When a Business Goes Bankrupt, Employees do not Lose Unpaid Wages – California Labor and Employment Attorneys Blumenthal, Nordrehaug & Bhowmik

by Norman B. Blumenthal on October 18, 2012

While the number of small business bankruptcies has decreased across the nation, business bankruptcies still occur.  And when it happens, one of the first questions employees ask is “Will I get paid?”

Under the federal Labor Standards Act (FLSA), employers, including California employers, are required to pay their employees all wages earned.  Any unpaid wages are still the liability of the employer.  Additionally, under Section 507 of the Bankruptcy Code, an employee has an unsecured claim against an employer up to $10,950 for any wages, salaries, or commissions, including vacation, severance, and sick leave pay, earned within the earlier of 180 days before the bankruptcy filing or the cessation of the debtor’s business.

Furthermore, in 2009, the 9th Circuit Court of Appeals held in Boucher v Shaw that when a business has no assets to pay unpaid wages, the FLSA definition of an “employer” should be “given an expansive interpretation in order to effectuate the FLSA’s broad remedial purposes.  This allows employees to sue a bankrupt company’s executive for any unpaid wages if the executive exercised economic or key control over the employment relation.  Boucher v Shaw, 572 F. 3d 1087 - Court of Appeals, 9th Circuit, 2009.

Blumenthal, Nordrehaug & Bhowmik is a California labor and employment law firm that represents California employees with wage and hour claims against their current or former employer.  If you feel your California employer is violating FLSA and/or California wage statutes, contact Blumenthal, Nordrehaug & Bhowmik for a free confidential consultation by calling (800) 568-8020.

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