What Happens to Employees When Their Company Goes Bankrupt, and They Are Members of a Labor Union

The bankruptcy of a company, whether unionized or not, can have significant impacts on employees. However, the situation for union members can be somewhat different due to the protections and benefits provided by their union.

Unions and Bankruptcy

Unionized employees face the same basic uncertainties as non-union employees when facing the possibility of their company going bankrupt. Whether a business ceases operations or is restructured, union employees are typically laid off alongside non-union colleagues. However, unions can offer additional protections beyond those granted by law.

Bankruptcy Process and Unemployment Protections

In many cases, if a company is undergoing bankruptcy, its operations may continue. For instance, a business might file under Chapter 11 of the U.S. Bankruptcy Code, which allows for reorganization, or under Chapter 7, which leads to liquidation. During bankruptcy proceedings, union employees might continue to work as the business attempts to regain profitability. Even if the company closes its doors, union employees are often entitled to certain protections beyond those provided to non-union employees.

Employment Benefits and Liquidation

When a company closes and goes into bankruptcy, employees, both union and non-union, become unemployed. The union member might receive additional benefits during their period of unemployment, such as unemployment insurance, or other financial assistance provided by the union. In addition, the union can ensure that employee claims are filed collectively, representing a class of workers who may have similar claims for unpaid wages, benefits, and other damages.

Legal Protections and the Indian Insolvency and Bankruptcy Code (IBC 2016)

When it comes to labor law protections in cases of bankruptcy, certain legal frameworks can provide specific protections to employees. In India, the Insolvency and Bankruptcy Code (IBC 2016) has been implemented to address these issues. According to this law, unpaid wages up to two years are typically protected, along with provident fund contributions, if they are kept in a separate fund. Gratuity, which is a form of severance pay, can be a more complex issue as the exact rules are being debated in the Supreme Court.

Claim Filing and Resolution Process

In insolvency proceedings, employees are required to file claims for their unpaid wages, provident fund contributions, and gratuity in a specific format provided by the resolution professional (RP) or liquidator. Often, the bankruptcy process is time-bound, and it may take up to one to two years to reach a conclusion, especially if there are disputes or litigation. The union can play a crucial role in ensuring that all claims are filed correctly and represented effectively.

For union employees, the support of their union in navigating the complexities of bankruptcy and ensuring that all legal protections are enforced can make a significant difference. Unions can offer guidance, representation, and collective bargaining to help their members during these challenging times.

Conclusion

In the face of company bankruptcy, union members can benefit from additional protections and support, but the specific outcome depends on the nature of the bankruptcy and the applicable laws. Understanding these protections and actively participating in the claim-filing process can help employees minimize their financial impact.