A business bankruptcy attorney can help company owners and managers understand the implications of the business’s bankruptcy for its workers.
Types of Business Bankruptcy
Businesses usually have two options when filing bankruptcy: Chapter 7 and Chapter 11.
Chapter 7
When a business files for Chapter 7 bankruptcy, also called liquidation bankruptcy, it will sell off all its assets to generate funds to pay its debts. Because businesses that file for Chapter 7 typically have liabilities that exceed their assets, Chapter 7 bankruptcy usually results in the business’s closure. As a result, employees of companies that file for Chapter 7 will lose their jobs.
Chapter 11
Chapter 11, also called organization bankruptcy, allows a business to restructure its operations to become profitable and pay its debts. Restructuring during Chapter 11 bankruptcy may involve selling assets, divesting less profitable business lines or divisions, and laying off employees to trim payroll costs. However, Chapter 11 bankruptcy allows businesses to emerge from bankruptcy as viable companies, allowing employees who remain with the company through bankruptcy to keep their jobs, ideally in a more financially sound business that will continue operating for years.
How Does Business Bankruptcy Affect Employees?
Unfortunately, business bankruptcy can significantly affect a company’s employees. Chapter 7 bankruptcy means that all of a company’s employees will lose their jobs; however, Chapter 7 companies may keep some employees on for several weeks or months to assist with the liquidation process. In Chapter 11 bankruptcy, some of the company’s employees may lose their jobs if the business decides it must cut payroll or shut down specific departments or business lines. Workers in closed departments may lose their jobs if the company does not have other available positions; other workers may lose their jobs if the business undertakes a company-wide reduction in force.
Employee Rights During Bankruptcy
Employees of companies that file for bankruptcy have various rights and protections. First, employees laid off during bankruptcy become creditors entitled to their final wages and benefits. Under bankruptcy law, employees become priority unsecured creditors, entitling them to more favorable treatment than other creditors. Furthermore, employee benefits like health insurance coverage enjoy priority status during bankruptcy.
Furthermore, workers laid off during a business’s bankruptcy have notice rights under state and federal law. For example, the Worker Adjustment and Retraining Notification (WARN) Act requires businesses to give employees 60 days’ notice before closing facilities or conducting mass layoffs. The WARN Act applies to companies with 100 or more employees. Notice rights apply to all employees with at least six months of service in the past year who average 20 hours or more of work per week. Covered employers must provide notice of layoffs if they plan to shut down an employment site that will cause 50 or more employees to lose their jobs in 30 days, or if they plan to lay off 500 or more employees, or between 50 and 499 employees that make up at least a third of the company’s workforce. Furthermore, businesses must provide notice if they plan to sell the company, and the sale will result in a mass layoff or site closing.
Contact a Business Bankruptcy Lawyer Today
If you’re considering filing for bankruptcy in Pennsylvania, an experienced legal team can help you manage the consequences that may have for your employees. Contact The Cooney Law Offices today for a confidential consultation to learn more about how business bankruptcy can affect the rights and interests of a company’s workers.
