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What Happens To My Unpaid Wages If My Employer Files For Bankruptcy?

How does one collect unpaid wages when an employer goes bankrupt?

When the economy struggles and businesses fail, this is a problem any worker might face. It often involves losing one’s job and income simply because a business is insolvent, often from nobody’s fault.

Thankfully, there are ways to collect your remaining wages even after a bankruptcy occurs. Let’s find out how that works.

Chapter 7 Bankruptcy & Liquidation Rights

Unlike most of what we handle in employment law, the Fair Labor Standards Act (FLSA) doesn’t directly address what happens to employee wages when a company files for bankruptcy. The good news, however, is that a company’s wage earners are the second highest priority during bankruptcy liquidation, even ahead of preferred stockholders. While secured creditors get first dibs at a company’s liquidated assets, the law requires wage earners to receive their pay next.

What if Liquidation Isn’t Enough to Pay Employees?

Unfortunately, given the reality of many bankruptcy scenarios, there may not be enough money left in the company to satisfy all wages due employees. Again, since FLSA does not directly address bankruptcies, a business cannot pay wages if the business lacks the money to pay which may leave employees with little recourse.

The only other thing an employee can do is to petition the U.S. Bankruptcy Court with a “proof of claim.” This opens some transparency regarding how creditors received money during liquidation, and it checks on the legitimacy of the bankruptcy filing. It is illegal for companies to file bankruptcy solely to avoid paying wages. You should contact an employment attorney to discuss your legal options if your employer fails to pay you all wages due because of bankruptcy or if the employer claims lack of money.

When Do You Need an Attorney for Unpaid Wages?

Besides bankruptcy troubles, you may arrive at a point where you need to hire an attorney for unpaid wages. There are certain employer practices you should not tolerate because they are against the law.

Illegal Employer Pay Practices

  • Illegal Payroll Deductions
    • Some payroll deductions are legal, so we don’t want to make it seem like they should never happen. However, your employer generally cannot make payroll deductions without prior written consent and then those deductions cannot benefit the employer. In addition, most states require employers to reimburse employees for employment-related expenses such as cell phones, home printers, mileage, and other like expenses.
  • Job Misclassifications that Cause You to Lose Money
    • Does your company want you to become an assistant manager so that they can have you do the same job, work longer hours, and pay you a low salary? This is one of many illegal tactics that may lead to a lawsuit for lost wages.
  • Failure to Pay at Least the Federal Minimum Wage
    • Employers must compensate employees at least $7.25 an hour. This figure is higher in certain states. An employer must pay the highest applicable minimum wage.
  • Refusal to Pay Overtime Premiums
    • There are many ways employers try to dodge their obligation to pay overtime premiums. Unless your position is exempt from FLSA, employers must pay you at a rate of 1.5 times your regular rate of pay for any work exceeding 40 hours each week. This overtime rate must include all bonuses and shift differentials.
  • Not Paying You for Certain Meal Periods
    • Employers must compensate employees for meal periods unless the employer removes all work during the period and the employee does not perform any work during the meal period.

Rowdy Meeks Legal Group LLC Recovers Unpaid Wages for Employees

If you think you’ve been denied a just wage and need help, then the Rowdy Meeks Legal Group LLC is the first place you should turn. It’s often difficult to handle circumstances like these by yourself, which is why you need an employment attorney.

Contact us today to work with an employment lawyer who can help you recover unpaid wages including minimum wages and overtime pay.