HR’s Role During Bankruptcy: Preparing for the Worst

Chapter 13 Bankruptcy notice.

If your South Florida-based company is feeling the pressure of financial distress or facing the possibility of Chapter 11 or 7 bankruptcy, now is the time to act.

The nightmare begins when the CEO utters the word "bankruptcy." As VP of Human Resources (HR), facing financial turmoil can feel overwhelming, especially in South Florida’s regulatory environment. Bankruptcy isn’t just an abstract term; it's a very real situation with tangible consequences that could reshape your entire organization. With Chapter 11 or Chapter 7 looming, it’s critical to understand how each form impacts the company and, ultimately, your role in navigating the crisis.

This guide will help South Florida HR leaders take the right steps in each bankruptcy scenario while considering local regulations, like the WARN Act, EEOC laws, and the unique government notification requirements. Please remember that we are not lawyers and cannot provide legal counsel. Now, let’s break down the essentials:

Bankruptcy Chapter 11 : Reorganization

Chapter 11 enables the company to reorganize under court supervision while continuing to operate. But be prepared for potential layoffs. This is where HR becomes the backbone of the organization, ensuring all processes are legally compliant.

1. Go on a Hiring Freeze and Redistribute Tasks: Halt new hires immediately and redistribute tasks among existing staff. This ensures your company conserves cash flow during restructuring.

2. Pinpoint Problem Areas: Work closely with executive leadership to align restructuring with business objectives (e.g., cost reduction, efficacy.) Identify core operations by listing essential and non-essential roles. Then assess the the role’s contribution to the company’s core operations. Lastly, identify the financial impact by comparing the cost of the position to its contribution.

3. Layoff Determination: Consider tenure, performance, and job classification. Avoid criteria based on protected characteristics. To assist you in this process, download our Evaluating and Restructuring Positions worksheet that outlines the key considerations and steps to take.

Bankruptcy Chapter 7: Liquidation

If your company faces Chapter 7 bankruptcy, the business is essentially shutting down. As assets are sold to pay creditors, it's HR’s job to ensure a smooth transition while adhering to legal obligations.

1. Prepare for Layoffs:
   Restructuring often leads to layoffs. Design a legally compliant layoff process, including severance packages, outplacement services, and employee benefits.

2. Stay WARN Act Compliant:
   Ensure compliance with the Florida WARN Act, which mandates that companies with 100 or more employees must provide 60 days' notice to both employees and local government officials listed below.

   Under the WARN Act in South Florida, employers must notify the Florida State Rapid Response Coordinator, the local mayor (e.g., Daniella Levine Cava for Miami-Dade, Lamar P. Fisher for Broward, or Gregg Weiss for Palm Beach), and the local workforce boards (CareerSource South Florida, CareerSource Broward, or CareerSource Palm Beach County). Failure to comply can result in hefty fines and lawsuits. Download our easy-reference contact list: click here.

3. Support Employee Mental Health:
   Bankruptcy creates high stress. Provide resources like mental health programs and Employee Assistance Programs (EAPs) to help employees cope with uncertainty. Consider partnerships with local providers such as the South Florida Wellness Network or the Mental Health Association of Southeast Florida. Offering culturally relevant counseling options can be helpful, as many employees in South Florida come from diverse backgrounds.

4. Open and Honest Communication:
   Be transparent with employees about the bankruptcy process. Regular updates help reduce rumors and boost morale, keeping remaining staff engaged and focused.

5. Review Labor Agreements:
   Review and comply with employment contracts, union agreements, and EEOC laws. In South Florida, renegotiating terms may be required under Florida's Right-to-Work laws, federal bankruptcy laws, and local regulations like the Miami-Dade County Human Rights Ordinance

6. Prepare for Legal Issues:
   During bankruptcy, companies are at heightened risk for lawsuits. Work closely with legal counsel to ensure all employment decisions are compliant with local, state, and federal laws. This is especially critical in Florida, where labor laws are strictly enforced.

Prepare for the Worst, Protect the Future

Bankruptcy is never easy. However, with proper planning and strategic steps, HR can play a crucial role in minimizing damage and guiding the company through turbulent times. Whether you're preparing for potential layoffs or ensuring compliance with WARN notices, EEOC guidelines, and state-specific regulations, your actions will shape how smoothly the company navigates bankruptcy.

If your South Florida-based company is feeling the pressure of financial distress or facing the possibility of Chapter 11 or 7 bankruptcy, now is the time to act. As a consulting company, we provide guidance and assistance to businesses during corporate restructures, downsizing, mergers and acquisitions, and liquidations, focusing on the effective disposition of employees. Book a consultation today to ensure your workforce management, compliance, and employee transitions are handled seamlessly. Don’t wait until it’s too late to safeguard your business’s future.