US corporations file for bankruptcy and lay off workers. Why do execs still get bonuses? | Business

Elizabeth Hill worked for nearly three years at Hertz Car Rental in Oklahoma City, Oklahoma, as a reservation agent before she was furloughed in late March. She was then laid off at the end of April, shortly before Hertz filed for Chapter 11 bankruptcy.

Life has been tough for Hill since then. She explained losing medical insurance means her entire family can no longer afford to see a doctor, and even with unemployment benefits she has struggled to keep up with payments for her house, car and utilities.

“When I lost my medical insurance that hurt. I can’t afford Cobra prices on unemployment. If I had 60 days’ notice I could have at least been more prepared and had time to look for work elsewhere,” she said.

But, she feels, not everyone at Hertz has been suffering. Hertz is one of several US corporations that have filed for bankruptcy this year while approving multimillion bonuses to executives, while their rank-and file workers face layoffs in a job market where new unemployment claims remain above 1m filed weekly due to the Covid-19 pandemic.

One of the largest companies to file for bankruptcy protection during the pandemic, Hertz is currently facing a class-action lawsuit from a former employee in Florida who alleges Hertz laid off 10,000 workers in April without providing a 60-day notice.

As workers such as Hill struggled after abruptly being laid off, Hertz agreed to pay $16.2m in retention bonuses to senior managers and corporate executives, including $700,000 to its CEO. Hertz is currently pushing in bankruptcy court to pay top executives a second round of bonuses worth $5.4m as incentives for financial progress through the company’s bankruptcy.

“I can’t even begin to express my anger,” added Hill on the proposed second round of bonuses for Hertz executives.

A Hertz spokesperson declined to comment on the class action lawsuit, but in regards to executive bonuses told the Guardian in an email they are part of incentive based performance programs. “Our new programs are designed to incentivize a core group of employees whose continued efforts are critical to the success of the company and our restructuring objectives,” the spokesperson said.

Hertz is not alone. JC Penney filed for bankruptcy in May 2020, shortly after paying over $1m each in bonuses to the company’s top four executives, including $4.5m to its CEO. Chuck E Cheese paid out $3m in bonuses to executives before filing for bankruptcy in June 2020. GNC paid nearly $4m in executive bonuses before filing for bankruptcy the same month.

Chuck E Cheese, the 43-year-old pizza chain, filed for bankruptcy in June.
Chuck E Cheese, the 43-year-old pizza chain, filed for bankruptcy in June. Photograph: Jeff Chiu/AP

The internet, TV, and phone service provider Frontier Communications filed for bankruptcy protection in April 2020. A bankruptcy judge signed off on up to $37.8m in bonuses for Frontier executives.

“I thought the bonuses were outrageous. Those were some of the same people responsible for the business being in the state it was and at the very same time they applied to the IRS to defer our pension payments,” said Dave Weidlich, a Frontier employee since they were acquired from AT&T in 2014 and president of CWA Local 1298.

Frontier Communications did not respond to multiple requests for comment.

In 2005, Congress passed bankruptcy reform laws meant to prevent corporate executives from receiving large bonuses amid chapter 11 bankruptcy filings, but a loophole is commonly used that ties bonuses to performance incentives or bonuses are paid days before a company files for bankruptcy.

“Management has nothing to lose from granting themselves bonuses on their way out the door, and they exploit the opportunity,” said John Coffee, professor of law at Columbia University. “On the doorsteps of bankruptcy, senior management does very well, while more junior employees tend to be laid off by the droves. The justification given is that senior management is irreplaceable at this crisis-stage moment and deals with possible purchasers require them to remain on the scene. The logic of this position is curious: the captain of the ship that hits the iceberg may have long deserved to be replaced and does not merit a bonus for his dubious seamanship.”

Libbey Glassware filed for bankruptcy on 1 June, after approving $3.1m in executive bonuses. In July, Libbey Inc announced plans to shut down its Shreveport, Louisiana, plant and move production to Mexico.

“When Covid hit, I volunteered to work through it at Libbey,” said Justin Pickron, a single father who worked at the Shreveport plant for 13 years.

“They wanted to terminate me for taking vacation. I had to explain to them that they couldn’t deny my vacation so they had to take a different route,” added Pickron.

He claimed a manager changed his shift at the last minute, and he wasn’t able to work it due to having to care for his two children, and the company considered not working the shift as a resignation at the end of July. He’s still experiencing issues with obtaining unemployment benefits.

A spokesperson for Libbey Glassware told the Guardian in an email in response to Pickron’s allegations: “Libbey is confident that our HR policies have been fairly and consistently applied.”

The Chicago-based printing company LSC Communications filed for bankruptcy in April, and subsequently received approval from a bankruptcy court to pay up to $14m in bonuses to company executives. In July, the company completed the closure of printing plants in Virginia, Kentucky and Illinois, and plans on closing another plant in Indiana later this year.

Dustin Hay was one of about 400 workers in Mattoon, Illinois, who lost their job in July due to the plant closure.

His fiancee also worked at the plant and because of the timing of the closure, at her new job she was only eligible to take six weeks of short-term disability when she had a baby on 15 June, compared with 12 paid weeks of family maternity leave she would have otherwise received.

“It’s really hurt us financially,” said Hay. “This is a big industrial area, but we’ve had a lot of businesses leave. General Electric left two years ago and that cut out a few hundred jobs in this area. The coronavirus has made it even harder to find employment.”

LSC Communications declined to comment.

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