A Guide to Employee Rights When a Company Closes Down

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If you lose your job due to a business closure, there are many federal and state laws that protect the rights of laid-off or laid-off employees. Organizations may also have their own independent policies and regulations regarding these processes. Understanding your federal, state, and contractual rights as an employee during a business closure can help you stay informed and prepared for the next steps in your career. In this article, we discuss what happens when closing a business, what types of rights you have, and provide a list of employee rights when closing a business.

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If a business is to close, several steps are necessary to ensure the success of the processes. These steps include notifying employees, distributing final paychecks, and providing staff with departure documents. Business owners may also be responsible for clearing the building of all business related items, finalizing leases or rental agreements, and terminating business licenses. In the weeks or months leading up to the shutdown, staff in every department of a business can go through processes to transfer or close current accounts receivable, file termination documents, and prepare for the next step in their careers.

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What are the types of employee rights?

When a business closes, employees have access to several rights that protect their income, insurance coverage and employment status. These rights may arise from federal mandates or from internal policies and contracts. Employees can receive rights during a business closure from the following resources:

  • Contractual rights: Contractual rights arise from individual contracts. Employees covered by a trade union or collective agreement may benefit from protection against the terms of these contracts in the event of dismissal due to the closure of a business.
  • Company policy: Employees may have rights covered by company policies and regulations. These rights may include an extension of employee benefit programs, severance pay, or written notice of business closure.
  • Statutory rights: Statutory rights are protective measures mandated by the federal or state government. Employees are legally entitled to certain resources in the event of a business closure, including unemployment benefits and government assistance.

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What are the rights of my employees in the event of a business closure?

Below is a list of employee rights in the event of a business closure:

Latest paychecks

If you have lost your job due to a business closure, you have the right to receive your last paycheck by the deadline set by your state government. The time to receive your last paycheck may vary depending on the state you live in, but could be as early as your last day on the job. In some states, your employer may have until the next regular pay date to deliver your last paycheck. In many states, employers must include all of your accrued and unused vacation days, sick days, and paid time off on your last paycheck.

Severance pay

Severance pay is a predetermined salary that you can receive after being fired or laid off due to a business closure. The amount and length of time you can receive severance pay often vary depending on your employer’s policies and your individual employment contract. Generally, severance pay is at the discretion of your employer and is not included in federal or state regulations. However, in the event of collective redundancies, including in the event of a business closure, some states require severance pay for all affected employees.

Related: Guide to severance pay for laid-off employees

Health benefits

If you are enrolled in your employer’s health care benefits, you may have the legal right to continue to receive coverage for at least 18 months after the business has closed. A federal law called the Consolidated Omnibus Budget Reconciliation Act (COBRA) can provide you with legal access to your workplace insurance policy for a period of time after your employment ends. COBRA also applies to any dependents you may have who also have coverage. At the federal level, COBRA applies to businesses with more than 20 employees, but states may have independent laws that extend to small organizations.

Stop Notice

The federally mandated Worker Adjustment and Retraining Notification (WARN) law requires employers to give at least 60 days’ notice to their affected employees in the event of a business closure or mass layoff. If an employer fails to provide you with this notice, you can collect wages and benefits for each day of non-notice. WARN applies to organizations with 100 or more employees. However, there are a few exceptions to the 60-day notice period, including:

  • Closure for strike or lockout
  • A natural disaster such as a hurricane, flood or pandemic
  • Business circumstances that were not reasonably foreseeable

Unemployment insurance

If you have lost your job due to a business closure, you are eligible and entitled to unemployment insurance. Unemployment insurance is a predetermined weekly benefit that helps you while you look for another job. In order to apply for Unemployment Insurance benefits, you can visit the US Department of Labor’s information page which describes eligibility requirements by state and tells you the next steps to apply. Unemployment is open to all employees who have not voluntarily terminated their employment. This includes those who have lost their jobs due to company-wide closures.

Employment assistance

Although this is not a federal requirement, some employers will offer employment assistance in the event of a business closure. This can include helping you contact an employment agency, paying a recruiting agency to help you, or recommending you to their affiliates. If your employer offers employment assistance in the event of a business closure, the conditions are likely to be found in your letter of offer, departure agreement or employment contract.

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