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Employment agreements under chapter 11

Discussion in 'Ask an Employment Attorney' started by anonymous, Dec 20, 2018 at 11:41 AM.

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  1. anonymous

    anonymous Guest

    Hi I am working for a small biotech facing the possibility of workforce reductions. I do have an employment agreement, which provides for a reasonable amount of severance upon separation. It is not clear to me, however, how this agreement would hold up in the setting of bankruptcy, should the company go in that direction. Worries me a bit. Thanks.

  2. Charles Joseph

    Charles Joseph New Member

    Nov 30, 2018
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    Bankruptcy is very complicated, so there is no hard and fast answer to your question, but here are a few parameters.

    If your employer does file a petition for bankruptcy, it can file under either Chapter 7 or Chapter 11 of the bankruptcy code. Chapter 11 allows for reorganization, and your employer will continue to operate. Chapter 7 means all the company’s assets will be liquidated and distributed and it will cease doing business.

    If you are terminated before your employer files for either type of bankruptcy, you will be considered a pre-petition unsecured creditor. This would place your severance claim below those of all secured creditors and also below several other types of unsecured creditors.

    If your employer reorganizes under Chapter 11, your job might continue without interruption, and your severance provision might not get triggered. Or, if you are terminated after your employer files for bankruptcy, your severance might be considered a post-petition administrative expense, which would place you at the top of the unsecured creditors list.

    Please keep in mind that this area of the law is very complex. The answer above is an over simplification of some of the basic rules. There are many more factors to consider and more facts that need to be evaluated.

    Bottom line, if your employer files for bankruptcy, there is no guarantee that you’ll be paid everything you think you’re owed if the severance provision is triggered. You should discuss your situation in more detail with a bankruptcy specialist in your area.

    You can read more about employee rights at https://www.workingnowandthen.com/.

    This response is not legal advice, but is general information only, based upon the information stated in the question and general legal principles. It is provided for general educational purposes of the public who may have similar questions, not for any specific individual or circumstance. It is not intended to create an attorney-client relationship. Legal issues depend on all the specific facts of a situation, which are not present here. If you would like to obtain specific legal advice about your issue, you must contact a local attorney who is licensed to practice law in your state.