When you file for business bankruptcy, you may have to inform your employees about it. This is often a tough process. Employees naturally worry about job security and benefits, and discussing the business’ probable future may be challenging. Still, clear and honest communication is essential during this difficult yet necessary step.
Your approach depends on what you file
Knowing the specific chapter you are filing under can help tailor your message. Businesses typically utilize Chapter 7 (liquidation bankruptcy) or Chapter 11 (reorganization bankruptcy).
In Chapter 7, you may need to sell assets to pay creditors. Operations usually cease, which means employee layoffs. Meanwhile, in Chapter 11, you may seek to restructure your debt and continue operating. While layoffs might still occur, it offers the possibility of keeping some or all of your employees.
Crafting the message
Here are some best practices when talking about bankruptcy to your employees:
- Explain the reasons why you decide to file for bankruptcy.
- Discuss how this decision may impact them regarding benefits, severance packages and others.
- Be transparent about what you know and do not make promises you cannot keep.
- Give them access to resources for unemployment benefits and health insurance continuation options.
- Consider offering outplacement services to help them find new jobs.
- Offer an opportunity to ask questions and address concerns.
The Worker Adjustment and Retraining Notification Act requires you to provide a written notice to affected employees within 60 days if your business has at least 100 employees and the filing leads to 50 or more layoffs. A bankruptcy filing alone does not necessarily trigger this notification requirement, but it is still crucial to note this.
It is usually best to discuss compliance requirements with an experienced bankruptcy attorney. They can guide you through the process and help minimize legal risks. Through this, you can have a conversation with your employees in a way that is both legal and compassionate.