When Worlds Collide: Bankruptcy, State Law And Unemployment Insurance

Neenah Foundry Co. ("Neenah") saw demand for its products dramatically plummet in the economic collapse of 2008 and 2009. The company was forced to lay off a large part of its workforce, giving Neenah an adverse experience rating under Wisconsin's unemployment insurance system. This precipitated a significant increase in the company's contribution rates. By contrast, new employers in Wisconsin are charged unemployment insurance contributions at a fixed rate for three years, and only thereafter is their layoff experience taken into account.

Driven by its financial circumstances, in February 2010, Neenah filed a petition under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. §§ 101-1532 (the "Bankruptcy Code"). In July 2010, Neenah confirmed a plan of reorganization pursuant to which the common stock of Neenah's ultimate parent corporation, Neenah Enterprises, Inc., was cancelled and new common stock was issued to the creditors of the corporate family. In addition, a new board of directors was elected, and the new board elected a new president and chief financial officer. However, six of Neenah's eight senior executives, including the chief operating officer and the corporate controller, remained in their positions and Neenah's 833 employees continued to be employed at the plant the company operated prebankruptcy.

After Neenah confirmed its reorganization plan and changed its equity ownership, board of directors and senior top management, Neenah filed a request with the Department of Workforce Development ("DWD") to be treated as a new employer with no adverse layoff experience in an attempt to reduce its unemployment insurance contributions by up to $560,000. The DWD denied this request and, on appeal, an administrative law judge ("ALJ") affirmed the DWD's decision.

THE ISSUES ADDRESSED

Neenah sought review of the ALJ's decision before the Wisconsin Labor and Industry Review Commission ("LIRC"), raising four issues. The first three were:

whether the plan of reorganization constituted a transfer within the meaning of Wisconsin Statutes section 108.16 (8)(a); whether, after the confirmation of its reorganization plan, Neenah was a mandatory successor under Wisconsin Statutes sections 108.16(8)(e)1; and whether the Bankruptcy Code preempted Wisconsin law with respect to the mandatory successor issue. The LIRC also denied Neenah's request so Neenah appealed to the Court of Appeals. See Neenah Foundry Co. v. LIRC, Cir. Ct. No...