The Use of Bankruptcy Proceedings to Modify Bargaining Agreement Obligations in The United States

Publication Date01 Nov 1987
AuthorC. B. Craver
DOIhttp://doi.org/10.1111/j.1468-2230.1987.tb02586.x
THE
MODERN
LAW
REVIEW
Volume
50
November
1987
No.
7
THE USE
OF
BANKRUPTCY PROCEEDINGS
TO
MODIFY BARGAINING AGREEMENT
OBLIGATIONS IN THE
UNITED STATES
I. INTRODUC~ION
A
PRECARIOUS
financial condition will generally not excuse an
employer’s failure to comply with its obligations under an existing
bargaining agreement
.’
If, however, an economically moribund
corporation
files
a petition for reorganisation under Chap.
11
of
the United States Bankruptcy Code,* it may be able to modify or
to reject entirely its outstanding bargaining commitments. Such
recourse is available to financially troubled business entities to
permit them to avoid liquidation,
to
the presumed benefit
of
their
creditors and their
employee^.^
In recent years, an increasing number
of
American companies
has employed Chap.
11
proceedings to negate wage and benefit
obligations under collective bargaining contracts. On April
22,
1983,
Wilson Foods, the fifth largest meat packing firm in the
United States, filed for bankruptcy protection. It immediately
rejected labour agreement commitments to over 9,000 workers,
despite the fact it had an estimated net worth
of
at least
$67
e.g.
lnt’l. Distribution
Centers,
Inc.
(1986) 281 N.L.R.B. No.
111.
1986-87 CCH
NLRB P 18,382; Olive
Mechanical Contractors, Inc.
(1986) 281 N.L.R.B. No. 61, 1986-
87 CCH NLRB
P
18,328.
Hulser, “The Rejection
of
Collective Bargaining Agreements in Chapter
11
Reorganizations: The Need
For
Informed Judicial Decisions” (1986) 134
U.
Pa. L. Rev.
1235.
*
11
U.S.C. 551101-1174 (1982).
855
856
THE
MODERN
LAW
REVIEW
[Vol.
50
million.4 It claimed that its labour costs were
80
per cent. above
those
of
its newer competitors. On September 24, 1983, Continental
Airlines, the nation’s eighth largest air carrier, filed a Chapter
11
petition. It immediately modified contractually established work
rules and drastically reduced employee compensation levels. Three
days later, Continental resumed operations on approximately one-
third
of
its former routes with employees willing to cross picket
lines that had been established by labour organisations protesting
the company’s unilateral actions. Pilots formerly earning an average
of
$77,000
per year were now receiving a flat $43,000, while flight
attendant earnings were reduced from an annual average
of
€29,000
to
a new base
of
€14,000.5 Since deregulation
of
the trucking
industry in 1980, approximately
20
per cent.
of
the large, unionised
carriers have gone into bankruptcy and have been replaced by
smaller, unorganised firms.6
In
N.
L.R.
B.
v.
Bildisco
&
Bildisco,’
the United States Supreme
Court sustained the right
of
companies such as Wilson Foods and
Continental Airlines to unilaterally modify or reject collective
bargaining agreement obligations following their filing
of
bankruptcy
petitions. On June 29, 1984, Congress amended the Bankruptcy
Code6 for the ostensible purpose
of
making it more difficult for
employers to utilise bankruptcy proceedings to avoid their
contractual commitments to employees. Specific procedural pre-
requisites have to be satisfied before bargaining agreement
obligations may be altered, and the prior approval
of
a bankruptcy
court must now be obtained.
This article will examine the application
of
bankruptcy proceedings
to collective bargaining agreements. The impact
of
the recent
amendment to the Bankruptcy Code will be specifically addressed.
Before these issues are considered, however, it would be beneficial
to provide a brief overview
of
the collective bargaining system in
the United States.
11.
OVERVIEW
OF
COLLECTIVE BARGAINING
SYSTEM
IN
THE
UNITED
STATES
Private sector bargaining rights are defined primarily in the National
Labour Relations Act (NLRA)9 which specifically provides
employees with the right to form, join, and assist labour
Rosenberg, “Bankruptcy and the Collective Bargaining Agreement-A Brief Lesson
in
the
Use of the Constitutional System
of
Checks and Balances” (1984) 58 Am. Bankr.
L.J. 293 at p.305.
Note, “The Rejection
or
Modification
of
Collective Bargaining Agreements Under
11
U.S.C.
11113” (1985) 18 Akron L. Rev. 729. See Gibson, “Chapter
11
Is
a Two-Edged
Swdrd: Union Options
in
Corporate Chapter
11
Proceedings” (1984) 35 Labor
L.J.
624.
T.
Kochan,
H.
Katz
&
R.
McKersie,
The Transformation of American Industrial
Relations
11986) at 0.49.
7
(19843 465
us.’
513.
*
11 U.S.C. 91113 (Supp. 1986).
29 U.S.C. 10151-169 (1982).

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