Employee Rights When Employer Is Facing Bankruptcy


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New employees facing a company going bankrupt need to understand what rights, if any, they have once the business fails. This means research, contacting corresponding officials and asking for advice and information online or through other services.

Some companies hire new employees without the knowledge that bankruptcy is imminent. Some employers keep the information from management, workers and hiring agencies. Because of this, there are hundreds and more persons each year that go through businesses closing their doors and the employees being laid off due to a lack of work. Sometimes, those working with the company are unable to obtain their paycheck. If the person is a newer worker and has been hired through an agency, he or she may still be guaranteed a paycheck. However, direct hires may not be paid if there are no funds available,

When an employee is about to be laid off due to the bankruptcy of the company, it is important for him or her to know and understand which type of bankruptcy is being filed. This may determine if employees are to be paid, if any benefits could still be received and if other actions need to be taken. A Chapter 7 is a liquidation where all assets are sold swiftly for cash to pay off debts and other concerns. A Chapter 11 is to reorganize the company and standard operations usually are retained along with most personnel. The excess debts, operation costs and similar items are paid off and then it is restructured.

Type of Bankruptcy

The type of bankruptcy that the employer files is crucial to determining if the company will move on after the initial changes or whether the entire business will be liquidated. With a Chapter 7, the owner or partners of the business may have incurred so many debts that the only way to manage the concern is to liquidate everything including the laying off of all employees and workers. This also means that established relationships may be severed if the owner is unable to recover by creating a newer but smaller business. All customers would be cut off from the product or services, and new employees may be denied payment if there are not assets to transfer funds to their accounts.

When the issue concerns a Chapter 11 bankruptcy, this means that the company could survive the issue. This is usually just a reorganization or a restructuring of the company to remove as many ruptures of income and profits as possible. If an entire department is not making any progress or cannot improve revenue, it may be cut with all persons losing their jobs. This may also mean that the newest workers are let go, but this may depend on other factors. Most of the excess debts are taken care of through this reorganization along with lower operating and transactional costs. The company may be utilizing the assistance of a lawyer to work through these concerns.

Possible Recourse

When the employee is affected by bankruptcy through a Chapter 7 filing, he or she is generally out of work due to this process. If the funds are not available for employees to be paid, it may not be possible to seek compensation unless the owner opens a new company after bankruptcy has been completed. It is important to seek the advice and options available through a business lawyer versed in bankruptcy claims. These legal professionals understand what this means and if there are any options open to the employee for viable compensation. Wage employees and others that have pensions or retirement plans in effect already are given a higher priority for payment.

The rights of the employee are different based on the bankruptcy chapter type. However, there are certain regulations in place that require the company to provide up to 60 daysí notice of impending layoffs. Unfortunately, there are exceptions to this. Wages may still be available for those under pending Chapter 11 bankruptcy provided that the employee remains at work and keeps up with daily duties. If the individual is laid off, he or she becomes one of many that are owed money such as creditors, vendors and similar persons. This means there may be some time before any funds are received if it is possible. It may be necessary to contact a lawyer to determine what to do next, and if the company is attempting to evade paying those who money is owed to, litigation may be needed.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.

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