What Rights Do Employees Have When Their Employer Goes Bankrupt?

The news of an employer’s impending or declared bankruptcy can be daunting for employees. Will you still receive your paycheck? What happens to your health insurance? Can you claim unpaid wages? Understanding your rights is critical during such challenging times. This post from the team at Olivier & Schreiber PC will outline key employee rights to know if your employer declares bankruptcy.

Summary of Employee Rights

If your employer goes bankrupt, here are the main rights you should be aware of:

1. Advance Notice Under WARN Act – Certain employers must give a 60-day notice of layoffs in some instances.
2. Priority for Unpaid Wages – Employees are considered priority creditors and may be eligible for partial wage recovery.
3. Health Insurance Continuation – Under COBRA, some employees might temporarily receive extended health benefits.

Understanding these rights is the first step toward navigating the complexities of workplace transitions during bankruptcies.

Understanding Bankruptcy and Its Impact

When a company declares bankruptcy, it typically files under Chapter 11 (reorganization) or Chapter 7 (liquidation).

• Chapter 11 allows the business to restructure operations and debts while remaining operational.
• Chapter 7 involves the liquidation of company assets to pay creditors, often resulting in immediate business closure.

For employees, this can mean job loss, delayed wages, uncertainty around benefits, and the stress of not knowing when or if their financial situation will stabilize. It can also lead to challenges in managing household expenses or planning for the future.

Employee Rights During Bankruptcy

1. WARN Act Protection

Under the Worker Adjustment and Retraining Notification (WARN) Act, certain employers must provide a minimum of 60 days’ notice before changes like mass layoffs or plant closures. This can offer employees additional preparation time. However, exceptions apply, so consider consulting a legal professional to determine your eligibility for protection under the WARN Act.

2. Priority Creditor Status

Employees are given “priority creditor” status in bankruptcy. This means wage claims are often prioritized before many other debts. However, secured creditors, such as banks, are generally paid first, leaving limited funds for employees. Filing a Proof of Claim form with the bankruptcy court can be an essential step to outline what you are owed.

3. Health Insurance and COBRA

Bankruptcy can disrupt employer-provided health insurance. Under COBRA (Consolidated Omnibus Budget Reconciliation Act), employees may temporarily continue their health insurance coverage, but only if the employer’s group plan remains active (typically in Chapter 11 circumstances). If the company ceases all operations (Chapter 7), COBRA coverage may no longer be an option. Employees should contact the group health plan administrator to clarify their options.

Safeguard Your Rights in a Bankruptcy Situation

Being part of a company that undergoes the bankruptcy process may feel overwhelming, but employees have legal protections to ensure fair treatment. By understanding your rights and seeking the necessary legal guidance, you have options to mitigate financial uncertainties stemming from your employer’s insolvency.

If you are in need of personalized legal advice for your employment situation, contact Olivier & Schreiber PC today. Our experienced employment law attorneys are here to help you protect your rights.