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The company I work for has recently filed Ch.11. I have just

Customer Question
been informed that because I...
The company I work for has recently filed Ch.11. I have just been informed that because I am on the board of directors I will not be paid until the court approves it, which could take weeks. Can I be expected to work without pay? If I resign so I can look for work without breaking my fiduciary duty, will I become inelligible for unemployemnt benefits?
Submitted: 7 years ago.Category: Bankruptcy Law
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8/3/2010
Bankruptcy Lawyer: socrateaser, Attorney replied 7 years ago
socrateaser
socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 39,498
Experience: Attorney and Real Estate Broker -- Retired
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Can I be expected to work without pay?

 

A: No -- that would be involuntary servitude, under the U.S. Constitution, 13th Amendment -- which is beyond the powers of any U.S. Court to order (except in a public emergency).

 

If I resign so I can look for work without breaking my fiduciary duty, will I become inelligible for unemployemnt benefits?

 

A: You state that you are on the "board of directors." Directors are not employees of a corporation -- only officers are. If you are a corporation employee or officer, then you can resign your job, and continue as a director -- so, there would be no breach of fiduciary.

 

Hope this helps.

 

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Customer reply replied 7 years ago
Thank you. I am an officer of the company. My main concern is breaching fiduciary duty by looking for work elsewhere within the industry, while I am still employed, even though I'm awaiting the courts decision on whether or not I will be paid. Of course, I don't want to risk losing unemployment insurance if I resign in order to maintain my fiduciary responsibility.
I feel as if I am trapped in a no win situation.
Does my position as an officer change my obligations?
Bankruptcy Lawyer: socrateaser, Attorney replied 7 years ago

It's actually your duty of loyalty that would be at issue -- not your fiduciary obligations. Regardless, unless your employment contract states that you will not resign, which once again, would be unenforceable as involuntary servitude, then you are free to terminate your employment "at will." And, as soon as you do, you no longer have a duty of loyalty.

 

Seeking new employment while remaining employed would be more likely to implicate your duties to the corporation, than would your resigning first.

 

I could be wrong, but I'm not seeing a problem in your resignation here.

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Customer reply replied 7 years ago
Agreed, but my understanding is that if I resign I would lose unemployment insurance, which is a large risk to take without having another job to go to in this economic environment. Am I correct in this assumption? Or would the fact that I'm not being paid constitute reason enough to allow me to claim unemployment. Would it be best to just apply for unemployment without resignation (in essence assume that because I'm not being paid I am laid off), or resign first then try to claim unemployment?
Bankruptcy Lawyer: socrateaser, Attorney replied 7 years ago

Re unemployment benefits, there is no Michigan appellate case law on point with your facts.

 

In Warren v. Caro Community Hospital, 457 Mich. 361, 579 N.W.2d 343 (Mich. 05/19/1998), the Michigan Supreme Court writes:

 

  • ...we continue to hold that whether a person is entitled to unemployment benefits is a two-part inquiry. Under the first prong, we must determine whether plaintiff voluntarily left her position. If we find that she left her position involuntarily, the inquiry ends and she is entitled to unemployment compensation. Whether a person left voluntarily will depend on the particular facts and circumstances of the case. However, if the court finds that plaintiff left her position voluntarily, we must advance to prong two to determine whether her leaving was "without good cause attributable to the employer."

You are currently unemployed, because you are not being compensated for your labor. Your unemploment is involuntary, because you have not caused your nonpayment of wages. If the bankruptcy court is likely to ultimately approve your back wages, then that could be a mitigating factor weighing against your right to unemployment benefits, because it would mean that you were entitled to be paid -- you just had to wait to receive the payment

 

Conversely, federal law doesn't require employees to work without compensation -- to the contrary, the Fair Labor Standards Act requires that employees must be compensanted at least at the minimum wage.

 

The botXXXXX XXXXXne here is that I cannot give you a definitive answer about UI benefit rights associated with a bankruptcy court's approval of insider wages and the insider's temporary nonreceipt during the pendency of the bankruptcy action, because the issue, as far as I can tell, has not been litigated in the jurisdiction. I doubt that the DLEG uemployment office can tell you how it would rule, though you can certainly contact them and ask someone what he/she thinks. After that, you'll have to pick a course and then follow it.

 

For me, my decision would be based upon the likelihood of my being awarded back pay. If yes, I would probably stay, because the back pay will exceed the UI benefits.

 

An insider's right to wages during Chapter 11 is based on whether or not the compensation is "overly generous." In my view, if the business is ongoing and capable of coming out of Chapter 11, the that suggests to me that you will eventually be paid -- which suggests that resigning may be counterproductive.

 

Hope this helps.

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