Paychecks bounced, then employer filed for bankruptcy

UPDATED: Sep 30, 2022

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Paychecks bounced, then employer filed for bankruptcy

This is a fluid situation that changes by the hour. About 2 weeks ago, everyone’s paycheck bounced. We work for a small business, approximately 12 employees. Employer promised to make everyone whole but didn’t. Most employees were hit with multiple bank fees and overdrafts. This week, there were no paychecks at all. The owner paid some employees a portion in cash, however not all employees. Owner announced he is or already has filed for bankruptcy protection he said Chapter 13 but now apparently Chapter 7, not clear yet. He said he is closing the business entirely and plans to re-open under the same name using his parents as new owners. Meanwhile, the construction work has continued uninterrupted. He expects his employees to keep working on the promise that they’ll be paid once the jobs are finished, however now wants all employees to become subcontractors who must carry their own licensing and liability insurance.Is any of this legal? Will we ever get paid? Can he continue the jobs without paying his employees?

Asked on February 10, 2017 under Employment Labor Law, Pennsylvania


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 5 years ago | Contributor

1) Yes, he can continue the job without paying the employees. Employees' claims against him have nothing to do with the relationship between him and his clients. (Of course, if no one works for him because they are not being paid, that could certainly cause problems.)
2) Going forward--i.e. in the future--he can shift from using employees to using subcontractors. (This is assuming that they *truly* are subcontractors, since if they don't actually qualify as subcontractors--and if they are doing the same things they were doing as employees, and are managed in the same way, they most likely do not--he will have to pay, provide benefits & insurance for, etc. them the same way he did when the acknowledged they were employees.) But that is about the future: it does not affect his obligations to pay for work done.
3) Employees who did work for which they were not paid could contact the state or federal departement(s) of labor to file wage and hour complaints; the agency(ies) may be able to help them. Or they can sue the employer for their money. If they sue, they can also seek reimbursement of costs they incurred directly traceable to his failure to pay, like NSF or overdraft fees.
He theoretically could file for bankruptcy, if he meets the criteria therefore. And if he does, that could certainly complicate collecting money from him. But that doesn't mean his employees should not try. And also, bankruptcy filings are public: if you go the website for your bankruptcy court, you should be able to determine if he has filed or not.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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