[Congressional Record Volume 148, Number 106 (Tuesday, July 30, 2002)]
[Senate]
[Page S7581]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mrs. CARNAHAN (for herself and Mr. Leahy):
  S. 2820. A bill to increase the priority dollar amount for unsecured 
claims, and for other purposes; to the Committee on the Judiciary.
  Mrs. CARNAHAN. Mr. President, on behalf of myself and Senator Leahy, 
I am introducing legislation to protect the employees of corporations 
that declare bankruptcy. This bill will also put a stop to the 
outrageous practice of giving unearned bonuses to select individuals 
immediately before declaring bankruptcy. With the failures of Enron, 
and now WorldCom, Americans have seen how cruel bankruptcy can be for 
the employees who dedicated themselves to their companies. While some 
executives received extra pay just before the bankruptcy, workers were 
left holding the bag. Workers have faced mass layoffs. And in many 
cases, workers have been denied their rightful severance pay.
  I understand that bankruptcy is intended to shield corporations from 
their creditors while they restructure their business. However, I do 
not believe that corporations truly need protection from their own 
workers. It seems to be the other way around. Workers need greater 
protection from corporations that accept their labor and then refuse to 
pay.
  The legislation I am introducing today will allow employees, and 
former employees, to recover a greater share of the money that their 
company owes them. This bill also puts a stop to the indefensible 
practice of paying some executives large sums of money just before 
claiming that the company does not have the money to pay its average 
workers. Let me explain each of these provisions in detail.
  First, this bill increases the priority claim amount for employee 
wages and benefits to $13,500. Under current law, employees are only 
entitled to receive $4,650 for wages and benefits that they are owed. 
If their employers owes them more, for severance or other obligations, 
the employees must fight with all the other unsecured creditors in the 
restructuring process. In light of the Enron bankruptcy, where 
employees were owed average severance packages of $35,000, it is clear 
that the current limit must be increased as a matter of fairness.
  Let me be clear. This bill only affects employees who are owed money 
by their employer. Increasing the priority claim creates no new 
obligation for a company to pay severance or other compensation. It 
merely makes it possible for employees to recover more of what is 
rightfully owed to them. It is appropriate that employees are given a 
priority in recovering debts. Employees depend on their paychecks to 
buy food, pay the rent, and provide for their families. And unlike 
investors or creditors that can diversify their risks, workers cannot 
diversify their employment.
  In the case of the Enron bankruptcy, the parties have agreed that 
employees are entitled to collect, up front, $13,500 to cover wages, 
accrued vacation, contributions to benefit plans, and promised 
severance. This figure reflects a reasonable settlement. It recognizes 
the expenses that workers face as they seek new employment.
  This bill includes a second provision which is designed to restore 
funds to the bankrupt estate which were unjustly dispersed immediately 
prior to the bankruptcy. My legislation permits the bankruptcy court to 
recover excessive employee compensation paid in the 90 days preceding 
bankruptcy, if it determines that that compensation was out of the 
ordinary course or unjust enrichment. These funds would be recovered 
for the benefit of the estate and its creditors.
  In the days leading up to its bankruptcy, Enron paid millions of 
dollars in so-called retention bonuses to executives. However, these 
executives actually had no obligation to stay with the company through 
its restructuring; indeed, most of them have since left. It is 
unacceptable for a company to pay millions to some employees, without 
any justification, and then weeks later claim that it cannot make basic 
severance payments to the vast majority of its workers. This amendment 
will ensure that bankruptcy courts have the authority to prevent such 
outcomes in the future.
  These are common sense reforms that protect employees and creditors 
faced with a corporate bankruptcy. In the wake of Enron and WorldCom, 
Americans are learning some very difficult lessons about the failures 
of large corporations. We ought to heed these lessons and ensure that 
workers and investors are better protected in the future. I encourage 
my colleagues to support this legislation. And I ask unanimous consent 
that the text of the legislation be printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 2820

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. FAIR TREATMENT OF COMPENSATION IN BANKRUPTCY.

       (a) Increased Priority Claim Amount for Employee Wages and 
     Benefits.--Section 507(a) of title 11, United States Code, is 
     amended--
       (1) in paragraph (3), by striking ``$4,000'' and inserting 
     ``$13,500''; and
       (2) in paragraph (4), by striking ``$4,000'' and inserting 
     ``$13,500''.
       (b) Recovery of Excessive Compensation.--Section 547 of 
     title 11, United States Code, is amended by adding at the end 
     the following:
       ``(h) The court, on motion of a party of interest, may 
     avoid any transfer of compensation made to a present or 
     former employee, officer, or member of the board of directors 
     of the debtor on or within 90 days before the date of the 
     filing of the petition that the court finds, after notice and 
     a hearing, to be--
       ``(1) out of the ordinary course of business; or
       ``(2) unjust enrichment.''.
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