Recently, Sears filed for Chapter 11 bankruptcy in New York. As a part of the bankruptcy, the company will shut down 142 of the 687 stores it has left, on top of 46 store closings already announced earlier. The company employs 68,000 people, according to a CNBC report, and it is not clear how many of them would be laid off as a result of the store closures.

The CEO of the company, Eddie Lampert, said in an email to company employees that he will be stepping down as CEO. He will, however, remain a member of the board of directors.

Corporate Counsel spoke to Dean G. Rallis Jr., of counsel at Anglin, Flewelling, Rasmussen, Campbell & Trytten, a full-service law firm based in Pasadena, California, with other West Coast offices, and Jack Raisner, a partner at employment law firm Outten & Golden in New York, about what in-house counsel need to consider when their company has filed for Chapter 11 bankruptcy.

1. Compliance with state and federal labor and pension laws: With the announcement that stores will be closing, the company will have to make sure it is acting within the guidelines set forth in the Worker Adjustment and Retraining Notification (WARN) Act. Raisner said that any company about to lay off a large number of people must give the employees 60 days' notice to remain compliant with the act. “I think it's likely that it will be a planned closing notice. As long as they do that, they [Sears] will have complied with the WARN Act,” Raisner said.

2. Employee morale. Rallis said that keeping the employees on board is important during a Chapter 11 bankruptcy filing. “For Sears to keep things on an even keel, it needs to have the commitment of its employees.” He said he would expect the in-house counsel at Sears to work with HR to build a web portal where employees can have questions asked and answered.

3. Vendor morale. Sears will need to make sure it maintains open communication with its vendors. It will have to consider which vendors would want to continue to work with Sears. Rallis said that many vendors would consider Sears a major source of revenue and will be hesitant to cut ties. On the flip side, those vendors would need to consider whether or not they want to extend credit to Sears, or try to negotiate a cash-on-delivery arrangement to make sure that they are paid.

4. Identify important vendors. In-house counsel will need to help the company identify important vendors so that the company can file a motion in the bankruptcy court to pay those vendors. These will be the vendors that Sears is unable to do business without. It will be unclear who those vendors are until the motion is filed, Rallis said.

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