Proposed Bill Doubles Worker Priority Wage Claims to $20K in Bankruptcies, Curbs Executive Payouts

This proposed legislation, the Protecting Employees and Retirees in Business Bankruptcies Act of 2025, aims to rewrite the rules when companies go bust, putting workers and retirees closer to the front of the line for what they're owed. It significantly increases protections for wages, severance, and benefits while putting new restrictions on executive compensation during and after bankruptcy proceedings.

Payday Priority: Getting Workers What They're Owed

When a company files for bankruptcy, who gets paid first is a big deal. This bill doubles the 'priority' amount for unpaid wages owed to an employee from $10,000 to $20,000 (Sec 101). Think of 'priority' like getting a spot near the front of the payment line. It also removes the old 180-day time limit, meaning older unpaid wages could still get this priority status. Severance pay is also explicitly prioritized and considered fully earned upon termination (Sec 101, 103). Additionally, if you lost money in your company-sponsored retirement plan (like a 401k) because the company committed fraud related to company stock in that plan, this bill creates a new pathway to potentially claim those losses (Sec 102). Damages awarded under the WARN Act (for failure to give proper notice before mass layoffs) also get priority status (Sec 105).

Protecting Promises: Benefits, Bargaining, and Job Security

The bill tackles how employee benefits and union contracts are handled in bankruptcy. It makes it harder for companies to ditch collective bargaining agreements (CBAs), requiring good-faith negotiation and proof that any proposed cuts are truly essential, part of broader cost-saving, and don't unfairly target employees (Sec 201). Similar rules apply to modifying retiree health insurance benefits, demanding negotiation and proof of necessity (Sec 202). If a bankrupt company sells off its assets, the bill pushes courts to favor buyers who commit to preserving jobs and maintaining similar wages and benefits (Sec 203, 206). It also allows employees and retirees (or their unions) to file claims for pension shortfalls if a defined benefit plan is terminated (Sec 204) and strengthens the ability to recover unpaid wages and benefit contributions from collateral held by secured lenders (Sec 205).

Reining In the Corner Office: Executive Pay Limits

A major focus is curbing excessive executive payouts when a company is failing. The bill restricts large bonuses, incentive pay, or other special compensation for insiders and highly paid employees during bankruptcy, requiring court approval and tying limits to what non-management workers receive (Sec 302, 303). It also limits big payouts after bankruptcy, requiring court approval and comparing compensation to industry standards (Sec 301). Crucially, if worker or retiree benefits are cut (including pension terminations), the bill allows the bankruptcy estate to 'claw back' a proportional percentage of recent compensation paid to top officers and directors (Sec 305). It also restricts assuming expensive executive retirement or deferred compensation plans if related employee or retiree benefits have been cut or terminated (Sec 304) and makes it easier to recover preferential payments made to insiders anticipating bankruptcy (Sec 306).

Fine-Tuning the Process

Other changes aim to smooth the process for workers. Unions are explicitly allowed to file claims on behalf of their members (Sec 401). The 'automatic stay' – which usually halts legal actions against the bankrupt company – wouldn't apply to ongoing grievance or arbitration processes under a union contract (Sec 402). Finally, specific protections are added for collective bargaining agreements covered under the Railway Labor Act (Sec 403). Overall, the bill represents a significant shift, aiming to ensure that when businesses face financial distress, the employees and retirees who built the company aren't left holding an empty bag while executives are protected.