Does Economic Hardship Supersede Honoring Employee Contracts?

On Behalf of | Apr 16, 2021 | Severance Agreements

Recently, your employer revealed its financial hardship and thoughts about declaring bankruptcy. You understand the events put your employment contract in jeopardy, but does your company have the right to break your agreement?

Chron explains what happens to employment agreements when a company experiences financial trouble. Determine if you may have a potential breach of contract or wrongful termination suit.

Agreement type

Look carefully over the contract you signed with your company. Does it designate you as an at-will employee or a contract employee? If you signed an employment contract, it may include a minimum employment period and terms of termination. With at-will agreements, companies may terminate employees for any non-discriminatory reason.

Claiming bankruptcy

If your employer follows through with filing bankruptcy, whether it must honor your agreement depends on the bankruptcy type. With Chapter 7 bankruptcy, companies do not have to honor employment contracts. Should the company reorganize its finances under Chapter 11, you may work with a professional to protect your agreement during restructuring.

Negotiation table

You may see if you have the option to renegotiate your current contract. Your employer may prefer to invest time and energy in coming to a new agreement rather than face potential legal action. Companies may strongly consider this option if it saves them money.

Legal action

If you consider suing, you may only receive enough damages to compensate you for the original salary agreed upon in the existing agreement. You may feel your company bears guilt for wrongful termination, but limits exist for the amount of damages you may receive.

Being well-informed about your options may dampen your anxiety and frustration regarding your future. Do not let your company get away with violating your rights or contract.