Executive Compensation and Incentive Plans, Unpaid Wages, and Severance in Bankruptcy

Summary

This practice note discusses (1) employment agreements antedating a bankruptcy filing and (2) executive compensation and employee retention programs proposed by a debtor in possession in a Chapter 11 case. As to the former, when an executive or nonexecutive employee's employment straddles a bankruptcy filing, and the executive or nonexecutive is terminated post-filing, the priority of the employee's severance claim may be difficult to determine. This is because such severance claims do not fit neatly into the pre-petition/post-petition paradigm underpinning the administrative priority determination, due to the fact that unlike ordinary wages, severance pay can be earned at different times during a term of an employee's employment.