Safeguarding Your Employee Rights During a Layoff

Navigating a layoff is challenging, but when an employer files for Chapter 7 or Chapter 11 bankruptcy, the stakes are even higher. Employees may face not only job loss but also the risk of unpaid wages, lost benefits, and financial uncertainty.

In today’s economy, with widespread layoffs pushing many toward economic hardship, understanding your Workers’ Rights in Layoffs is critical. By exploring available legal options, you can pursue claims for earned compensation and protect your financial future. This article outlines key steps to empower you during a layoff triggered by employer bankruptcy, ensuring you’re equipped to act decisively.

If you suspect your rights were violated during a layoff, contact The Mack Law Firm today. Contact us at 984-480-7147 or submit our online contact form to receive a free case evaluation.

Determine the Type of Bankruptcy Filed By Your NC Employer

When an employer in North Carolina files for bankruptcy, employees must first identify the type of bankruptcy to understand their rights and options. This knowledge is critical for pursuing claims and securing owed wages or benefits.

Chapter 7 Bankruptcy: Liquidation

Chapter 7 bankruptcy, often called liquidation, signals the end of a company’s operations. The business shuts down, lays off its workforce, and liquidates assets to pay creditors.

Employees who are owed wages or benefits become creditors, with their claims prioritized under the Bankruptcy Code. Secured creditors are paid first, followed by administrative costs and priority unsecured claims, which may include employee wages earned within 180 days before the filing or business closure.

General unsecured claims are paid last, often leaving little for employees if funds are scarce. The process can span months or years, making it crucial for laid-off workers to promptly seek unemployment benefits and explore new job opportunities to mitigate financial strain.

Chapter 11 Bankruptcy: Reorganization

Chapter 11 bankruptcy, known as reorganization, allows a company to continue operating while restructuring its debts to achieve financial stability. Most employees are retained to maintain operations, but layoffs may occur to cut costs.

If laid off, employees who are owed wages or benefits become creditors, with their claims prioritized similarly to those in Chapter 7. Typically, ongoing wages for retained workers are unaffected. 

However, if the company cannot execute a successful reorganization plan, the case may convert to Chapter 7, leading to liquidation. Like Chapter 7, Chapter 11 cases can take months or years, requiring employees to stay proactive in protecting their financial interests. Working with a seasoned employment attorney in Raleigh, NC ensures your interests are well protected throughout the bankruptcy process.

Employees’ Right to Receive Timely Notice Under the WARN Act

The Worker Adjustment and Retraining Notification (WARN) Act requires employers to provide a 60-day advance notice before significant layoffs or facility closures, protecting employees from abrupt job loss. Failure to comply may result in employers owing affected workers back pay and other benefits for the unnotified period.

Exceptions to WARN Act Notice Requirements

Certain situations exempt employers from the WARN Act’s 60-day notice obligation:

• • Faltering Company: Employers actively seeking capital to avoid or delay a shutdown may be exempt if they reasonably believe that giving notice would jeopardize securing funds. This applies when new capital could sustain operations for a reasonable time.
  • Unforeseeable Business Circumstances: Layoffs or closures due to sudden, unpredictable events, like those seen during the COVID-19 pandemic, may not require advance notice if the circumstances were not foreseeable when notice was due (e.g., In re Art Van Furniture, LLC, 638 B.R. 523 (Bankr. D. Del. 2022)).
  • Liquidating Fiduciary: Bankruptcy trustees solely tasked with winding down a business are typically exempt from WARN Act requirements. However, if a trustee continues operating the business for creditors’ benefit, they must comply with the notice obligations.

How to Determine the Amount of Wages and Benefits Owed to You

Wages encompass hourly pay, salaries, commissions, vacation pay, severance, and sick leave. Typically, wage claims are governed by state and federal labor laws, but in bankruptcy cases, unpaid wages fall under the U.S. Bankruptcy Code and are handled by the U.S. Bankruptcy Court. 

Exceptions may apply if an employer deliberately avoids paying wages by filing for bankruptcy, potentially triggering state or federal wage protections.

Health Insurance & Pension Plans

The effect of an employer’s bankruptcy on health insurance and pension plans varies case by case. Upon learning of a bankruptcy filing, employees should promptly contact their plan administrator or union representative to clarify the status of their benefits. 

Staying informed through notices from the bankruptcy court or employer is crucial for understanding how benefits may be impacted.

Consolidated Omnibus Budget Reconciliation Act (COBRA)

If laid off but the employer retains its health insurance plan, employees may continue coverage through COBRA. This option can be costly, so exploring individual policies or joining a spouse’s plan may be more affordable. 

If the company partially terminates health plans, employees might switch to remaining plans under the Health Insurance Portability and Accountability Act (HIPAA). Retirees or those under collective bargaining agreements may face unique bankruptcy-related rules.

Employee Retirement Income Security Act (ERISA)

Under ERISA, pension plans are typically held in trust or insurance contracts, separate from company assets. In Chapter 11 cases, employers may seek court approval to modify or terminate pension plans, and termination is common in Chapter 7 cases. 

The Pension Benefit Guaranty Corporation (PBGC) often assumes these plans, paying benefits up to specific limits. Similarly, 401(k) assets are protected from creditor claims, ensuring they remain secure.

How to File a Proof of Claim for Workers’ Rights in Layoffs

When an employer’s bankruptcy leaves wages, salaries, commissions, vacation pay, sick pay, severance, or other benefits unpaid, employees should promptly apply for unemployment benefits. 

Equally critical is filing a “Proof of Claim” form with the bankruptcy court or the company’s designated claims agent to secure owed amounts. This online form ensures employees, now creditors, are eligible for any distributions under the bankruptcy plan. 

Failing to file may forfeit an employee’s right to these funds, unless they agree with the company’s listed claim amount, which must not be marked as disputed, contingent, or unliquidated. Upon filing for bankruptcy, an automatic stay halts most creditor actions, such as debt collection or lawsuits, giving the company time to reorganize.

Protect Your Rights During a Bankruptcy Layoff by Talking to a Raleigh, NC Employment Lawyer Today

Facing a layoff due to an employer’s bankruptcy can leave you uncertain about your rights and financial future. Don’t let unpaid wages, benefits, or violations of the WARN Act go unaddressed. The Mack Law Firm in Raleigh, NC, is here to help you navigate this complex process and fight for what you’re owed.

Our experienced NC employment and bankruptcy lawyer offers personalized guidance to protect your interests. Take action now to secure your rights! Call us today at 984-480-7147 or submit our online contact form for a free, no-obligation case evaluation.