“What is an ‘Administrative Claim’ for severance?”

Question: Hi, Alan. I received a letter with the “terms of settlement administrative claim” for my severance. I could either take 50% of the severance now, or wait for the 100% when the case concludes.

I asked the attorney handling the case if I was “guaranteed” to receive 100% of my claim if I waited. He responded, “It is not a ‘guarantee,’ but you will have an allowed administrative claim for 100%.”

What does that mean? Thanks for the help. 

                                   Bob
         Atlanta, Georgia
      

Answer: Bob, I have seen the phrase “Administrative Claim” used in connection with severance in two contexts: (1) in Bankruptcy Court, and (2) in state or federal Labor Department actions to recover unpaid wages for employees.

In Bankruptcy Court, an “administrative claim” means that you are working for the bankrupt company, helping the Court-appointed Trustee to run it, or helping the Court-appointed Trustee to dissolve it. If you’re helping the Court, then the Court helps you, by giving you a “priority,” or “preference” when it distributes money the Trustee has collected from a person who owes money to the bankrupt company and from selling the bankrupt company’s assets. Often the Court will permit some monies to be paid at different times, depending on availability.

If you are in Bankruptcy Court, then the Court-appointed Trustee is telling you, in effect, “I know I have enough funds to pay you at least 50% of your severance; do you want to leave your employment now, and take the severance I have to give you now? If you want to wait, and continue to help me help the Court, at the end of this process I may have enough money to pay you 100% of the severance promised to you, but I cannot guarantee that.” 

If you are involved in a state or federal Labor Department action to recover unpaid wages for employees, then the process is quite similar. The Labor Department in an “Administrative Action” may be working to help employees (or former employees) of a company that has not paid wages or benefits (including severance monies owed) it should have under the law. The process of tracking down and gathering the monies due employees from a large company, perhaps even a foreign company, could take years. For this reason, over a period of time employees may say, in effect, “I’ll take what I can now, because I need it now, and forget about the rest.”

If you are in such an administrative proceeding, you may get notice of your Administrative Claim for severance being confirmed to be valid. Just like in Bankruptcy Court, you may be given the choice to take what they have now, which is 50% of the severance you are owed, or wait and see how much the administrative agency is eventually able to collect for you, which might or might not be 100% of the severance you are owed.    

I’m pretty sure that one of these two scenarios is your scenario. Hope this helps.

         Best, Al Sklover  

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