Laid-off Sears Canada workers say the hardship fund set up to help them is pointless because any payout counts as income, so it's deducted from their employment insurance benefits.

"You have to give it back. We are getting absolutely nothing," says Vera Asselin, a former inventory analyst at the company's head office in Toronto.

"It's a complete joke."

Asselin worked for Sears for 33 years and was laid off when the cash-strapped retailer became insolvent in June. She received no severance or termination pay and her benefits were immediately cut off.

That left Asselin in the lurch because she was the only one in her family with employee benefits. To help make ends meet, she applied for the hardship fund to cover the cost of expensive medications needed for her family.

She was accepted, but then was dismayed to discover she must report the money as income because she's collecting EI.

"Whatever's being given to me in the hardship fund is only going to be deducted, so at the end of the day, it's a dollar for a dollar," she says.

"I'm not any ahead. I'm disappointed, I'm angry, I'm frustrated over this whole situation."

Hardship fund woes

Sears Canada has laid off more than 3,000 employees without severance or extended benefits since the company received court protection from its creditors.

Lawyers representing the employees fought for the hardship fund, which Sears agreed to in August.

Sears executive chairman Brandon Stranzl had pledged to donate the fund’s entire amount of $500,000, according to the law firm representing employees. (CBC)

Eligible recipients will get varying amounts, up to a maximum of $1,200 a week for eight weeks. Sears executive chairman Brandon Stranzl had pledged to donate the fund's entire amount of $500,000, according to Ursel Phillips Fellows Hopkinson, the law firm representing Sears employees.

So far, Stranzl has only contributed $300,000 and just 22 people have applied for the fund.

Rosa D'Alessandro, a Toronto-based Sears sales manager who lost her job in March, says people are scared to apply because they don't want their EI clawed back.

"They've already lost their packages, their jobs, they've lost everything."

Former Sears worker Rosa D’Alessandro says people are afraid to apply for the hardship fund because it will reduce their EI benefits. (Rosa D’Alessandro)

Vera Pilipovic, 58, says she can't afford the $4,000 worth of dental work she needs to replace a cracked bridge. But the laid-off Sears inventory analyst from Toronto decided that applying for the hardship fund is a waste of time. So she has put off the dental work until she finds another job.

"[It's] awful," she says. "Like seriously, not getting a single penny after we were laid off, this is ridiculous."

Just call it a 'grant'

Employment and Social Development Canada, which oversees Service Canada, told CBC News the hardship fund payments are considered the same as severance pay. That means recipients must report it and it may reduce their EI benefits.

Lawyer Susan Ursel, who represents the employees, says she's in discussions with the federal government to hammer out a solution.

Service Canada simply needs to recognize the fund payments as "relief grants," which don't have to be declared as income for EI recipients, she says.

"It is almost unbelievable that in the current situation where this money is available to relieve against hardships … that EI would be clawing this money away from people."

Sears Canada wants to close its remaining 130 outlets which will put about 12,000 employees out of work. (CBC)

Meanwhile, the number of laid-off employees in need of help may soon balloon. This week, Sears Canada got court approval to close 11 more stores, which means about 1,200 more workers will lose their jobs.

About 10,000 more employees will also be out of work if Stranzl's bid to buy Sears Canada falls through and the retailer begins total liquidation.

And unless the rules change, many laid-off workers will continue to see the hardship fund as just another hardship for them as the retailer struggles for survival.

"We're basically being stepped on left, right and centre," Asselin says. "We are getting absolutely nothing."