To all the folks who thinks they can stop concessions, here's a good article you folks better read before thinking like Bob Owens.You are all better off keeping your company out of bankruptcy. It'll cost less paycuts in the long run.
United's unions risk losing it all
January 21, 2003
BY FRANCINE KNOWLES Business Reporter
United Airlines, in the midst of renegotiating long-term concessions with its unions, may attempt to void its contracts if those talks fail--an action that likely would be successful, if history is any guide.
Workers at four of United's five unions earlier this month agreed to interim pay cuts ranging between nine and 29 percent, and U.S. Bankruptcy Judge Eugene Wedoff ordered the airline's machinists union to take a 14 percent interim wage cut after the union's leaders rejected a company proposal.
The interim cuts by all of the unions will reduce United's operating costs roughly $280 million, or $70 million a month over four months, and temporarily held off lenders from seeking liquidation.
Here's a look at some key bankruptcy cases and how union contracts were affected both before and after passage of Section 1113, which was designed to ensure unions were treated more fairly:
PRE-SECTION 1113
Kevin Steel Products Inc. v. Shopman's Local Union No. 4555
The employer, a steel fabricator, attempted to cut labor costs by making unilateral changes in its collective bargaining agreement. After the union responded by filing unfair labor practice charges, the employer filed under Chapter 11 and sought and received permission to void the contract. The court said contract rejection couldn't be based solely on the debtor's financial condition, but requires thorough scrutiny and a careful balancing of the equities on both sides.
REA Express Inc. v. Brotherhood of Railway, Airline, and Steamship Clerks
The freight carrier sought rejection of a pair of collective bargaining agreements guaranteeing supplemental unemployment benefits and restricting the carrier's power to consolidate its operations. The carrier considered these provisions obstacles to reorganization, and successfully sought to void the contract after filing Chapter 11. The court ruled that union contracts could be rejected if that's the only way a debtor can avoid liquidation.
Bildisco and Bildisco v. National Labor Relations Board
The building supplies distributor failed to remit pension and benefit contributions and to comply with other Teamsters union contract obligations. The union filed unfair labor practice charges. Meanwhile, Bildisco filed for Chapter 11, and afterward refused to pay wage increases as they became due under the contract. The company sought and received permission to reject the contract.
The court ruled that before acting on a petition to modify or reject a union contract, the bankruptcy court should be persuaded that reasonable efforts to negotiate a voluntary modification have been made and are not likely to produce a prompt and satisfactory solution. The court also ruled that breaching the contract first and seeking bankruptcy court approval for rejection afterward was allowable.
POST-SECTION 1113
Wheeling-Pittsburgh Steel Corp. v. United Steelworkers of America
The West Virginia-based steelmaker filed for Chapter 11. It presented a proposal to the union to reduce wages to $15.20 an hour from $21.40 for a five-year period. The union refused, arguing the pay cuts were unnecessary. The company sought and received court approval to void the contract. The court found that the wage cuts would enable the union to successfully reorganize, that all parties were treated fairly, and that the equity favored rejection.
American Provision Co. v. Teamsters Local 638
The company filed Chapter 11 and failed in its effort to have the union contract rejected. The bankruptcy court denied rejection because the company had only met once with the union to discuss the proposal, the projected savings from rejecting the contract only amounted to 2 percent of the company's total monthly expenses and the agreement was due to expire in eight months. The judge said several elements were needed to reject a contract, including making a proposal to the union that contains modifications necessary for successful reorganization, providing the union with complete and reliable information to make a decision, treating all parties fairly and equitably and bargaining in good faith. The court also said a contract could be voided if the union rejected the proposal without good cause.
TWA v. the Association of Flight Attendants
After TWA filed for bankruptcy in 1992, the flight attendants reached agreement to defer wage increases until 1995. In 1994, after determining TWA wouldn't be able to pay scheduled wage increases, flight attendants negotiated a second concessionary contract that remained in place until 1999. In 2001, TWA sought bankruptcy protection again. When it was acquired by American, the union agreed its contract could be changed to mirror American Airline's labor agreements.
