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Is My Employer Another Enron?

Members of the ISP-Tech list talk about the trouble of dealing with a bankrupt employer. If the paychecks stop coming, it's wise to act immediately, as those who did not learned an expensive lesson.

[March 4, 2002]

On the ISP-Tech list in February, IH queried,

"The company I worked for is on the way out. I have a couple of paychecks in hand, but I haven't been able to cash them because the company doesn't have the money. And there are other paychecks I don't even have yet. With all the recent startup failures, does anyone have any advice regarding this scenario? What works and what doesn't?"

A number of respondents suggested heading straight to the bank:

[GG advised] "Deposit the checks in a checking account. When the bank returns them, take them to the Sheriff's Department, and have them collect the checks for you. As far as outstanding amounts that you do not have checks for, you will likely have to sue them for those wages, but talk to the local DA first, as he may be able to pursue the matter as a fraud case and recover the money for you."

[JL agreed] "Deposit them. Those checks represent a legally collectable debt owed to you. Knowingly writing checks on an account with insufficient funds is fraud, although you may have to take them to small claims court to collect."

Others explained that the company's officers may be liable for the funds:

[BB noted] "I believe, depending on the jurisdiction you are in, that there is also a law stating that officers of the company are personally liable for unpaid wages. First, though, get your hands on all the checks, and put them through your account. Then, contact your Labor Relations Board and consult with your lawyer to ensure that the officers can be held personally liable. Then file small claims suits, individual ones for each check, and then call the police. The first things to do are to get all the checks they owe you, and to call a lawyer."

[JL agreed] "Depending upon how the company was structured and the laws in your jurisdiction, if your former employer is now bankrupt, its officers may be personally liable for the debt due you. If in doubt, discuss this with an officer of your bank."

[SS observed] "If a company issues a check that they know is bad, they are breaking criminal law. Once it's out of their hands, if you deposit it, they have to honor it. You may want to talk to the District Attorney in the city where you live and discuss this further."

LM warned, though, that it's still unlikely the money will ever appear:

"Don't get your hopes up. I personally went through this last year. I have not gotten one cent, and I doubt I ever will. I have written it off as an expensive lesson in business and bankruptcy laws. If you are an employee, you are 'behind' secured creditors when it comes to who gets the money from a bankrupt company. Also, depending on the state, there is a maximum on the amount of unpaid wages they have to pay you. In North Carolina, it's $4,650 in wages, salaries, or commissions. Just make sure you don't waste time and money trying to get blood from a stone: if the company is broke and leveraged to the hilt, there may be nothing left for the employees."

— End