The ailing Internet consulting company, which filed for Chapter 11 bankruptcy protection last week, said former employees will have to file a claim with the bankruptcy court to request their severance payment, according to information recorded April 18 on MarchFirst's information line.
"Payment of any claim is subject to court approval and availability of funds, therefore claims may eventually be partially paid or not paid," the recorded message stated.
MarchFirst could not be reached for comment.
Typically, when a company files for bankruptcy protection, anyone claiming that they are owned money is placed on a creditors list. In this case, the laid off employees will have to wait their turn.
"In any bankruptcy (case) it's all a question of status--who are the preferred creditors, who holds the weight," said David Larson, a professor of labor and employment law at the Hamline University School of Law in St. Paul, Minn.
Employees will usually find themselves dead last on the list, with little muscle to win a claim.
Larson said one avenue an employer can pursue when trying to fend off severance claims is to assert that the company has reached the end of its line and if "they don't have the resources, they don't have the resources" to meet the payments.
"Normally, a company is not required to pay any severance unless it agrees to do so in a contract," said Ray Hixson, a labor lawyer with Palo Alto, Calif.-based Fenwick and West.
But even in such agreements, he said, there are probably a number of conditions outlined that may alter the contract if the company files for bankruptcy protection. Employees who file claims to a bankruptcy court must still prove they are contractually entitled to the severance.
At this stage, the judge has the authority to decide the order in which people will be paid and the size of the payments.
"Bankruptcy proceedings would certainly complicate and delay" fulfilling severance payments, Hixson added.
MarchFirst recently laid off 1,700 employees after its sale of certain assets to Divine. During the past few months, MarchFirst has had to slash roughly 2,000 jobs as it attempted to cut costs, achieve profitability and redirect its focus.
Like most players in the bleak Internet consulting world, MarchFirst has suffered from a sudden downturn in client spending for services such as Web development and help with their online strategies.
According to the recording, MarchFirst also said that for earned wages and reimbursement of expenses incurred on or before its bankruptcy filing date, the court has granted a motion to allow the company to pay only a maximum total of $12,500 per employee for wages and a total of $1,000 per employee for expenses.
Although the company is filing a motion to be able to pay more than the allotted total per employee, it said it is not able to provide an estimated decision date at this time.
The motion, however, did not include payment earned bonuses, severances or the payment of accrued paid time off. The company notified former employees that claim forms to petition for payment will be mailed to them or can be obtained and filed via the court's Web site.
MarchFirst also said paychecks issued on or before the bankruptcy filing date may possibly bounce. The company plans to reissue checks next week but the amount issued must follow the $12,500/$1,000 guideline.
Banking fees for bounced checks will not be covered by the company and can also be filed as a claim to the court, the recording said.