Compiled by Francine Knowles
COST CUTTING TO SOLVENCY
United Airlines has won the following interim pay cuts in concessions from its unions. Longer-term concessions are being negotiated or will be imposed.
*Pilots: 29 percent (ratified by workers).
*Flight attendants: 9 percent (ratified by workers).
*Flight dispatchers: 13 percent (ratified by workers),
*Meteorologists: 13 percent (ratified by workers)
*Mechanics/ramp workers/customer-service agents: 14 percent (imposed by U.S. Bankruptcy Court Judge Eugene Wedoff).
Source: United Airlines' unions.
But to win a federal guarantee of desperately needed loans and to emerge from bankruptcy, the carrier is seeking longer-term $2.4 billion in annual labor cost savings, or $200 million a month.
That could be more difficult for the unions to swallow and may ultimately lead the court to trash some or all of United's labor contracts.
Recent changes in bankruptcy law have made it harder for companies in Chapter 11 to abrogate collective bargaining agreements with their employees, but more often than not bankrupt companies still have been able to do just that, labor and legal experts say.
"The law now makes it a little more difficult," said Robert Bruno, an assistant labor professor at the University of Illinois. "You have to show a good faith effort to negotiate. There are additional steps, but it's still a pretty easy thing to do."
Added Lake County-based bankruptcy attorney David Leibowitz, "If the debtor does all the things it is supposed to do, more often than not [companies] are going to be successful."
A study published in the Santa Clara Law Review that looked at every bankruptcy court decision reported between July 1984 and July 1993 in which companies sought to ditch union contracts found that companies were successful 58 percent of the time, or in 22 cases. Denial occurred in 15 cases. The bankruptcy court didn't rule in one case, according to the study, conducted by Christopher Cameron, currently an associate dean and professor of law at Los Angeles-based Southwestern University School of Law.
The survival rate of collective bargaining agreements has improved in bankruptcy proceedings since the enactment of Section 1113 of the bankruptcy code occurred in 1984. Prior to that, between 1975 and 1984, rejections were granted in 36 cases out of 54 studied--67 percent--according to Cameron's research. Denial occurred just under 28 percent of the time, or in 15 cases. The courts didn't rule in three cases.
So the rate of rejection declined about nine percentage points between the pre-and post Section 1113 time periods examined in the study.
Section 1113 was adopted by Congress as a protection for organized labor after decisions in several high profile bankruptcy cases that were deemed an abuse of bankruptcy law and unfair to unions. Among them was Continental Airlines' 1983 bankruptcy filing. After buying Continental, Frank Lorenzo took the company into Chapter 11 when he failed to get concessions from unions. In bankruptcy court, Lorenzo succeeded in voiding the collective bargaining agreements.
For Continental's flight attendants, that led to a 60 percent cut in wages and drastic reductions in vacation, sick and other benefits, according to the Association of Flight Attendants.
Machinists' pay levels were cut 50 percent, significant layoffs occurred, and Continental was able to sub-contract out a lot of work, said Robert Roach, general vice president for transportation with the International Association of Machinists and Aerospace Workers.
Pilots took 50 percent pay cuts across the board and were hit with work rule changes, said John Mazor, a spokesman for the Air Line Pilots Association.
"That was the first time an airline had tried to fly through bankruptcy," Mazor said. "Lorenzo filed bankruptcy with the intent of using that to abrogate union contracts."
Another key case pitted the National Labor Relations Board against building supplies distributor Bildisco and Bildisco . The company was successful in voiding its collective bargaining agreement. Bildisco refused to make pension and benefit contributions, which prompted the Teamsters to file unfair labor practices against the company.
