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socrateaser
socrateaser, Attorney
Category: Bankruptcy Law
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Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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I work for a California company that just filed for Chapter

Resolved Question:

I work for a California company that just filed for Chapter 11. There is another similar question already answered here. But I want to make sure I understand. Especially regarding accrued vacation.

If the company continues to operate after Chapter 11 and then lays me off or I walk. Do they owe all accrued vacation or is there a cap on what they would have to pay? For example, let's say accrued vacation amounts to a gross of 20K. Would they owe it all or can they pay less due to Chapter 11?

Also, if the company were to end up being acquired by another company through the Chapter 11 process and current employees of the acquired company were then laid off. How is accrued vacation from the acquired company typically handled in this case?
Submitted: 1 year ago.
Category: Bankruptcy Law
Expert:  socrateaser replied 1 year ago.
If the company continues to operate after Chapter 11 and then lays me off or I walk. Do they owe all accrued vacation or is there a cap on what they would have to pay? For example, let's say accrued vacation amounts to a gross of 20K. Would they owe it all or can they pay less due to Chapter 11?

A: Employees have a priority claim for wages up to $11,725, earned within 180 days of the filing of bankruptcy. After that, wages earned prior to the bankruptcy petition filing are general unsecured claims, and the employer can try to reduce them under the Chapter 11 plan. In other words, the judge will decide after considering all of the various creditors who are entitled payment.


Also, if the company were to end up being acquired by another company through the Chapter 11 process and current employees of the acquired company were then laid off. How is accrued vacation from the acquired company typically handled in this case?

A: Same answer. If the business is sold, then the successor employer would be entitled to whatever the debtor employer was entitled to under the bankruptcy plan.

Note: for both questions, postpetition wages, salary, vacation, etc., is not protected by the bankruptcy. If the employer continues to employ you, whether the original or a successor, and you are not paid according to your employment contract, then you can sue the employer or file a wage claim with the State Division of Labor Standards Enforcement (DLSE).

Hope this helps.
Customer: replied 1 year ago.

Thanks. This does help.


 


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?


 


If I plan to ride it out as an employee and see what happens - since the company's goal is to come out intact(of course no guarantees) without layoffs(so they say :)) Not sure if it makes sense to file a claim since it appears I'll make it through the Chapter 11 process. My most likely scenario, if I were to get laid off, would be after the fact due to an acquisition or new management. Which it sounds like normal rules would apply once out of the Chapter 11 process regardless of it being the same company or not.


 


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?


 


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? 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?


 


Thanks for you help.

Expert:  socrateaser replied 1 year ago.
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.

Customer: replied 1 year ago.

When figuring out accrued vacation. Are they looking at the rate(earned?) at which vacation days accrue prepetition (for the previous 180 days with a max of $11,725)?


 


For example, let's say I accrue .5 vacation days per day. Do they look at it like 180 x .5 = 90 hrs? Or do they consider the total amount showing as accrued at some point within the 180 days with a max of $11,725? I've had about 400 hrs accrued for most of the last 180 days, so just want to make sure I understand.


 


Same for postpetition. Say they filed Jan 2nd, then laid me off Jan 4th. Would they owe 3 days x .5 in postpetition vacation? Or would they owe the total amount the company shows I have accrued, in this case 400 hrs?


 


I'm guessing with the wording "earned", they go by "the accrual rate x number of days". If that is the case, at what point during postpetition is the company liable to pay out the fully accrued vacation amount in the case of employee separation? For example, if the company doesn't wipe our accrued vacation clean postpetition. Say, a month from now, according to the company I have 400 hrs of accrued vacation, which carried over from hrs accrued prepetition - since they didn't pay out prepetition vacation due to the fact I'm a current employee. In the event of employee separation, would they be liable for the full 400 hrs accrued at that point or just the accrual rate x # XXXXX days since postpetition?


 


Just want to make sure I fully understand and at what point I would have a shot at getting my fully accrued vacation payout postpetition. Not sure if there's a clock on that or if company's typically wipe accrued vacation out and start over postpetition.


 


Thanks for your help.

Expert:  socrateaser replied 1 year ago.
The court will look at any written employment contract between you and the employer, first. Then if the formula isn't obvious, it will look at the employer's vacation policy memorandum, whether it's part of an employee handbook/guide or a email memo from HR. Once you establish what the contract between you and the employer is, you simply cut off whatever you have accrued prior to the petition date, and that's the prepetition claim, up to $11,725. Then, you start a new contract as if it were you were terminated at the instant of the petition filing and then rehired one second afterwards under the same contract terms and conditions. It's your first day of work, in the next pay period, and you start accruing vacation under the same employment contract, because by your continuing to work and by the employer's continuing to employ you without modification of any prior agreement, you simply start a new contract under the old terms. So, you look at the same contract of employment and you determine how you accrue vacation, but as if you have none accrued from prepetition because you don't. This is a new contract.

That's about the best that I can explain it. I can't run your numbers for you. You'll have to do that yourself, or hire a CPA, in case you need to have someone testify on your behalf. For the purposes of filing a proof of claim, you don't need an accountant. You just need to enumerate the hours. You can ask your employer to provide you with a copy of your vacation time, if you want to use that as your prepetition accrued hours. Or, you can check the court file to see if the employer has scheduled everyone's wages and benefits (that's what the employer is supposed to do, but if you disagree with the numbers, then file a proof of claim, and let the employer object. Then you will have to appear in court and let the judge decide whose calculations are correct.

Hope this helps.
socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 34342
Experience: Attorney and Real Estate Broker -- Retired (mostly)
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