Vermont Bread

The closed Vermont Bread Co. in Brattleboro, as seen in May.

BURLINGTON, Vt. — Former Koffee Kup Bakery workers are in line to get more than $800,000 in unused paid time off, more than two months after that pay was cut from their final paychecks when the Vermont company closed.

Vermont Superior Court Judge Samuel Hoar ruled Wednesday that Koffee Kup employees — about 500 people, including 91 at Vermont Bread Co. in Brattleboro — must receive that compensation.

The unused PTO was dropped from workers’ last paychecks in early May, due to a dispute over who was responsible for paying it between the New York investment firm that owned Koffee Kup at the time and a court-appointed receiver managing the bakery’s financial assets. In addition to the withheld pay, Hoar ruled that the disbursement must include $16,000 in interest on that sum.

Former bakery workers will likely be issued their unused PTO within the next week, according to Justin Heller, an attorney for the New York-based receiver, Ronald Teplitsky.

“We’re already in the process of working with the payroll company,” he said Thursday.

The investment firm — American Industrial Acquisition Corp. — shuttered Koffee Kup and its subsidiaries on April 26, less than a month after acquiring them, citing “substantial financial losses” at the bakery in each of the past four years. Workers were then given their final wage and salary obligations, but the PTO dispute got ensnared in a lawsuit between Koffee Kup and its primary creditor, KeyBank, that led to Teplitsky’s appointment.

Frank Machado, a former Koffee Kup route driver based in Massachusetts, said the court ruling Wednesday means he’ll finally receive about $2,000 in unused PTO he had accrued after nearly six years with the company.

Machado, who found work for another bread distributor shortly after Koffee Kup’s closure, said that while the payout delay didn’t affect him much, it left others in a precarious financial spot.

“It put a bunch of people into the red, so hopefully this money will help out,” he said. “Some people were owed a lot more than me.”

Koffee Kup workers’ unused PTO will be paid with proceeds of the company’s ongoing sale to the Georgia-based firm Flowers Foods, which also owns Nature’s Own, Wonder and Dave’s Killer Bread, among other bakery brands.

Terms of the deal are confidential under a court agreement. Heller said, however, that Flowers Foods’ offer exceeded those of other bidders, including Mrs. Dunster’s Bakery in New Brunswick, Canada, which had announced plans in late May to restart Koffee Kup and Vermont Bread Co.

Flowers Foods President and CEO Ryals McMullian has said his company has “no immediate plans” to reopen Koffee Kup, which also owned Superior Bakery in North Grosvenordale, Conn.

Proceeds from the bakery’s sale will also be used to reimburse its contractors, according to Heller. Among others, those companies include Bernardino’s Bakery and Lily Transportation Corp., both based in Massachusetts, which have argued in court filings that they’re owed $673,000 for a packaging contract and an estimated $3.7 million for trucking services and a contract breach, respectively.

Heller declined to say Thursday whether Koffee Kup’s sale will fully cover those claims, citing the confidentiality agreement with Flowers Foods, though he said the total figure exceeds $6 million.

In a court hearing earlier this month, a Lily Transportation Corp. attorney argued that giving former workers their unused PTO before reimbursing Koffee Kup creditors would “dilute the distribution” available to those businesses, The Brattleboro Reformer reported.

Hoar rejected that argument in his ruling, however, according to Heller, who said the bakery workers won’t have to wait for that “claims-administration process.”

Vermont Attorney General T.J. Donovan hailed the ruling in a news release Wednesday, saying he was “pleased” that Koffee Kup workers will receive their unused PTO with accrued interest. Donovan had filed a legal brief in May arguing that the workers were owed that pay.

“These hardworking Vermonters are entitled to these funds rightfully earned,” he said in the release.

The contractors’ claims will be handled by a new court-appointed receiver, according to Heller, who said Teplitsky’s role was to liquidate Koffee Kup’s assets on behalf of KeyBank in order to refund $7 million in loans from the bank that it said the bakery owed. With that debt now settled using funds from the Flowers Foods sale, Heller said “the purpose of his receivership has really been achieved.”

Flowers Foods already owns Koffee Kup’s supplies and intellectual-property holdings, Heller said Thursday, adding that he expects the Georgia conglomerate to also acquire its properties and equipment by the end of July. At that point, Koffee Kup’s remaining financial assets will be transferred to the new receiver, he said.

Koffee Kup’s closure also prompted a class-action lawsuit in the U.S. District Court for Vermont alleging the bakery didn’t give employees sufficient notice of their layoffs. That lawsuit, which seeks to recover wages and benefits for former workers, remains ongoing.

Machado, the former route driver, said Thursday he’s “not holding [his] breath” on getting money from the class-action case since it’s unlikely to be resolved soon. But with some extra dough coming in from his unused PTO, he said he’s looking forward to “summertime fun” with his kids, who are 14 and 15.

“Hopefully we can go somewhere,” he said. “Maybe Six Flags or something.”

Caleb Symons can be reached at 352-1234, extension 1420, or Follow him on Twitter @CalebSymonsKS.