Senate bill may pit banks against workers in bankruptcy filings

The economic slowdown, increased shutdowns and bankruptcy filings by businesses and resulting layoffs have prompted one Wisconsin lawmaker to propose changes to the way employees and banks are paid after a company has filed insolvency proceedings.

Current Wisconsin law allows employees to collect up to $3,000 in back wages when their employer files for bankruptcy or ceases operations. A new proposal authored by State. Sen. John Lehman (D-Racine), named the Employee Wage Protection Act," would eliminate the $3,000 per employee cap in recovering unpaid wages.

"We’re in tough economic times and all too many Wisconsinites are losing their jobs," Lehman said. "These workers are already dealing with the challenge of finding a new job. They and their families shouldn’t also have to deal with the hardship of getting wages they’ve already earned."

The proposal would destroy the current delicate balance of Wisconsin’s wage lien law, the Wisconsin Bankers Association says, and could lead to more bankruptcy filings in the future.

"This amounts to an anti-economic stimulus for Wisconsin and will create a credit crunch where one didn’t exist," said Kurt Bauer, president and chief executive officer of the organization. "How can something so anti-jobs and anti-business be called ‘pro worker?’"

The loss of the $3,000 cap would likely prevent creditors – banks and other financial institutions – from lending or extending lines of credit to businesses that are struggling because of the increased amount of money that would be absorbed by the lien law in the event of a bankruptcy or shutdown, Bauer said.

The new law would essentially leave most businesses with insufficient collateral to pledge against a line of credit, and could create more shutdowns and bankruptcy filings.

"It’s not an income protector; it’s a job killer, plain and simple," Bauer said.

Lehman pointed to the recent federal assistance packages for auto companies and large financial institutions and said that Wisconsin needs to look out for its "working folks" too.

"No one wants to see someone lose their job because their employer went out of business or declared bankruptcy, but if that happens we ought to make sure state law is on the employees side in receiving the wages they’re entitled to," he said.

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