The company filed Chapter 11, and then refused to pay wage increases as they became due. A bankruptcy court granted rejection of the contract, and the case, which landed in the U.S. Supreme Court, led to a ruling that the bankruptcy court could modify or reject a collective bargaining agreement. However, the bankruptcy court could act only if it was persuaded that reasonable efforts to negotiate voluntary modifications weren't likely to produce a prompt and satisfactory solution.
The court also ruled that breaching a union contract first and seeking bankruptcy court approval afterward is allowable.
"All of organized labor was up in arms," Mazor said. "We lobbied for change."
It came in the form of Section 1113. It requires that in order for a contract to be rejected, the debtor must first make a contract proposal that contains changes necessary to reorganize the company and that are fair and equitable to all other affected parties. It also requires that the debtor negotiate in good faith, provide the union with all relevant information necessary to evaluate the proposal, and that a hearing take place.
Section 1113 allows for rejection of a contract if unions reject a proposal without good cause and the balance of the equities favors rejection of the contract.
"This meant that it was no longer a rubber stamp action by the bankruptcy court," said Mazor. "The judges have a set of standards they have to apply," and which can be reviewed for fairness and legality by a higher court.
But labor attorneys note Section 1113 is not as effective as labor interests desired, and they stress that while it provides a process, it still permits contracts to be voided.
A Chicago-area attorney, who didn't want his name used, has handled about a half a dozen bankruptcy cases in the past year. He said in half those cases, employers were successful in getting contracts tossed.
Said U of I labor professor Bruno: "Despite the slight improvement in labor's position, the law doesn't significantly deter companies from petitioning the bankruptcy court or give the court greater incentive or inducement [not to reject contracts].
"That's particularly true when a company is very large, with significant capital, a large number of employees and in an industry where it's playing a large role. United fits all of those. When you add it all together, the law is just a mild barrier on the road to abrogation."
Mazor acknowledges bankruptcies present problems for unions, regardless of Section 1113.
Section 1113 is "not an all encompassing shield," he said. "Labor ends up taking its lumps along with everybody else."
But he said Section 1113 has served as a deterrent in preventing a corporation from filing bankruptcy simply "as a means to rid itself of labor contracts."
United's unions risk losing it all
January 21, 2003
BY FRANCINE KNOWLES Business Reporter
United Airlines, in the midst of renegotiating long-term concessions with its unions, may attempt to void its contracts if those talks fail--an action that likely would be successful, if history is any guide.
Workers at four of United's five unions earlier this month agreed to interim pay cuts ranging between nine and 29 percent, and U.S. Bankruptcy Judge Eugene Wedoff ordered the airline's machinists union to take a 14 percent interim wage cut after the union's leaders rejected a company proposal.
The interim cuts by all of the unions will reduce United's operating costs roughly $280 million, or $70 million a month over four months, and temporarily held off lenders from seeking liquidation.
Here's a look at some key bankruptcy cases and how union contracts were affected both before and after passage of Section 1113, which was designed to ensure unions were treated more fairly:
PRE-SECTION 1113
Kevin Steel Products Inc. v. Shopman's Local Union No. 4555
The employer, a steel fabricator, attempted to cut labor costs by making unilateral changes in its collective bargaining agreement. After the union responded by filing unfair labor practice charges, the employer filed under Chapter 11 and sought and received permission to void the contract. The court said contract rejection couldn't be based solely on the debtor's financial condition, but requires thorough scrutiny and a careful balancing of the equities on both sides.
REA Express Inc. v. Brotherhood of Railway, Airline, and Steamship Clerks
The freight carrier sought rejection of a pair of collective bargaining agreements guaranteeing supplemental unemployment benefits and restricting the carrier's power to consolidate its operations. The carrier considered these provisions obstacles to reorganization, and successfully sought to void the contract after filing Chapter 11. The court ruled that union contracts could be rejected if that's the only way a debtor can avoid liquidation.
