When a company files for bankruptcy, everybody involved with that company feels the impact. If it is a publicly traded company, bankruptcy can impact shareholders. Any relationships the company has with vendors and those it subcontracts are also impacted. Sometimes, these relationships have to be terminated for the company to become profitable again and in other cases, they are changed dramatically.
A company’s employees are often one of the largest groups affected by bankruptcy. Bankruptcy can mean eliminating certain positions and creating new ones, changing existing employees’ job duties, and altering how the company compensates and treats its employees. Recently, Hobbico, one of the largest employers in Champaign, Illinois filed for bankruptcy. Over the past two years, the company laid off a substantial portion of its workforce because it simply could not afford to keep them employed. Now, many of Hobbico’s remaining employees are seeking new jobs because their future with Hobbico is uncertain.
How Bankruptcies Affect Employees
Hobbico’s owners are planning to sell the business. Whoever purchases the business could choose to keep all, some, or none of Hobbico’s current employees on the payroll.
A bankruptcy can affect employees in many ways. Some of these are positive ways; Chapter 11 positions a company to become profitable, which can mean greater job security, raises, and bonuses for employees. While the company’s bankruptcy is pending, it typically seeks court permission to continue paying its employees’ salaries. When an employee is laid off when the company files for bankruptcy or shortly prior to the filing and the company owes that employee wages, that employee becomes one of the company’s creditors and may receive whole or partial payment for the lost wages through the company’s debt repayment plan. Generally, wages the company owes its employees are a priority debt that gets repaid before other debts.
Legal Protections in Place for Employees
When a company employs 100 or more people and 50 or more are slated to be affected by a bankruptcy or another issue causing a mass layoff, The Worker Adjustment and Retraining Notification Act of 1988 (WARN) requires the employer to give the affected employees 60 days’ notice before the layoff or closure of the company or branch where they work.
Workers who lose their jobs because of bankruptcy restructuring may file for unemployment benefits. If a company continues its health insurance plan after the bankruptcy, employees who lose their jobs may continue their coverage through COBRA. When the employer terminates its health insurance plan, COBRA is not an option for former employees.
Independent contractors to whom bankrupt companies owe money can file priority claims for unpaid compensation if they meet certain criteria.
Work with an Experienced Arlington Heights Bankruptcy Lawyer
Learn more about bankruptcy during your initial consultation with one of the experienced bankruptcy attorneys on our team at Newland & Newland, LLP. Contact us today to set up your consultation in our office. We serve clients in the Arlington Heights, Palatine, Rolling Meadows, Libertyville, Mundelein, Buffalo Grove, Schaumburg, Elk Grove, and Itasca areas.
(image courtesy of Kai Oberhauser)