Corporate bankruptcies may have become fairly commonplace in recent years—nearly 9,000 Chapter 11 cases were filed in 2013 alone—but that hasn’t made them any less confusing or distressing for employees of companies who have filed for bankruptcy protection. Fears about job security, unpaid wages, or pensions can make the period after a bankruptcy filing an extremely stressful time for employees at all levels of a company, and even employers themselves don’t always have the answers about what the future might hold. |
For employees in this situation, what can help is simply having more information about what to expect, what questions to ask, and what rights you have. If your employer recently filed or is about to file for Chapter 11 bankruptcy protection, here are some of the most important things you should know:
The company intends to continue operating
Unlike a Chapter 7 filing—another common type of corporate bankruptcy in which a company liquidates its assets and shuts down its operations—a Chapter 11 case is based on the principle of reorganization. This means that the company may need to significantly restructure in order to work toward becoming free of debt, but it does see a future for itself and it intends to continue operating as best it can. In other words, a Chapter 11 bankruptcy does not necessarily mean that you will lose your job, though some layoffs are likely an inevitable part of the restructuring process, given that labor costs, including wages and pensions, are usually the highest single expense category for most companies.
Your company may be subject to the WARN Act.
The Worker Adjustment and Retraining Notification (WARN) Act is designed to guarantee employees sufficient notice of any shutdown or mass layoff affecting at least 50 employees. Applicable to companies of more than 100 full-time employees, the WARN Act stipulates that companies must provide at least 60 days’ notice of a layoff or shutdown to affected employees, although exceptions exist. If you did not receive sufficient notice of a layoff or shutdown and your company is subject to the WARN Act, you may be entitled to appropriate compensation for those 60 days, even though bankruptcy has been filed.
Some of your unpaid wages may have priority status.
A key concern for employees who were laid off after the bankruptcy case was filed, or just prior to the filing, is whether and how soon they will be able to receive any wages they are owed. In most Chapter 11 cases, employee wages and benefits are accorded a higher level of priority than many other ordinary, unsecured debts. However, it is important to be aware that this priority status applies only to wages earned within the 180-day period prior to the filing of the bankruptcy petition. There is also a cap, adjusted every three years, on the total wage amount that can be claimed as a priority.
If you continue to be employed by your company even after the bankruptcy filing, your wage payments should continue as usual; typically, the company will seek permission from the bankruptcy court to keep paying its employees as long as the company remains in business.
If you continue to be employed by your company even after the bankruptcy filing, your wage payments should continue as usual; typically, the company will seek permission from the bankruptcy court to keep paying its employees as long as the company remains in business.
You must file a proof of claim.
Regardless of the status of your claim (whether a priority claim, as described above, for unpaid wages, or another type of general claim), if your company owes you any money for wages or other reasons, you will need to file a “Proof of Claim” document in order to receive payment. These forms are available online at the United States Courts website.
Collective bargaining agreements may be broken.
Under the terms of bankruptcy law, union contracts are not protected in a Chapter 11 case. A debtor company is permitted to reject a collective bargaining agreement if the agreement has become too burdensome for the company. The motivation behind this is to better enable the company to reorganize and restructure itself efficiently, but naturally, the rejection of a union contract will carry other significant consequences. Typically, a debtor company will seek concessions and contract modifications from its unionized workforce; this is an important step, as failure for the two parties to come to terms can sometimes result in the bankruptcy case being converted to a Chapter 7 liquidation.
Your pension and health plan administrators are an important resource.
A Chapter 11 filing by your employer will naturally impact your health and pension plans, but as each case is different, it is useful to speak directly with plan administrators to find out exactly what the status of your plans will be. Important questions to ask include whether the plan will continue or be terminated; who the plan administrator during and after the bankruptcy process will be; how accrued benefits will be paid if the plan is terminated; and how outstanding health claims will be paid. The Summary Plan Descriptions for your pension and health plans are also a useful resource and are typically the place to find contact information for the plan’s administrator.