An Unhappy Crossroads
II. REJECTION OF COLLECTIVE BARGAINING AGREEMENTS A. Adoption of § 1113. Prior to the adoption of § 1113 in 1984, rejection of CBAs (except those of railroads), was governed by § 365 of the Bankruptcy Code, which permits unilateral rejection of any executory contracts of the Debtor, subject only to a minimal “business judgment” or “benefit to the estate” test. In NLRB v. Bildisco & Bildisco, 465 U.S. 513 (1984), the Supreme Court ruled (1) that a CBA could be rejected if it burdened the estate, and if the equities balanced in favor of rejection after reasonable efforts to negotiate a voluntary modification had been made and were not likely to produce a solution; and (2) that it was not a labor law violation (an unfair labor practice) for an employer unilaterally to abrogate a collective bargaining agreement after filing for bankruptcy but before the court approved rejection. Section 1113 was quickly adopted in 1984 to overturn Bildisco and to prohibit changes in labor contracts in bankruptcy without bankruptcy court approval. After the adoption of § 1113, a Debtor can modify or reject a CBA only pursuant to order of the bankruptcy court.
Interim changes approved:
• In re Aloha Air Group, No. 04-03063 (Bankr. D. Haw. Order March 8, 2005). After all unions other than IAM reached consensual agreements calling for 10% wage reductions, and IAM tentative agreement failed ratification, court imposed 10% reduction on IAM through 1113(e). Aloha said agreement with DIP financier was contingent on having ratified cost-saving agreements with all labor groups.
• In re UAL Corp., No. 02-B-48191 (Bankr. N.D. Ill Order Jan. 31, 2005) After all other unions except AMFA-represented mechanics accepted a second round of cuts, and mechanics failed to ratify their agreement containing parallel cuts, court approved temporary modifications including a 9.8% wage cut, sick pay at 75% of full time rate during first 15 days)
• In re UAL Corp., No. 02-B-48191 (Bankr. N.D. Ill Order Jan. 10, 2003). When all unions except the Machinists had entered into voluntary interim relief agreements, court granted the debtor’s Motion under Section 1113(e) to impose upon the Machinists a 14% reduction for the same time period.
• In re US Airways, Inc., No. 04-13819 (Bankr. E.D. Va. Order Oct. 15, 2004). For all employee groups, modifications ordered for a four-month period, including 21% pay reductions, reductions in defined contribution pension plans, suspension of minimum aircraft requirements, authority to outsource certain work, and work rule changes; court concluded that immediate accumulation of cash was necessary to meet debt and lease payments due early in 2005.
• In re Bowen Enterprises, Inc., 196 B.R. 734 (Bankr. W.D. Pa. 1996). Reduction of wages according to a schedule, redefinition of overtime, elimination of personal days and New Year’s Day as holiday, reduction in paid vacation, provided that shareholders received no dividends during period of reductions and wages and benefits of managerial employees were reduced in same amount. 18
• Liberty Cab & Limousine Co., 194 B.R. 770 (Bankr. E.D. Pa. 1996). 35% reduction in “guaranteed” portion of wages, leading to overall reduction (including tips) of 13%.
• In re Almacs, 169 B.R. 279 (Bankr. D. R.I. 1994). Reduction of wages by 15% (later reduced to 12% and 9%), deferring 4% wage increase, and applying part-time wages and benefits to employees downgraded from full to part time; despite hardship to union members, changes were essential to Debtor’s continued operations and union offered no alternatives to eliminate losses.
• In re Chas. P. Young Co., 111 B.R. 410, 411 n.1 (S.D. N.Y. 1990). Relief from a contract provision that new wage and benefit terms would be set by interest arbitration (interim rejection becomes moot when contract expires) .
• In re Hoffman Bros. Packing Co., 173 B.R. 177 (9th Cir BAP 1994). Affirming prospective reduction of health and pension benefit costs by two thirds (but overturning nunc pro tunc reduction back to date of filing).
• In re Blue Diamond Coal, 131 B.R. 633, 638 (E.D. Tenn. 1991). First approving reduction in health and pension benefits, elimination of daily overtime, reduction in holidays and vacation pay, cap on wages, conditioned on 15% wage reduction for nonunion employees; second order, eliminating restriction on debtor’s ability to purchase coal from contract miners.
• In re United Press International, 134 B.R. 507 (Bankr. S.D.N.Y. 1991). Reduction of wages to 80% level and various work rule relief. • In re Garofalo’s Finer Foods, Inc., 117 B.R. 363 (Bankr. N.D. Ill. 1990). 15% reduction in labor costs, provided Debtor reduce compensation paid to six executives by 15%.
• In re Landmark Hotel & Casino, Inc., 78 B.R. 575 (9th Cir. BAP 1987). 15% wage reduction, elimination of future wage increases, limitation of paid vacations to two weeks, elimination of two holidays, pension contributions eliminated as to five unions; sixth allowed choice between no more pension contributions or equivalent reduction in wages up to 20%; conditioned on “snapback” provisions and on one union’s arbitration of “most favored 19 nations” clause; “without some modifications, this Debtor dies a financial death.”
• In re D.O. & W. Coal Co., 93 B.R. 454 (Bankr. W.D. Va. 1988). 10% reduction in wages and subsequent relief from obligation to make pension fund contributions (with production bonus if certain goals were met).
• In re Evans Products Co., 55 B.R. 231, 233 (Bankr. S.D. Fla. 1985). 17% reduction in wages and benefits. “. . .the plant will have to be closed if the negative cash flow cannot be arrested. There is no reasonable prospect of a market change in time to prevent the closing of the plant.”
• In re Russell Transfer, Inc., 48 B.R. 241 (Bankr. W.D. Va. 1985). 20% reduction of salaries and benefits of union employees, provided that management employees suffer a 10% cut.
• In re Salt Creek Freightways, 46 B.R. 347 (D. Wy. 1985). Reductions in wage rates, elimination of health and welfare payments, pension fund contributions, sick leave payments, and reduction in paid holidays and paid vacation, so that the Debtor’s ratio of expenses to revenue was reduced from 117% to 95.4%.