When companies file for bankruptcy, workers with unpaid wage claims are left in limbo

CHICAGO — Irene Luna, a former pastry cook at The Signature Room, had worked at the restaurant near the top of the former John Hancock Center for nearly 30 years.

She was out of a job, along with the rest of her coworkers, when the restaurant shuttered abruptly last fall. Luna was preparing to head to work that September morning, she said, when she received an email stating The Signature Room was closing down.

“It’s not professional,” Luna said, “(to) close to like that.”

After Luna and her coworkers were suddenly laid off, her union, Unite Here Local 1, filed a lawsuit alleging violations of the federal Worker Adjustment and Retraining Notification Act. The law, also known as the WARN Act, requires businesses to give 60 days’ advance notice of certain mass layoffs and closures. If companies are found to have violated the act, they can be required to pay workers back for the wages and benefits they would have received during those 60 days.

The Signature Room’s owners did file a WARN Act notice with the state, but they did so days after the layoffs took place, rather than 60 days prior.

In March, a federal judge ruled that Luna and her former coworkers were owed $1.52 million in back pay and benefits under the WARN Act, an amount which would work out to an average of about $11,500 per former staffer. The ruling was a default judgment because The Signature Room’s parent company, Infusion Management Group, never responded to the workers’ lawsuit.

But Luna and her coworkers haven’t seen a penny. Just weeks after Unite Here filed its WARN lawsuit, Infusion Management filed for Chapter 7 bankruptcy. Bankruptcy law dictates that secured creditors — those whose claims are backed by collateral — get paid first. Unsecured creditors who are also owed money — a category that includes employees — are paid out afterward, but there isn’t always money left to pay them.

Infusion Management’s bankruptcy case closed early this year with the trustee assigned to the case reporting he had not paid out any money on behalf of the estate, according to court records.

Luna, for one, is still looking for a job, but the positions she sees available are often too far away or don’t pay well enough, she said.

If she’d received a payout from the lawsuit back in the spring, Luna said, she could have used the money to help pay off late mortgage payments on her Avondale home — a home she and her husband bought together back in the late ’90s, in part with money she’d earned working at The Signature Room. Now, she feels bad because she can’t help her husband with expenses. She also no longer has health insurance.

“We won and all, but we haven’t seen any of the money,” Luna said in an interview with the Tribune. “So it’s like we didn’t win.”

The Signature Room’s attorneys did not respond to requests for comment.

Experts say The Signature Room workers’ case shows that when companies file for bankruptcy, former employees with WARN Act claims can be left out in the cold — even when a judge has ruled they’re owed back pay.

“Anytime you’re talking about a company that has become insolvent, you are inherently talking about a situation where there’s not enough money to pay everybody what they are owed,” said Brook Gotberg, a law professor at Brigham Young University who studies bankruptcy.

“Everybody agrees they’re owed this money,” she said, “but the reality is there are not enough cookies to distribute to everybody. There is not enough pie.”

Unite Here says it is continuing to seek payment of the $1.52 million a judge said workers were owed. The union has filed citations to discover remaining assets the company could have in Illinois and has registered its WARN Act judgment in Nevada, where it says Infusion Management’s owners reside and own property.

“Infusion Management’s attempt to discharge their debts through bankruptcy failed. The federal judge’s order makes clear that the company is on the hook for their obligations under the WARN Act,” Local 1 President Karen Kent said in a statement to the Tribune. “It is shameful that Infusion Management has failed to comply with the judgment and pay former Signature Room workers what they are owed.”

“Unite Here Local 1 continues to pursue every legal avenue to enforce the federal judge’s order against Infusion Management and seek justice for former Signature Room workers,” Kent said.

Intended to help workers

The WARN Act, which was passed by Congress in 1988, was intended to give workers a head start in finding new job opportunities when they were laid off en masse, according to the U.S. Department of Labor.

The law applies to businesses with 100 or more full-time employees and excludes certain situations, such as when businesses close due to natural disasters or “unforeseeable business circumstances.”

Illinois also has its own WARN Act, which has slightly different parameters than its federal counterpart and is enforced by the state’s Department of Labor.

The state’s labor department is investigating WARN Act complaints filed by workers who were laid off abruptly from their jobs at Foxtrot and Dom’s Kitchen & Market in April. The parent company of both brands, Outfox Hospitality, has also filed for Chapter 7 bankruptcy.

Outfox Hospitality closed Foxtrot and Dom’s so suddenly that some workers found out they were out of their jobs in the middle of their shifts. One worker at Dom’s told the Tribune at the time that in the late morning, “somebody came out of the kitchen and was like, ‘Y’all might as well stop cooking because the store is closing at 12.’”

FAQs provided to former staff in the wake of the closures said they would be paid only through the date the stores close. Three lawsuits alleging violations of the federal WARN Act were swiftly filed in federal court.

Outfox filed WARN Act notices only after the store closures took place, logging 281 layoffs at two North Side Dom’s locations and 66 Foxtrot layoffs at the company’s 167 N. Green St. offices. It was unclear if the Foxtrot notices included workers at the company’s retail stores or its Pilsen commissary. 

In the Chapter 7 bankruptcy documents it filed in Delaware, the company estimated that no funds would be available to pay unsecured creditors after administrative costs were paid out.

The Dom’s and Foxtrot WARN Act cases are now in limbo pending the resolution of the Outfox bankruptcy.

Douglas Werman, an attorney representing some former workers in one of the prospective class-action WARN Act lawsuits, said that based on how the bankruptcy case has proceeded so far, it does not appear likely that there will be funds available for the workers.

“As of now, it does not appear that there’s going to be sufficient funds available to pay other creditors,” he said, noting that it is possible the trustee administering the bankruptcy will identify additional funds that should be included.

“I feel that it’s only just for there to be some kind of payback,” said Julia Harlos, who used to work as a barista at a North Side Foxtrot. Harlos found out she was out of her job during her shift on the day Foxtrot shuttered; she said her manager told her and her coworkers to kick customers out of the store and close down immediately.

Some of the coworkers she worked with at her store, Harlos said, are still looking for jobs.

Meanwhile, some Foxtrot stores are expected to begin reopening in the fall.

That became possible when Foxtrot’s assets, including the brand and its intellectual property, were purchased for $2.2 million at auction by New York-based investment firm Further Point Enterprises as part of the company’s bankruptcy proceedings.