I work for a company which is behind on my salary.

The company might file for bankruptcy: how do I claim my salary before then?

This question is different from other postings. We are discussing how to get wages for employees before the company files for bankruptcy.

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    See a lawyer today. – Pete B. Dec 2 '19 at 11:19
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    Isn't it illegal for a company to not pay it's employees? – Rich Dec 2 '19 at 13:31
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    Illegal? Yes. Will you get paid? Not necessarily. That's why you don't work for someone that's behind on your salary. They can either run with the money or go bankrupt. The likelihood of recovering the owed salary is low, since salary is low on the totem pole of debtors. The banks usually get first dibs. – Nelson Dec 2 '19 at 13:44
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    RULE #1: You work for pay. If they are not paying you, then, unless you are a principle or an executive, you should NOT continue working for them. – RBarryYoung Dec 2 '19 at 14:21
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    Also check your local laws. Some places (e.g. California) an employer might be on the hook for more than just unpaid wages. In CA if your wages go unpaid for 2 months (60 days) then you can sue for an amount up to twice your currently owed wages (everything already reported, not just the amount that is 2 months outstanding). This CA law exists as a way to prevent startups from not-paying their employees and going bankrupt immediately in order to generate free labor. – Draco18s no longer trusts SE Dec 2 '19 at 21:23

When a company files for bankruptcy there is no guarantee that they will be able to satisfy any of their debts. Assuming chapter 7 bankruptcy, the employees with unpaid wages become creditors. Assets will be liquidated and creditors will be paid based on priority. Employees with unpaid wages are high on the priority list, but not always at the top. If the company has no/insufficient assets then those employees would go unpaid.

There's not much you can do to guarantee your pay. If you are still working for them hopefully that gives you some leverage. Something like, "I understand things are tight, but if you can pay me 80% of my back-pay now then I can keep working." You'd have to know how dire things are to know what is reasonable to ask for. Meanwhile you should definitely be seeking other employment. Even if they do pay you, I'd seek other employment. If you aren't still working for them or they have absolutely no cash on hand, then likely you'll either be out of luck or have to wait for the dust to settle in bankruptcy.

An attorney could be worthwhile here, there are instances where the owner of the company can be held liable, but you can't squeeze blood from a turnip.

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    Once a company begins the bankruptcy process, it is illegal for them to make any special considerations like those mentioned above for already outstanding debt (including employee's pay for time they have already worked). Debts going forward (such as for the time that they are working now and in the near future) can receive special consideration, but this has to be negotiated and confirmed with legal notices. – RBarryYoung Dec 2 '19 at 14:35
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    @RBarryYoung Good point, my wording could have been more clear in that section. – Hart CO Dec 2 '19 at 14:38
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    @Sam Generally speaking, the only things higher on the list than unpaid employee wages are: secured debts (which virtually always get priority over everything), and debts that are required to continue operation (if the company is continuing to limp along; less likely in a Chapter 7 scenario than a 11). If a vital supplier will cut off supplying a company if it does not get paid, the trustee/bankruptcy courts will often find that a higher priority. Little else has priority over employees. – Michael W. Dec 2 '19 at 18:34
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    @Sam Why would a company NOT claim employees as creditors? Employees are owed money by the company. That is literally the entire definition. "Creditor: a person or company to whom money is owed." – Michael Richardson Dec 2 '19 at 20:46
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    @Harper-ReinstateMonica If it was post-bankruptcy filing, perhaps, but then OP wouldn't still be working for them. It's perfectly reasonable to negotiate payment of back-wages to continue working while the company exists. Post-bankruptcy filing, once they are a creditor, they basically just get in line and hope. I could have edited for clarity but felt like RBarry's comment was sufficient. – Hart CO Dec 2 '19 at 23:34

Contact the state government. They should have the equivalent of the Federal Department of labor. The state has laws regarding how quickly employees should be paid. They can contact the employer. Of course forcing them to pay employees, could force them into bankruptcy earlier.

Make sure that you are an employee. Have they been withholding taxes and FICA? did you fill out a W-4 form? Keep in mind that if they have been missing payroll, they also might not have sent the money to the government that they withheld from earlier checks.

You have to decide if continuing to work but not getting paid is sustainable for you.

  • Employee is probably not hurt if business fails to pay over withholding. As long as the trustee can produce a W-2 from the books, or you have good documentation for a 4852, you get credit for the withholding even if it wasn't actually paid in. And in this case, unlike most debts, IRS can collect from (some) company officers personally -- google Trust Fund Recovery Penalty. But even if IRS can't collect, you still get credit. This is unlike withholding on payments to foreigners (on 1042-S), which IRS credits only if actually paid in. NTA Olson was fighting that before she retired. – dave_thompson_085 Dec 4 '19 at 10:20

In addition to very nice and qualitative @Hart CO answer I would like to add, that after becoming a creditor (when company's asset's is not enough to re-pay your salary) your rights as creditor may be defended in court. Court may issue additional orders obligating bankrupted company or other legal entities to pay your missing salary ASAP. In addition to that it depends on exact country too. Some countries may have additional government state funds to help to return money back to employees which companies can't do that. Usually such state funds will not repay full missing salary over period, but only part of it. But still it's better than nothing at all. Btw, some countries may have additional compensation package in state funds in addition to paying missing salary for an employee. So in these cases it may be even more profitable to wait for a company bankruptcy procedure end, instead of leaving job faster !

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    Are you sure about this? I thought the whole point of incorporation was that the company is a separate legal entity and the owners are not personally responsible for its debts? – David Richerby Dec 3 '19 at 9:24
  • i'm sure that creditor rights can be defended in court. How & What orders court will issue is a separate discussion, which is not the point here. I agree that at most basic sense owners are different legal entities. However I can speculate that on some edge cases court can still transfer responsibility to owners. For example if court will detect company money large laundering operations (company money transferred to owners account(s) without legal reasons and used after for personal purposes). In such cases court may force owner responsibility – Agnius Vasiliauskas Dec 3 '19 at 9:53
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    Sure, if, for example, the company transfers all its assets to somebody and then declares bankruptcy, that’s obviously fraud and the courts will act appropriately. But there’s no suggestion in the question that anything like that might have happened. In the ordinary case where a business goes bankrupt because everybody is acting legitimately but not well enough to keep the business going, I don’t think the shareholders have any liability at all. Their loss is that the shares they paid actual money for are now worth literally nothing. – David Richerby Dec 3 '19 at 10:53
  • Anyway, it's not the main point of post. Better concentrate on the rest part. The main point was that court WILL defend creditor rights. And that's all. – Agnius Vasiliauskas Dec 3 '19 at 11:05
  • I would replace "shareholders" with "company officers". Company officers can be held liable under some specific circumstances. – Stephan Branczyk Dec 3 '19 at 11:58

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