If your company is in financial trouble, you may be weighing your options on the best way to proceed. When moving forward with a company liquidation through Chapter 7 Bankruptcy, you are probably wondering what will happen to your employees.
First, you will want to make sure that you provide proper notice of mass layoffs or plant closings. The Workers Adjustment and Retraining Notification (WARN) Act states that 60 days’ notice should be provided for employees of a company with 100 or more employees. If employees do not receive proper notification, they can file an additional claim for pay or benefits for the days in which they were not properly notified.
Unpaid Wages & Vacation Pay:
Any employees with unpaid wages will be treated as creditors. Meaning, the earned wages will be prioritized over unsecured creditors to be paid through the remaining assets of the bankruptcy estate. In fact, the Bankruptcy Code gives priority to claims for unpaid wages, salaries, commissions, sick leave, vacation, and severance pay. If your employee has vacation days that have been accrued but not taken, they are typically included in claims for unpaid wages.
This is only if these were earned within 180 days of the bankruptcy filing or when the company stopped operating. Keep in mind that secured creditors will be repaid first (banks or other financial providers). Your employees will have a cap per employee claim. The amount can be adjusted due to inflation, so be sure to speak with your attorney for this amount and how that will affect your case.
If there are not enough funds to cover your employee claims, your employees may only receive a portion of their claim. The Fair Labor Standards Act (FLSA) does not cover claims for unpaid wages, so some employees may not receive anything at all.
Retirement & Pensions:
Typically, retirement plans are held separately from your company’s assets. In fact, they may not be used to pay your creditors. They may also be insured by a third-party entity that is not involved in the bankruptcy case. Thus, the assets of these retirement accounts will not be affected by the bank.
On the other hand, the pension plans of your employees may not be paid in full due to there not being enough assets. However, the Pension Benefit Guaranty Corporation (PBGC) terms will determine the next steps. The PBGC was created to protect the pension plans and guarantee benefits for private sector workers that were earned before the plan was terminated. The best way to know if the PBGC covers the benefits of your employees is to review the pension’s summary plan description. Be sure to speak with your attorney to find out exactly what will happen to your employees’ pension and retirement accounts.
Typically, health plans will be terminated in a Chapter 7 bankruptcy. How this will be handled will depend on the summary plan descriptions. If it is discontinued, it will not be covered by COBRA. However, your employee will have the opportunity to convert the plan to an individual policy or join a spouse’s coverage. Your employees will want to contact your company’s health plan administrator or union representatives for more information.
Need More Information?
There are other factors that could impact your case. So, it is important to speak with a qualified bankruptcy attorney before moving forward. Let us go over your situation to find the best possible solution for you. We believe in relationships that are based on trust. Before we work together, we would like for you to get to know us. We want you to be sure we are the perfect fit for you. This will make you comfortable sharing intimate and difficult details of your case. Call us today to set up a free consultation.