Duty to bargain
Rejection of Collective Bargaining Agreements under Bankruptcy Law
As they relate to the enforcement or rejection of collective bargaining agreements, the provisions of Taft-Hartley and the Bankruptcy Reform Act of 1978 are in conflict.
Under Chapter 11 reorganization, it is possible, with court approval, for a debtor to reject executory contracts. Collective bargaining agreeements, to the extent that they govern future terms and conditions of work, are executory.
Under Taft-Hartley, the employer is prohibited from unilaterally terminating a collective bargaining agreement.
In 1984, the Supreme Court considered the conflict between federal bankruptcy law and federal labor law in the important NLRB v. Bildisco and Bildisco case. Three distinct issues were addressed concerning the conflict:
The principle issue was one of jurisdiction, specifically, which of the two conflicting laws should take priority. This issue was resolved in favor of the Bankruptcy Code, with the Bankruptcy Court enforcement of that law superceding the jurisdictional power of the NLRB to enforce Taft-Hartley. Therefore, the Bankruptcy Court, in considering a reorganization plan under Chapter 11, may allow rejection of a collective bargaining agreement, despite the restrictions imposed by Taft-Hartley.
If allowed, the rejection of the collective bargaining agreement could be made effective retroactively to the date the employer filed its petition for reorganization.
A balancing test was established as the standard for determining whether rejection should be permitted. If efforts at voluntary modification (i.e., negotiated relief) are not likely to resolve the burden on the employer, and if rejection would help the employer obtain a successful reorganization, rejection will be allowed.
The Bankruptcy Amendments of 1984
Because of the controversy surrounding the Bildisco case, efforts to obtain reform of the bankruptcy law were immediately undertaken in Congress. The result was the Packwood-Rodino Bill which made reorganization a little less attractive as a union busting device.
The 1984 amendments to the Bankruptcy Code added three standards which must be met before a bankruptcy court can allow rejection of collective bargaining agreements.
The debtor in possession must make concessionary proposals to the union, under Section 1113(B)(1)(A),
The union must be furnished with relevant information required to determine whether the proposal is equitable and necessary, under Section 1113(B)(1)(B), and
The debtor in possession must bargain in good faith with the union over the concessions requested, under Section1113(B)(2).
Procedurally, the amended law requires that a debtor in possession make the proposed modifications to the collective bargaining agreement prior to filing an application for rejection with the court. The debtor's obligation to bargain in good faith over that proposal includes disclosure of the most complete financial data available to show that the modifications are necessary for the successful reorganization of the debtor.
If the debtor fulfills its bargaining obligation and the union rejects the proposed modifications, the debtor may petition for rejection of the agreement.
In considering the application for rejection, the bankruptcy court is required to determine whether:
The union rejected the proposed modifications without good cause, Section 1113©(2),
Whether the modifications are necessary for the successful rehabilitation of the debtor, Section 1113©(1), and
Whether the "balance of equities" clearly favors rejection, Section 1113©(3).
The circuit courts are split on the appropriate standard to apply when considering whether rejection should be permitted. The code allows rejection if the proposed modifications are "necessary to permit the reorganization."
The Third Circuit Court of Appeals has interpreted the concept of "necessary modifications" to mean that rejection should be permitted only if the modifications are necessary to prevent liquidation of the firm.
The Second Circuit Court of Appeals has taken a position more favorable to rejection, by allowing rejection if rejection would be useful in reorganization and if the modifications are reasonable.
