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Oct13
PTO and Bankruptcy

The following is not meant to be legal advice.

 

If a company were about to file for bankruptcy, what happens to the accrued paid time off of its employees?  Usually, paid time off is an item that needs to be paid first.  Bankruptcy attorneys normally advise that each employee is limited to $10,000 in the event of bankruptcy, and the amount for paid time off is included in the $10,000.

For an executive who has a change of control separation agreement where he may get several months of severance, he/she may not like the idea of bankruptcy because his severance amount may exceed $10,000.  However, some executives who have gone through bankruptcy, such as a particular former CFO of a technology company in Oakland, CA, may boast that there are huge payoffs by staying to the end when a company files for bankruptcy.  People may wonder what is meant by the huge payoffs, but further research into bankruptcy laws will tell.  Though, in 2005 the laws were changed to minimize the occurrence of the payoffs.


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