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How to inform employees about the business' bankruptcy

When business owners struggle under debt, their primary concern is often the survival of the business itself. That is also the first factor they consider when debating which chapter of bankruptcy to file. 

However, just as with running a business, there are several other considerations that business owners must make when filing bankruptcy. One of those issues that many might want to avoid is telling their employees about the bankruptcy. 

Here are some essential tips for how California business owners can approach this difficult conversation.

1. Be honest

This is the best strategy business owners can use when telling employees about their bankruptcy. 

Of course, employees do not need to know all of the details about the bankruptcy filing. However, it does still impact them significantly. For example, it might not be necessary to lay off all employees if a business files Chapter 11 bankruptcy, but it is often required in a Chapter 7 filing that closes the business.

Maintaining open and honest communication with employees throughout the entire process can help them prepare themselves financially.

2. Ensure their rights are protected

When businesses file Chapter 7 bankruptcy, they will likely have to close their doors. And that usually means laying off employees.

Hearing this can leave employees feeling anxious and fearful about their future. However, regardless of the chapter that businesses file, business owners must understand what rights employees have during bankruptcy

For example, employers must:

  • Provide employees with enough notice of the bankruptcy
  • Pay employees the wages they earned
  • Protect employee retirement plans, which are protected by ERISA
  • Provide a severance package and adhere to that promise

Business owners might have to terminate some employment insurance plans to help repay loans. But it might be beneficial for business owners to review employees' rights in these situations.

3. Reassure them about plans for recovery and support

Most business owners value their employees, just as much as employees value their position at the business. And it is possible--and important--to maintain that professional relationship during bankruptcy.

Business owners can continue to foster that relationship by offering recommendations or support to their employees as they search for work.

Communicating with employees during a bankruptcy filing might not be one of a business owner's top priorities, but it is critical to ensure they protect their employees during this process as well to avoid further legal issues. 

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