![handle is hein.crs/govzkg0001 and id is 1 raw text is:
Making it a Priority: What Happens to
Employee Claims When a Business Declares
Bankruptcy?
April 16, 2019
Workers are not immune from their employer's financial difficulties. Troubled companies commonly
downsize their workforce, cut wages, and curtail employee benefits. Businesses on the brink of collapse
may also lack the funds necessary to pay compensation and benefits that employees have already earned.
Companies in particularly dire financial straits may ultimately declare bankruptcy to restructure their
obligations or liquidate the business. Individuals employed by such companies face a significant risk of
loss of employment or reduced wages or benefits.
In part because of the risks that an employer's bankruptcy creates for its employees, the federal
Bankruptcy Code contains multiple provisions intended to protect a debtor's workers. For instance,
Congress has created statutory protections for collective bargaining agreements and retiree benefits that
apply in certain business bankruptcy cases. Of particular relevance here, the Bankruptcy Code also grants
certain employee claims priority status, thereby entitling covered employees to more favorable
treatment than some-but not all-of the other interested parties in the bankruptcy case.
Commentators have debated whether current law provide[s] too little protection for employees. Some
advocates have encouraged Congress to add additional worker protections to the Bankruptcy Code.
Several Members of recent Congresses have introduced legislation proposing to amend the Bankruptcy
Code's priority hierarchy to afford workers more favorable treatment in the bankruptcy process. Others,
however, argue that increasing protections for such employees would make it harder for debtors to satisfy
the necessary prerequisites for reorganizing their businesses through bankruptcy. Opponents contend that
amending the Bankruptcy Code to further favor workers could have the unintended consequence of
forcing more companies to shutter their businesses completely-an outcome diametrically opposed to the
goal of increasing job security and financial stability.
To provide context to this policy debate, this Sidebar discusses the legal issues implicated by proposals to
modify the Bankruptcy Code's priority scheme with respect to employee claims. After providing a
general overview of existing federal law governing bankrupt businesses, the Sidebar then explains how
current bankruptcy law treats various categories of creditors. In particular, the Sidebar focuses on (1) the
ways in which the Bankruptcy Code affords different levels of priority treatment to certain types of claims
Congressional Research Service
https://crsreports.congress.gov
LSB10288
CRS Legal Sidebar
Prepared for Members and
Committees of Congress](ViewImageLocal?handle=hein.crs/govzkg0001&div=1&collection=&method=preview&ext=.png&size=3)
What Is HeinOnline?
Contact us for annual subscription options:
Already a HeinOnline Subscriber?
profiles profiles most
Contact us for annual subscription options:
Already a HeinOnline Subscriber?
profiles profiles most
Contact us for annual subscription options:
Already a HeinOnline Subscriber?
profiles profiles most