RadioShack employees who were laid off in recent months will likely have to get in line with other creditors to collect their promised severance.
In early December, RadioShack changed its severance policy from giving departing employees a lump sum to providing payments bi-weekly, according to email sent to employees by CEO Joe Magnacca. The action was taken about two months before RadioShack filed for bankruptcy reorganization.
Now, following last week’s bankruptcy filing by the consumer electronics chain, the court will have to approve continuing those payments.
So far, the company has not petitioned the court for permission to continue paying the severance and it appears unlikely that it will. Employees have not received formal letters telling them that their severance has stopped. One laid-off employee, who spoke with the Star-Telegram and asked not to be identified, had only received two checks but was expecting to receive 15 weeks of severance pay.
RadioShack spokeswoman Merianne Roth declined to comment.
It’s likely that employees will have to file an unsecured claim with the court in an attempt to receive their severance. According to the email from Magnacca, it appears that about 40 employees were laid off in January.
The U.S. Bankruptcy Code establishes a priority for payment to unsecured creditors. In this case, laid-off RadioShack employees would fall into a group called “pre-petition priority” claims, and would be given preference over some other claims but remain behind others, according to bankruptcy experts. The portion of employee salary or severance claims is limited to $12,475, as long as the money was earned six months prior to the bankruptcy filing.
“The chances are good they will eventually get something,” said Wayne Barnes a law professor with the Texas A&M University. “In fact, a successful Chapter 11 plan of reorganization essentially requires that they be paid in full.”
Employers are not obligated to provide severance pay unless an employment contract or union agreement calls for it. But many employers offer severance payments to help employees bridge the gap until they find another job. In most cases, it is offered as a lump sum payment.
In RadioShack’s initial list of largest outstanding unsecured creditors, eight former executives are listed and said to be owed $5.5 million, representing money from part of a supplemental executive retirement plan, or SERP. Also, Telvin Jeffries, a former executive vice president who resigned in November, is owed $383,304 in severance pay.
It was in his December email to employees that Magnacca also told employees he was eliminating the company’s match to 401(k) retirement savings plans starting Feb. 1. The company, though, would continue offering the plans as a benefit, he said.
“The board continues to challenge us to find all opportunities to create cost savings in our business,” Magnacca wrote. “We are right-sizing our operation and have already made many changes that have resulted in savings. These include modifying store hours and tightening budgets.”
Fort Worth-based RadioShack filed for Chapter 11 bankruptcy protection on Feb. 5. The electronics retailer plans to sell 1,500 to 2,400 of its 4,000 U.S. stores to the Standard General hedge fund and close the rest.
Sandra Baker, 817-390-7727