Paige Melendez
Dallas Employment Lawyer Paige Melendez

When a company files for bankruptcy, the media plasters photos of their “going out of business” signs and empty storefronts to announce that the company could be no more. What is not shown is the complex, often long process of actually filing for bankruptcy. Filing for bankruptcy also comes in different flavors and different factors may help employees’ situations. To give a general idea of how bankruptcy affects employees, below we’ll look at the types of bankruptcy as well as examine the additional factors that may change the outcomes for employees. All in all, the announcement of bankruptcy can be terrifying for any employee that is currently employed by that company, but by learning more about the process it can help employees make more informed decisions. 

Beginning with types of bankruptcy, if a company files under Chapter 11, it means that the company may attempt to reorganize and continue operating under court supervision. In this case, the company may have to make difficult decisions such as reducing its workforce, closing unprofitable departments, or renegotiating contracts with suppliers and creditors. The company may also be able to negotiate with labor unions to reduce salaries or benefits temporarily. However, in some cases, employees may be able to keep their jobs or be rehired once the company emerges from bankruptcy. 

Another potential filing is under Chapter 7 or where a company is liquidated. Liquidation means that a business’ assets will be sold to pay off its creditors. In this case, employees will likely lose their jobs, and the bankruptcy trustee will use the proceeds from the asset sales to pay any outstanding wages and benefits owed to them. This situation is not ideal, but there’s still another option.

The third option entails a company being sold. In these cases, a bankrupt company may be sold to a new owner who will continue operating the business. In this scenario, the new owner may choose to retain some or all the existing employees or may offer them new contracts with different terms and conditions.

Moving on to specific factors that may come into play, the size of the company can make a difference. For larger companies, there may be more resources available for restructuring or finding a buyer, which could increase the chances of employees being able to keep their jobs or finding new employment opportunities. Conversely, smaller companies may not have as much leverage, and may be more likely to go out of business entirely.

The industry that the company operates in can also play a role. For example, if the company is in a declining industry or one that is particularly affected by economic downturns, it may be more difficult for employees to find new jobs quickly. On the other hand, if the company is in a growing industry with high demand for workers, affected employees may have more options.

Finally, the legal framework in the jurisdiction where the company is based can impact what happens to employees. For example, some countries have stronger labor protections that can make it more difficult for companies to lay off employees or reduce their benefits. Similarly, some countries may have more generous social safety nets that can help mitigate the impact of job loss.

Overall, when a company files for bankruptcy, it is a complex and difficult situation for employees, but employees do not have to go down with the ship. Instead, employees can consider resources available to help affected workers navigate this challenging time including unemployment benefits, job training programs, and setting up a time to speak with a Dallas Employment Lawyer.