Recent industry-wide bankruptcies have left no doubt that American workers are in desperate need of comprehensive bankruptcy reform legislation to protect their interests. Seven major airlines along with Delphi, all major employers of CWA members, are among the many companies that have used bankruptcy to drastically reduce labor costs and eliminate pension and health care obligations. At the same time, these companies have enhanced management compensation, bonuses and large equity grants. Because bankruptcy has become a way to address competitive business pressures; labor costs, pension and health care obligations have become prime targets for cost cutting while executive compensation enhancements are treated as necessary elements for a newly reorganized business.
These developments have been enabled by features of the Bankruptcy Code that, even after the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005 (BAPCPA) amendments, continue to facilitate business reorganization at almost any cost. Provisions of the law that were originally enacted to protect workers’ interests now enable employers to renege on their commitments to workers with remarkable ease. Bankruptcy courts are applying these provisions in a manner weighted heavily in favor of employer interests and not in the balanced way Congress intended. Under the rubric of business “competitiveness,” virtually no aspect of employees’ financial security is off limits in a bankruptcy proceeding. At the same time, executives have been insulated from the effects of financial restructuring with generous payouts.
Enacted to protect collective bargaining agreements, sections 1113 and 1114 are now tools in the litigation process to obtain an array of contract modifications, cuts in retiree health coverage, and pension cost reductions. The standards for rejection have been
applied consistently, although most courts use a less stringent standard that permits the reference point for changes to include the period after emergence from bankruptcy.
Union bargaining behavior is judged by a double-standard that does not permit effective counters to an employer’s demand for concessions.
In many recent bankruptcy cases, extravagant compensation enhancements, perks, bonus packages and stock grants have been awarded to executives and upper management. United Airlines Executives got generous stock awards upon emergence from bankruptcy while union-represented employees took significant pay cuts and lost their pension plans. And more recently at Delphi Corporation, where the company claimed that it had to drastically cut hourly wages and eliminate all retiree health benefits last July, Robert “Steve” Miller got a “signing bonus” of $2.8 million.
For other Delphi management, enhanced compensation of up to $ 46 million for the year was also approved
On September 25, 2007, Senator Dick Durbin and Representative John Conyers introduced a bill, the “Protecting Employees and Retirees in Business Bankruptcies Act” (S.2092/H.R. 3652), which aims to reign in executive pay largess by requiring court approval of executive compensation proposed under a reorganization plan and plugging loopholes in the recently enacted amendment under BAPCPA designed to limit executive retention bonuses and severance pay. Under the Durbin/Conyers bill, compensation to corporate “insiders” (officers, directors and other persons in control of the debtor), which must be disclosed in a reorganization plan, would be subject to approval by the court under a reasonableness standard.
This legislation will protect workers from losing out by:
Increasing the value of worker claims in bankruptcy:
- Doubles the maximum value of wage claims for each worker to $20,000
- Allows a second claim of up to $20,000 for benefits earned
- Eliminates the requirement that employees must earn wage and benefit claims within 180 days of the bankruptcy filing
- Creates a new priority claim for the loss in value of workers’ pensions
- Establishes a new priority administrative expense for workers’ collective severance pay
Reducing the loss of wages and benefits:
- Restricts the situations in which collective bargaining agreements can be rejected, and tightens the criteria by which collective bargaining agreements can be amended
- Toughens the procedures through which retiree benefits can be reduced
- Adds to the criteria used to evaluate bids for assets of the bankruptcy company, so that bids are also judged by offers to maintain existing jobs, to preserve retiree health benefits, and to assume the obligations of any defined benefit pension plan
- Includes unpaid wages, vacation, and other accrued benefits in the calculation of reasonable and necessary expenses when determining the proceeds from asset sales
- Confirms that employees and retirees will continue to receive compensation after the company exits bankruptcy
Increase the parity of worker and executive claims:
- Adds to the statement of purpose of reorganizing plans that plans should seek to preserve jobs
- Requires court approval of executive compensation upon exit from bankruptcy
- Prohibits deferred executive compensation if employee compensation plans have been terminated in bankruptcy
- Ensures that workers maintain a claim for earned defined contribution pensions, but insiders do not
- Limits executive compensation enhancements such as bonuses while in bankruptcy
- Recovers executive compensation relative to lost employee compensation
- Voids extra payments made to executives or consultants in anticipation of bankruptcy
Senator Durbin is a member of the Senate Judiciary Committee, the committee of jurisdiction over bankruptcy law. Representative Conyers (D-MI) is Chairman of the House Judiciary Committee. CWA and the AFL-CIO have strongly endorsed the legislation.
Senator Durbin has 6 co-sponsors for S 2092:
Sen. Barbara Boxer (D-CA)
Sen. Sherrod Brown (D-OH)
Sen. Hillary Clinton (D-NY)
Sen. Russ Feingold (D-WI)
Sen. Edward Kennedy (D-MA)
Sen. Barack Obama (D-IL)