Bildisco and Bildisco v. National Labor Relations Board
The building supplies distributor failed to remit pension and benefit contributions and to comply with other Teamsters union contract obligations. The union filed unfair labor practice charges. Meanwhile, Bildisco filed for Chapter 11, and afterward refused to pay wage increases as they became due under the contract. The company sought and received permission to reject the contract.
The court ruled that before acting on a petition to modify or reject a union contract, the bankruptcy court should be persuaded that reasonable efforts to negotiate a voluntary modification have been made and are not likely to produce a prompt and satisfactory solution. The court also ruled that breaching the contract first and seeking bankruptcy court approval for rejection afterward was allowable.
POST-SECTION 1113
Wheeling-Pittsburgh Steel Corp. v. United Steelworkers of America
The West Virginia-based steelmaker filed for Chapter 11. It presented a proposal to the union to reduce wages to $15.20 an hour from $21.40 for a five-year period. The union refused, arguing the pay cuts were unnecessary. The company sought and received court approval to void the contract. The court found that the wage cuts would enable the union to successfully reorganize, that all parties were treated fairly, and that the equity favored rejection.
American Provision Co. v. Teamsters Local 638
The company filed Chapter 11 and failed in its effort to have the union contract rejected. The bankruptcy court denied rejection because the company had only met once with the union to discuss the proposal, the projected savings from rejecting the contract only amounted to 2 percent of the company's total monthly expenses and the agreement was due to expire in eight months. The judge said several elements were needed to reject a contract, including making a proposal to the union that contains modifications necessary for successful reorganization, providing the union with complete and reliable information to make a decision, treating all parties fairly and equitably and bargaining in good faith. The court also said a contract could be voided if the union rejected the proposal without good cause.
TWA v. the Association of Flight Attendants
After TWA filed for bankruptcy in 1992, the flight attendants reached agreement to defer wage increases until 1995. In 1994, after determining TWA wouldn't be able to pay scheduled wage increases, flight attendants negotiated a second concessionary contract that remained in place until 1999. In 2001, TWA sought bankruptcy protection again. When it was acquired by American, the union agreed its contract could be changed to mirror American Airline's labor agreements.
Compiled by Francine Knowles
COST CUTTING TO SOLVENCY
United Airlines has won the following interim pay cuts in concessions from its unions. Longer-term concessions are being negotiated or will be imposed.
*Pilots: 29 percent (ratified by workers).
*Flight attendants: 9 percent (ratified by workers).
*Flight dispatchers: 13 percent (ratified by workers),
*Meteorologists: 13 percent (ratified by workers)
*Mechanics/ramp workers/customer-service agents: 14 percent (imposed by U.S. Bankruptcy Court Judge Eugene Wedoff).
Source: United Airlines' unions.
But to win a federal guarantee of desperately needed loans and to emerge from bankruptcy, the carrier is seeking longer-term $2.4 billion in annual labor cost savings, or $200 million a month.
That could be more difficult for the unions to swallow and may ultimately lead the court to trash some or all of United's labor contracts.
Recent changes in bankruptcy law have made it harder for companies in Chapter 11 to abrogate collective bargaining agreements with their employees, but more often than not bankrupt companies still have been able to do just that, labor and legal experts say.
"The law now makes it a little more difficult," said Robert Bruno, an assistant labor professor at the University of Illinois. "You have to show a good faith effort to negotiate. There are additional steps, but it's still a pretty easy thing to do."
Added Lake County-based bankruptcy attorney David Leibowitz, "If the debtor does all the things it is supposed to do, more often than not [companies] are going to be successful."
A study published in the Santa Clara Law Review that looked at every bankruptcy court decision reported between July 1984 and July 1993 in which companies sought to ditch union contracts found that companies were successful 58 percent of the time, or in 22 cases. Denial occurred in 15 cases. The bankruptcy court didn't rule in one case, according to the study, conducted by Christopher Cameron, currently an associate dean and professor of law at Los Angeles-based Southwestern University School of Law.
