Surviving a workplace bankruptcy |
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If your workplace has 100 or more employees, the Worker Adjustment and Retraining Notification Act requires employer notification of a mass layoff 60 calendar days in advance.
However, if you work at a small business, you might not discover your employer's fate until the last minute -- by e-mail, a phone call or padlocked front doors.
Once the bankruptcy is announced, you're likely to have more questions than answers. For starters, will you receive a final paycheck?
Employees have a priority claim for up to $10,000 in wages, according to bankruptcy law. This means that employees' claims are among the first to be addressed in court, and, it is hoped, among the first to be paid.
But there's a catch or two.
"Only wage claims earned within 180 days before the bankruptcy filing are entitled to priority," says Fred Corbit, a consumer lawyer working for the Northwest Justice Project, a public interest law firm.
Prior to joining NJP in 2007, Corbit was a partner in a private law firm and represented trustees, debtors and creditors in bankruptcy proceedings nationwide.
Corbit says you'll get your wages only if the company
still has cash -- or credit -- to pay you.
Although "an employee is entitled to be paid if there is money in the estate," a failed business doesn't always have money left over after starting legal proceedings, Corbit says. The last of a company's savings can be consumed by administrative expenses, which come before wage claims in priority.
Amounts over $10,000 are harder to recover because
they exceed the maximum priority claim established by bankruptcy
code.
A Chapter 7 bankruptcy is especially likely to create havoc with your pay. Unlike a Chapter 11 bankruptcy -- in which the company reorganizes with the intent of staying in business -- a Chapter 7 bankruptcy involves the liquidation of the company.
If a company's sole remaining assets are claims against other companies, the trustee (the individual responsible for dividing a business' assets and repaying creditors) might not be able to distribute funds to employees until all litigation is complete.
So don't count on that last paycheck in your mailbox
for weeks or perhaps years. If you're confused or concerned, consult
with your state department
of labor or hire a private attorney.
The Fair Labor Standards Act, or FLSA, which ensures
that nonexempt employees (hourly employees not exempt from overtime
pay) are entitled to wages earned, does not address accrued sick
and vacation time and bonuses proffered, according to the federal
Department of Labor.
However, bankruptcy code does say that employees are
entitled to sick, vacation, bonus and commission pay, as long as
it earned within 180 days before bankruptcy.
Future medical benefits also may be in jeopardy after a bankruptcy. If your company continues to exist under Chapter 11 bankruptcy, you may qualify for an extension of medical benefits under COBRA for a limited amount of time.
However, if the company disappears, so does the COBRA.
Other options are to purchase private health insurance and to check your eligibility for being added to your spouse's health insurance -- a layoff and subsequent medical benefit termination typically counts as a "qualifying event."
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