid off about 80 head-office employees Thursday, sources said, ahead of a controversial takeover by American private equity firm Kingswood Capital Management.

The laid-off workers will not receive severance pay, according to an internal email reviewed by The Logic, but they can participate in the creditor-protection proceedings overseeing the sale if they believe they’re entitled to more compensation.

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Talking Point

A former employee of MEC’s Vancouver head office was issued a layoff notice on Thursday; they were told they were one of more than 80 active and inactive employees to be permanently let go. The layoffs also extended into the co-op’s retail stores, though it is not clear how many retail staff lost their jobs. The job losses come after a recent court ruling approving the sale of MEC to American private equity firm Kingswood Capital Management. Neither party would confirm the layoffs; they expect the deal to close mid-October.

One MEC employee said that at noon Pacific Time Thursday, head-office employees received an email with either a termination notice or the offer of a job under the new management. Those laid off included employees with decades of experience at the company. The employee, whom The Logic has agreed not to identify because of their concerns about the implications of speaking publicly about the layoffs, said a manager told them Thursday about 80 people were being let go.

Another employee who worked at MEC’s Vancouver head office and who was permanently laid off Thursday said a manager told them they were one of more than 80 people being let go. The source, whom The Logic agreed not to identify, said that figure includes both active and inactive employees—workers who had been furloughed during the pandemic or were on leave. It is a potentially important distinction, as Kingswood’s bid for the retailer included a commitment to keeping 75 per cent of MEC’s active employees. 

A B.C. Supreme Court judge ruled last week in favour of the deal that will see Los Angeles-based Kingswood purchase the co-op’s assets and take it private. The deal had been contested by a group representing the co-op’s members called Save MEC, which sought more time to put together an alternative bid that would preserve MEC’s co-op status.

News MEC had terminated some employees was first reported by Vancouver radio station CKWX News 1130. MEC did not directly reply to The Logic‘s questions about the layoffs, but sent a statement from the board saying they were “pleased” that Kingswood now plans to keep more active employees than initially planned, and a greater number of stores open, as well.

Kingswood also declined to confirm the layoffs.

“I can’t speak to layoffs as we don’t own the company,” said incoming CEO Eric Claus in a statement to The Logic. Kingswood and MEC expect their deal to close in mid-October.

In comments that echoed the statement from MEC’s board, Claus highlighted Kingswood’s plan going forward, noting it will now keep 21 out of MEC’s 22 stores open—four more than first promised.

“We also plan to retain more staff than initially planned, and now expect to have more than 85% of MEC’s active workforce continuing with us as we go forward.”

Kingswood “will retain 85% of all active employees as at close of day” Wednesday, said Claus, indicating any layoffs were part of the roughly 15 per cent of the workforce that won’t remain once Kingswood takes over.

As of September 7, MEC had 1,143 active employees, 197 on leave and 176 on temporary layoffs, according to court documents.

MEC will pay the laid-off employees “earned wages and vacation up to and including your termination date” minus any applicable deductions, according to an email shared with The Logic.

“However, you will not be provided any termination/severance pay,” it reads.

“To the extent that you believe you have any claims for further compensation, you will be eligible to participate in the claims process to be established in connection with the CCAA.”

MEC told employees information about how to proceed with a claim would be posted on the court-appointed monitor’s website “at the appropriate time.”

The layoffs extended beyond head office and into MEC’s retail stores, as well, though it’s not clear how many retail staff received layoff notices.

Greg Crosby, a former employee at MEC’s retail store in Vancouver, was terminated after being temporarily laid off in late April due to COVID-19. He said that under B.C.’s extended layoff laws passed for COVID-19, MEC had until August 30 to either rehire or terminate him. “August 30 came around and I hadn’t heard from MEC, so I contacted human resources and they didn’t seem to know what was going on,” said Crosby, who had worked at MEC for 12 years, most recently as a team lead in the retailer’s training department. “I checked in with B.C. Employment Standards [Branch], and they said I was automatically terminated on August 30 and was entitled to severance pay within 48 hours.” 

Crosby said he contacted MEC at that time about his employment status and severance pay. He didn’t hear from the co-op until receiving a termination email on Thursday. 

One of the MEC employees whom The Logic is not identifying said they were “really angry and sad” about the layoffs and lack of severance.

They consider some of the workers who lost their jobs “surrogate parents,” they said, noting many of them were fairly late in their careers.

“They’re going to have a hard time finding a new job,” they said, and thought the lack of severance pay was “really unjust.”

MEC entered into creditor protection last month, after amassing $23 million in losses, 42 per cent more than its losses reported the year before. The co-op’s years-long financial challenges were exacerbated by the COVID-19 pandemic, impeding its efforts to secure new financing. 

Lawyers for MEC revealed at hearings last week that the co-op is losing about $1.6 million weekly, and said any delay could jeopardize the deal as it erodes the value proposition

MEC carried out a months-long search for alternatives to a sale, approaching dozens of potential lenders in the months leading up to entering creditor protection. In June, MEC’s board identified 158 potential buyers and received letters of intent from nine of them in July before unanimously endorsing the sale to Kingswood out of four bids.

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The prospective deal galvanized members, thousands of which formed Save MEC and raised more than $100,000 to pay for legal fees. The group scrambled to put together an alternate bid, securing commitments of between $15 million and $20 million from wealthy individuals, as well as support from an anonymous group that had “been in discussions” to purchase MEC’s real estate assets for about $90 million, according to various court documents. It also had interest from credit unions and banks, and a Canadian credit-card company, Brim Financial, to generate $7 million to $10 million of additional income through a credit-card rewards program.

They asked the court for a two-week adjournment to give them more time to finalize an alternative proposal. The judge denied that request, clearing the way for the sale to Kingswood.