Feb 3, 2024 - Economy

What employees are owed if their company collapses

Illustration of three question marks made out of pink slips.

Illustration: Shoshana Gordon/Axios

Former employees of The Messenger who were left without severance or health coverage when the news site suddenly shut down this week are now suing, arguing the company violated state and federal laws requiring advance notice of layoffs.

Why it matters: The Messenger's meltdown raises complex questions about what a collapsing company owes its employees.

Catch up quick: On Wednesday, employees of The Messenger learned that they were losing their jobs based on media reports, and later learned that they wouldn't be receiving any severance or further health care coverage, Axios' senior media reporter Sara Fischer reports.

  • The suit, filed in New York, argues that the company violated both the Worker Adjustment and Retraining Notification (WARN) Act and New York's version, known as the New York State WARN Act.

Does a failing company have to warn employees?

The federal WARN Act requires 60 days' advance notice to employees of termination for companies with 100 or more employees — though there are exceptions, such as "unforeseeable" business circumstances or natural disasters.

  • The WARN Act, which became effective in 1989, was designed to help workers find new jobs before losing their current positions.
  • Separately, New York's WARN Act, which applies to companies with 50 or more employees in the state, requires 90 days' advance notice.
  • The Messenger's employees are seeking "to recover up to 60 days wages and benefits," per the lawsuit.

Does the company owe severance?

  • Severance depends on an employer's policies, rather than federal or state law. Under the Fair Labor Standards Act, there is no requirement for an employer to provide severance pay.
  • "Severance pay is a matter of agreement between an employer and an employee (or the employee's representative)," according to the U.S. Labor Department.
  • Employees who are part of a union may have additional protections under the terms of their contracts.

Can employees still get health insurance?

  • Workers may have legal rights to stay on their company's plan under the
    Consolidated Omnibus Budget Reconciliation (COBRA) Act.
  • The Labor Department notes that "COBRA generally requires that group health plans sponsored by employers with 20 or more employees in the prior year offer employees and their families the opportunity for a temporary extension of health coverage (called continuation coverage) in certain instances where coverage under the plan would otherwise end."

What they're saying: "What you're learning here is that employees have very few to little rights in the workplace," Cathy Creighton, director of the Cornell University ILR Buffalo Co-Lab, told Axios.

  • COBRA essentially means people have the right to buy their health insurance, according to Creighton, whose legal career focused on labor relations.
  • "Once any employee is terminated, they have a right to get their health insurance under COBRA, but all COBRA means is that you can participate in your current plan, but you have to pay for all of it," she added.
  • Creighton advised people who have lost their job to "apply for Medicaid right away."

Go deeper: Former Messenger staffers file class-action lawsuit over news site shutdown

Go deeper