Bankruptcy Law and Labor Law

1
Bankruptcy Law and Labor Law

• . . . the trustee, subject to the court's
  approval, may assume or reject any executory
  contract or unexpired lease of the debtor."
  Bankruptcy Code
• A CBA an executory contract under bankruptcy
  code and may be rejected by employer
  (debtor-in-possession) with approval of
  bankruptcy court
• NLRB v. Bildisco Bildisco, U.S. Supreme Court,
  465 U.S. 513 (1984)

2
Requirements for Court Approval of CBA Rejection

• Section 1113 of Bankruptcy Code (1984 amendments)
• Firm must make a proposal to union
• Proposal must be based on complete and reliable
  info
• Proposal must be necessary to permit
  reorganization
• Proposed modifications must assure all affected
  parties treated fairly
• Firm must provide info to union
• Firm must meet at reasonable times with union
• Parties must negotiate in good faith to reach
  agreement
• Rejection by union must be for good cause
• Balance of equities must clearly favor rejection
  of CBA

3
Meaning of necessary

• Third Circuit Imminent Liquidation Standard
• Avoidance of imminent liquidation
• Proposal must be essential to the success of
  reorganization?
• Desirability of cost reduction insufficient to
  meet standards
• Modification must prevent short-term liquidation,
  not the contribution to long term success
• Proposed changes must be the minimum to meet the
  standard
• Second Circuit Successful Reorganization
  Standard
• Proposed changes need not be minimal, but those
  necessary to successfully reorganize
• Balance of equities criteria
• Likelihood and consequences of liquidation
• Reduction in value of creditors claims
• Likelihood and consequences of a strike if CBA
  voided
• Cost of any employee claims for breach of
  contract
• Ee wages and benefits compared to comparable
  firms in industry
• Parties good or bad faith