To lay claim to up to $11,725. Are those vacation wages automatically considered by the court or do employees need to file a claim to be included in the Chapter 11 hearing?
A: The "debtor in possession" (i.e., the employer, which acts as its own trustee
in a Chapter 11 case) must create a reorganization plan and it is mandatory to consider the prepetition wages of each employee as part of the Chapter 11 plan, up to the statutory requirement. However, benefits other than wages must be considered based on state law and the employment contract for each employee.
In California, vacation time that has been earned/accrued under a contract of employment, is considered earnings no different than wages currently owed. The only difference is that the employer is not obligated to pay out the cash equivalent of that vacation time until the employment relationship terminates. Typically, employers will cash out unused vacation time, over about 40 hours each year, because the employer doesn't want to get stuck with a huge bill when the employee terminates -- as most employee wages increase over time, and the vacation time must be paid out at the employee's rate of pay at the time of termination. So, if an employee was making $10 per hour and accrued 100 hours of vacation, and then terminates 10 years later when he/she is earning $20 per hour, the employer must pay out $2,000 for those 100 hours, instead of $1,000.
For your purposes, however, you can file a proof of claim
with the bankruptcy court
to identify what you believe to be what you are owed, and unless the employer objects to that claim, then the claim is considered valid and must be paid as claimed.
For current employees that will be around when this is all done, whether it's the company is intact, sold-off, etc. Does it make sense to try and take any sort of action in the Chapter 11 process?
A: See above.
Just want to make sure I understand postpetition wages. Do you mean immediately after the company files for Chapter 11 or after the Chapter 11 process is complete?
A: Postpetition wages are wages earned on or after the date that the bankruptcy petition is first filed with the court. As soon as the petition is filed, the employee has a statutory $11,725 claim for prepetition wages earned within the 180 days prior to filing, and any wages (including vacation) that accrue afterward, if not paid according to the employee's contract of employment, are subject to legal action to recover, the same as if no bankruptcy had ever been filed. The proof of claim covers only prepetition wages.
For example, my company filed back in December and was actually in court this week and it looks to drag out into next week. Am I now postpetition, meaning I'm not subject to the 11K cap on my accrued salary?
A: You have a claim for any wages that have not been paid which were earned prepetition. If those wages have all been paid, then you have no prepetition claim. But, if you have vacation and it hasn't been paid, then you have a prepetition claim for that vacation time, up to $11,725 for vacation earned during the previous 180 days, and prior to that, vacation time as a general unsecured creditor.
As a practical matter, you're probably going to get stiffed for the vacation time that accrued prior to the 180 days -- because you will have to wait in line with all of the other general unsecured creditors, who also will get stiffed.
Hope this helps.