McCloskey

The primary question in this case is whether severance or dismissal pay, in lieu of notice, constitutes wages entitled to priority under § 64(a) (2) of the Bankruptcy Act, or to lien status under § 1204 of the California Code of Civil Procedure. A secondary question is whether, if considered wages, the pay was earned within three months of the date of the commencement of the bankruptcy proceeding.

The bankrupt, a wholesale grocery company, on June 2, 1950 made a general assignment for the benefit of its creditors. Thereafter, on July 21, 1950, an involuntary petition was filed against it and an adjudication followed. In the bankruptcy proceedings six' employees, through the inter-positon of appellee, claimed severance pay. These employees had been discharged solely in consequence of the assignment for the benefit of creditors and the discharges had occurred within the statutory ninety-day period. The district judge, reversing a ruling of the referee, ordered the allowance of the claims as preferred claims for wages, and the trustee has appealed.

The bankrupt had a contract with a union to which the employees belonged. The contract provided: “Except for dishonesty, drinking on…