The survival rate of collective bargaining agreements has improved in bankruptcy proceedings since the enactment of Section 1113 of the bankruptcy code occurred in 1984. Prior to that, between 1975 and 1984, rejections were granted in 36 cases out of 54 studied--67 percent--according to Cameron's research. Denial occurred just under 28 percent of the time, or in 15 cases. The courts didn't rule in three cases.
So the rate of rejection declined about nine percentage points between the pre-and post Section 1113 time periods examined in the study.
Section 1113 was adopted by Congress as a protection for organized labor after decisions in several high profile bankruptcy cases that were deemed an abuse of bankruptcy law and unfair to unions. Among them was Continental Airlines' 1983 bankruptcy filing. After buying Continental, Frank Lorenzo took the company into Chapter 11 when he failed to get concessions from unions. In bankruptcy court, Lorenzo succeeded in voiding the collective bargaining agreements.
For Continental's flight attendants, that led to a 60 percent cut in wages and drastic reductions in vacation, sick and other benefits, according to the Association of Flight Attendants.
Machinists' pay levels were cut 50 percent, significant layoffs occurred, and Continental was able to sub-contract out a lot of work, said Robert Roach, general vice president for transportation with the International Association of Machinists and Aerospace Workers.
Pilots took 50 percent pay cuts across the board and were hit with work rule changes, said John Mazor, a spokesman for the Air Line Pilots Association.
"That was the first time an airline had tried to fly through bankruptcy," Mazor said. "Lorenzo filed bankruptcy with the intent of using that to abrogate union contracts."
Another key case pitted the National Labor Relations Board against building supplies distributor Bildisco and Bildisco . The company was successful in voiding its collective bargaining agreement. Bildisco refused to make pension and benefit contributions, which prompted the Teamsters to file unfair labor practices against the company.
The company filed Chapter 11, and then refused to pay wage increases as they became due. A bankruptcy court granted rejection of the contract, and the case, which landed in the U.S. Supreme Court, led to a ruling that the bankruptcy court could modify or reject a collective bargaining agreement. However, the bankruptcy court could act only if it was persuaded that reasonable efforts to negotiate voluntary modifications weren't likely to produce a prompt and satisfactory solution.
The court also ruled that breaching a union contract first and seeking bankruptcy court approval afterward is allowable.
"All of organized labor was up in arms," Mazor said. "We lobbied for change."
It came in the form of Section 1113. It requires that in order for a contract to be rejected, the debtor must first make a contract proposal that contains changes necessary to reorganize the company and that are fair and equitable to all other affected parties. It also requires that the debtor negotiate in good faith, provide the union with all relevant information necessary to evaluate the proposal, and that a hearing take place.
Section 1113 allows for rejection of a contract if unions reject a proposal without good cause and the balance of the equities favors rejection of the contract.
"This meant that it was no longer a rubber stamp action by the bankruptcy court," said Mazor. "The judges have a set of standards they have to apply," and which can be reviewed for fairness and legality by a higher court.
But labor attorneys note Section 1113 is not as effective as labor interests desired, and they stress that while it provides a process, it still permits contracts to be voided.
A Chicago-area attorney, who didn't want his name used, has handled about a half a dozen bankruptcy cases in the past year. He said in half those cases, employers were successful in getting contracts tossed.
Said U of I labor professor Bruno: "Despite the slight improvement in labor's position, the law doesn't significantly deter companies from petitioning the bankruptcy court or give the court greater incentive or inducement [not to reject contracts].
"That's particularly true when a company is very large, with significant capital, a large number of employees and in an industry where it's playing a large role. United fits all of those. When you add it all together, the law is just a mild barrier on the road to abrogation."
Mazor acknowledges bankruptcies present problems for unions, regardless of Section 1113.
Section 1113 is "not an all encompassing shield," he said. "Labor ends up taking its lumps along with everybody else."
But he said Section 1113 has served as a deterrent in preventing a corporation from filing bankruptcy simply "as a means to rid itself of labor contracts."
