CTV Ottawa has learned Nortel has made the conscious decision not to pay hundreds of employees severance packages, some worth several thousand dollars.

According to rules in Ontario, laid off employees who did not get their severance pay before the company sought bankruptcy protection are out of luck.

Although CTV Ottawa has learned the courts told the tech firm they could choose whether or not to make the severance payments, the company has opted to withhold payments from laid off employees.

The decision affects hundreds of former employees in Ottawa and elsewhere. It will also affect anyone else who is laid off as a result of the company's restructuring efforts.

Steven Levitt, a lawyer already representing Nortel employees in a pension dispute, says ex-employees who are owed money can file a statement of claim and might eventually get some compensation, but not the full payment.

If Nortel is forced into full bankruptcy, employees will get more priority. However, that is currently not the case and Levitt says the process could take one year or more.

Companies waiting for Nortel to pay up on outstanding bills submitted before Jan. 12 also won't get compensation, as those bills are currently frozen. There is no guarantee as to what monetary compensation those companies will get.

However, a Nortel spokesperson says any bills submitted by suppliers after Jan. 12 will be paid.

The head of the Ottawa Centre for Research and Innovation, meanwhile, says Nortel needs to pay supplier companies if they want to continue doing business in Ottawa.

"They had better pay suppliers if they in fact hope to continue doing business as usual. And I can tell you that Nortel spends about $150 million a year in the Ottawa community, buying goods and services. That is a lot of money," said Jeffrey Dale.

Nortel has been granted bankruptcy protection by an Ontario Superior Court judge from its creditors under the Companies' Creditors Arrangement Act.

A lawyer for Nortel said in court that the bankruptcy protection was necessary because the company was quickly burning through its cash reserves.

Nortel has also filed for Chapter 11 bankruptcy protection in the United States.

The move came just one day before the telecom firm was due to repay a $107-million interest debt on bonds, which would have amounted to about 10 per cent of the company's North American cash reserves.

In the meantime, the company says it will stay alive as a smaller operation, by ridding itself of non-core businesses and restructuring itself to deal with the North American recession.

With a report from CTV Ottawa's Paul Brent