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Shopify faces class action over severance offered to recently laid off staff

A class-action lawsuit alleges Shopify Inc. reneged on a deal it offered some employees who were laid off in a recent round of cuts.
A class-action lawsuit alleges Shopify Inc. reneged on a deal it offered employees laid off in a recent round of cuts. Shopify Inc. headquarters signage in Ottawa on Tuesday, May 3, 2022. THE CANADIAN PRESS/Sean Kilpatrick

A class-action lawsuit alleges Shopify Inc. reneged on a deal it offered some employees who were laid off in a recent round of cuts.

The class action alleges some of the Ottawa software business' employees laid off at the start of May were presented with departure packages outlining hefty severance sums they would be entitled to should they sign the agreement within a few days.

However, once workers signed the agreements and before the deadline passed, Shopify allegedly told departing staff they would instead be given substantially smaller sums than were initially offered.

"The individuals did the reasonable thing, which is to accept, only to be told even though we made you reasonable offers, even though you accepted that reasonable offer, we're just not going to do it and you have to sign a brand new agreement for a much lesser amount,” said Lior Samfiru, a lawyer pursuing the case.

“It just doesn’t work like that. I review severance packages every day and have 21 years of doing this and I have never seen any employer ever do anything like that.”

The class action's plaintiff Iain Russell, who worked for Shopify for seven years, says he was initially offered more than $88,000, which he accepted. Then, Shopify allegedly put forward a roughly $44,000 agreement. If he did not accept the $44,000 offer, he was told he would receive about $36,000.

When their severance offers were revised, Samfiru said workers were sent a “vague statement about miscalculating.”

"For many people...the difference is significant," Samfiru said.

"We've seen anywhere from a $10,000 to $50,000 and $60,000 difference between what individuals accepted and what Shopify now says they're not going to get. We are not talking about anything minor here."

Samfiru alleges Shopify's actions constitute a breach of contract and is seeking $80 million in damages and $50 million in punitive, aggravated and exemplary damages.

Those amounts could change based on how many workers were presented with shifting offers, he said.

Shopify did not respond to a request for comment.

The company reduced its head count by 20 per cent at the start of the month and by 10 per cent last year.

The company refused to give the number of staff that would be departing the company during the May cut, but it reported in a regulatory filing that it had 11,600 employees at the end of 2022. Twenty per cent of that amounts to about 2,300 people.

In an open letter announcing the layoff, Shopify founder and chief executive Tobi Lütke promised departing staff at least 16 weeks of severance plus a week for every year of tenure at Shopify. Medical benefits and an employee assistance program will cover departing staff over the same period.

Those leaving will also be able to keep their office furniture and though they'll have turn in their company laptops, Lütke said Shopify promised to help pay for new ones.

He positioned the layoff, which came at the time as Shopify sold its logistics business, as an effort to reduce distracting “side quests” that divert attention away from the company’s main goals.

“I recognize the crushing impact this decision has on some of you, and did not make this decision lightly,” Lütke wrote.

This report by The Canadian Press was first published May 30, 2023.

Companies in this story: (TSX:SHOP)

Tara Deschamps, The Canadian Press