Working End > Insolvency > Consequences for the Employee

Insolvency: Consequences for the Employee

Definition, Explanation

As soon as bankruptcy proceedings are opened, this will have consequences for the employee. However, employment, at first, will persist. Even in cases of bankruptcy, employment contracts must be cancelled in order to be ended.

If an insolvency practitioner takes over the management of a company, he adopts the role of the employer. Only in exceptional cases, the debtor is allowed to remain in office, if the bankruptcy court orders such, with the creditors agreeing.

As long as employment persists, the employer is obliged to pay contributions of social insurances (health, pension and unemployment insurance). In case of exemption until cease of employment in due time, accident insurance contributions will drop.

In case of insolvency, cancellation periods are generally 3 months, from the end of the current month, unless shorter periods have been contracted. No dismissal for operational reasons can be done once the bankrupty proceedings have been opened. For that, there must be given a court order to close down the company.

Pending vacation remains free to be taken after bankruptcy proceedings have been opened. The insolvency practitioner can grant such vacation. Vacation money must be paid out of the insolvency assets. If the vacation cannot be taken before the end of the employment, a compensation will be paid from the insolvency assets. In such cases, the vacation money is taken pro-rata out of the total assets.

In case of sickness, regulations are as usual. Employees receive continued payment for as long as 6 weeks, after that they receive sickness benefit, which is all only until cancellation.

If your employer files for bankruptcy while you are on parental leave, the social-insured employment will at first persist. If there is a legal successor, or the company is restored, you will be entitled to re-employment. According to dismissal protection regulations, employees must not be dismissed 8 weeks in advance to a parental, nor during the parental leave. That special dismissal protection can be dropped, though, in case of bankruptcy, by the prime employment protection authority.

The same goes for dismissal protection of pregnant employees, from the beginning of pregnancy until four full calendar months after birth: however, if the labour inspectorate or the employment protection authority allow an application for dismissal during pregnancy, then dismissal is legal.

Tips, Checklist

• Get a full copy of the bankruptcy court order. In it, you can check the remit of the insolvency practitioner. Can he, e.g., exempt employees, or instruct working-orders, or perform dismissals - or is such authority reserved to the former employer?
• As an employee, apply for insolvency money, according to legal periods within two months after the adjudication order of bankruptcy proceedings
• Get exempt from work, or cease work in case the insolvency practitioner is not paying your wage
• Go on vacation before you get dismissed
• If you are on parental leave, contact the insolvency practitioner and claim your possible re-employment
• Check, together with your works council, whether requirements for operatinally-conditioned dismissal are met
• Ask your works council or insolvency practitioner in how far a reconcilement of interests with list of names is being agreed, or a social programme exists
• In an after-bankruptcy social programme, compensations agreed can be maximum 2 1/2 month's remunerations, and must not exceed a third of the total assets
• Inform your insolvency practitioner or your new employer within 2 weeks after bing notified about your dismissal, that you ar under special dismissal protection - if so. That is during pregnancy, parental leave or for severely disabled
• As an employer, make sure to get applications for dismissals allowed by the employment protection authority, which is required for the dismissing of employees on parental leave or severely disabled employees

Last update: 06/17/2010