CBS 5 Investigates With Anna Werner

HAYWARD (CBS 5) ― Former employees of Mervyn's are bracing for the outcome of a bankruptcy court hearing on Thursday, which concerns benefits the company owes them.

Many of those laid off employees worked for Mervyns for years and accrued thousands of dollars in vacation benefits. Without a job in a bad economy, for some it's all they have left. Now, a fight in the bankruptcy court puts those benefits in jeopardy.

Jackie Chakoff worked for Mervyn's as a buyer in the children's department for 14 years, and always believed the company would pull through. "Did you ever once think that you were going to be out of a job?" CBS 5 Investigates asked her. "At that point in time, no, I didn't," Chakoff responded.

But then came October 7th. "There was a huge layoff at corporate," Chakoff recalled. And a week later, employees saw a troubling scene: "They saw members of management leaving the building with their possessions in their hands," she said.

When asked, "What was the feeling among the people that you talked to that saw this?" CBS 5 asked Chakoff. "Very concerned, very scared," she responded.

Chakoff says she and others believed the company was going under. But at least, she she, she knew she had something to fall back on: Her weeks of accrued vacation. "A little over 7 weeks," she said.

The benefit was enough to tide her over while looking for job in a rough economy. But on October 23rd, the day before her last day of work, another surprise: Creditors in the Mervyn's bankruptcy had asked the court to stop the payments, leaving employees hanging.

"I was just, first angry. I felt that I had been duped," Chakoff said.

Now Chakoff and hundreds of other employees are caught in the battle at the bankruptcy court - between creditors, such as the companies who supply the clothing Mervyn's sells, and Mervyn's management.

In a brief filed on Tuesday, the company says it wants to pay the vacation time to those laid off.

Why? Bankruptcy lawyer Jeremy Katz with San francisco's Pinnacle Law Group says it's not just goodwill towards the employees.

"The real import of the request of Mervyn's is to make sure it protects management from any potential civil or criminal recriminations from not being able to pay employees," Katz said.

Because he said under California law, companies that go out of business are required to pay employees the wages they're owed. And managers themselves could be sued or even face criminal charges if they don't.

"Quite frankly, that potential would be so great that it wouldn't surprise me if management simply threw in the towel, we cannot continue because of this potential liability," Katz said.

In fact in letters filed Wednesday with the bankruptcy court in Delaware, at least one former employee already alleges fraud, saying they were promised they'd be paid their accrued vacation time. And Jackie Chakoff said in her case, there's regret piled on top of her disappointment. Because on the day the managers walked out with their boxes, worried about getting her vacation pay, she resigned.

"I did that to protect my accrued vacation," she said.

But after talking with her boss, she agreed to stay for one more week, just long enough for her vacation payments to be held up in court.

"How do you feel now?" CBS 5 Investigates asked Chakoff. "Scared," she answered, fighting back tears. When asked what she is most scared about, she said "finding another job."

You may be wondering why Mervyn's creditors would want to stop former employees from getting back vacation pay. The attorney for the creditors told CBS 5 Investigates on Wednesday that those companies provided millions of dollars in merchandise to Mervyn's and they too haven't been paid. So those former employees are now creditors just like his clients.

But of course, some of those are huge clothing companies and suppliers - versus individual employees who are now going to be out job-hunting. So there are undoubtedly a lot of employees waiting and holding their breath.

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