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Work & Careers | Q & A | SHOP TALK

September 22, 1996

Legal Issues: Lawyers answer your questions about problems in the workplace. This week: Does employer in Chapter 11 have to pay workers? Shop Talk

Firm in Chapter 11 Owes You Money? Get in Line Q. I was recently terminated after my employer filed for Chapter 11 bankruptcy reorganization.

About 40% of the work force was terminated in the middle of a pay period. When everyone was let go, there was no severance, earned or accrued vacation, nor was there regular pay for time worked. The human resource manager told everyone that he or she would have to petition the courts to receive anything. After challenging the manager's statements, one worker was told, "So sue us."

My personal problem is that I had a severance agreement, signed by the chief financial officer, that included eight weeks earned and accrued vacation plus four months' salary. When I left, I was told that the agreement and my last two weeks' salary would be turned over to the courts.

I have contacted a number of state and federal agencies as well as an attorney, and I have been told that neither state labor officials, the federal Equal Employment Opportunity Commission nor any other state or federal agency can assist in recovering what is due me.

Is there anyone out there that supports "the little people" against corporations that trash their employees? I was with this company for 14 years.

--G.P., Westminster


A. Your claim does not disappear simply because your employer filed for bankruptcy protection. It means that you must get in line with other creditors.

Your claim for wages of up to $2,000 will be given priority over those of general creditors if the money was earned during the 90-day period before the bankruptcy was filed. But a claim for severance or wages exceeding $2,000 would be grouped with claims of other creditors. This priority-setting determines who gets paid first from the available money of the corporation. It also might affect what percentage of your claim is ultimately paid and the timing of it.

It is surprising that you were told the state labor commissioner could not help you. That office has handled such claims in the past.

But you have other options. You could file a claim with the Bankruptcy Court yourself. You should have been named as a creditor and received certain documents to make a claim. It is not too difficult to fill them out and send them in.

You also could consider a fraud action against the officers of the corporation. It has a legal obligation to pay employees on time. Officers also may face a personal liability if they lied to you about wages that should have been paid. It's conceivable that you might recover your lost wages plus additional sums to compensate you for your distress over the situation and to punish officers for any wrongdoing.

--Don D. Sessions

Employee rights attorney

Universal City

Determining Whom You Work For Q. I work for a firm that has a government contract. Our offices are located in those of a government agency and the agency makes all the decisions for our firm. We are even encouraged to tell our clients that we work for this agency.

It is my understanding that the employees of the government agency cannot be fired except "for cause," whereas we have been reminded that we can be fired "at will." Since the government agency makes all employment decisions for our firm, has our employment status changed?

--N.I., Los Angeles


A. The answer depends on whether the government agency is really making all the employment decisions for your company involving such areas as specific hiring, compensation, discipline and termination. If so, you may be subject to the "due process" requirement set forth in the 5th and 14th amendments of the U.S. Constitution, which provide that no person shall be deprived of any property right (a job is usually considered a property right) without due process of law.

In the employment context, this is tantamount to saying that an employee may not be fired without "just cause." Private sector employers, by contrast, may ordinarily specify that their employees are employed "at will."

Whether the government agency is truly acting as your employer is not clear, however. If the agency just dictates to your company how and when specific tasks are to be performed but it is up to your company how they are carried out, then the agency would probably not be considered your employer.

Did the job application you completed list your company or the government agency as your employer? Were you hired by a representative of the company or a representative of the agency? Did you receive an employee manual stating that either the company or the agency is your employer? If you have received promotions, raises or reassignments, were you notified by a representative of the company or of the agency? When employees are fired, are they fired by an official of the company or of the agency?

The answers to these questions would help determine your employer.

--James J. McDonald Jr.

Attorney, Fisher & Phillips

Labor law instructor, UC Irvine

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