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Bankruptcy as Corporate Tactic to Break Promises—and the Fight Back

Bankruptcy is being used by corporations—and now even by entire cities—as a sword to cut themselves free from legal obligations to workers who earned their pensions and retirement health care benefits. Wednesday’s action session “Bankrupting Retirement: Retirement Security and Bankruptcy as an Employer Strategy” at the 2013 AFL-CIO Convention convened four seasoned veterans of the battle to protect workers from a bankruptcy code skewed in favor of corporations. The discussion was moderated by Brandon Rees, acting director of the AFL-CIO Office of Investment.

The panelists presented distinct test cases, each in different arenas. What emerges from the stories of frustration was a plan of attack.

Robert Roach Jr., general secretary-treasurer of Machinists (IAM), has “been through bankruptcy as an employee, a local officer, a district officer and an international officer.” His extensive experience has taught him and his organization two things: first, there are no good outcomes for their members when facing bankruptcy; second, a union must be prepared for their company to declare.

“You need to be prepared because things start happening the first day,” he says. He advises that a team be in place ahead of time. It is too late to learn who the experts are after the company has declared bankruptcy. Instead, know the specialists and have them assembled as a team beforehand. “Pensions are what they’re coming after because they don’t want those liabilities.” Again Roach implores unions to realize this and to have a team and plan in place ahead of time.

Roach’s message is one of educating labor leaders. IAM has partnered with the State University of New York (SUNY) system to develop programs that will prepare these leaders for a bankruptcy fight. A two-day program is being planned in the New York City area, as well as a full-semester program as part of a SUNY master’s degree.

Larry Roehrig is wrestling with quite a different type of bankruptcy: the city of Detroit’s. Roehrig is secretary-treasurer and international vice president of AFSCME. He sees a lot of similarities between his battle and the ones Roach faces. “It’s so important to be a part of the process right at the very first step,” he says, echoing Roach.

Roehrig’s battle is a legal one. After detailing the frustrating road to the city’s bankruptcy and outlining the stakes for his retirees’ pension and health care benefits, he pivots to their solution. “We need a solution that has a process, not just an accelerator.” In a hearing approaching on Oct. 15 and a court date set for a week after that, they plan to use every legal maneuver available to them.

Specifically, they are challenging:

  • Whether or not the city negotiated in good faith,
  • Whether or not any meaningful negotiations took place and the validity of the figures used,
  • Whether the city’s Chapter 9 bankruptcy violates the U.S. Constitution,
  • Whether the Michigan Constitution was violated by reducing guaranteed pensions,
  • Whether the new emergency manager law is in violation of the U.S. Constitution, since one of its provisions is to remove all elected representation within the given jurisdiction.

David Jury is the associate general counsel for United Steelworkers (USW). He agrees with previous panelists advising labor organizations to be prepared and to communicate with their members. He also sees a dire need for reforms in the bankruptcy code. The AFL-CIO passed Resolution 14 on this very issue, committing to this cause of reform. The bankruptcy code which Jury details is maddening. “Unlike other areas of American law, which are designed to allow parties to enforce their legal rights, Congress created the bankruptcy code to give companies the right to break promises, to break their promises to workers to retirees and others.”

Grant Crandall is also a lawyer, general counsel for the Mine Workers (UMWA), but his test case—battling Peabody Energy six years ago—highlights successful organizing strategies outside the courtroom. Crandall neatly lays out four action items for labor leaders facing this kind of fight against a private company.

First, fight to get the case heard near the people most affected by it. A change of venue to a location with more labor-friendly laws is helpful, but just as important is being able to rally local support near the case.

Second, define the issue before the company does. “You have to make a moral case about it,” says Crandall. A TV blitz was highly effective in their Peabody fight. He credits a simple, powerful slogan for a great deal of the support they received: “Peabody Promised, Peabody Lied.” In more recent years, they have employed social media, using Twitter and Facebook.

Third, the entire organization must be shown it is willing to mobilize. Sending out a brief memo calling for a rally is one thing, but when everyone joins in—legal and leadership included—then large rallies result in great press coverage. Elderly, articulate retirees splash across TV screens in the same area where the company is hoping to find new customers.

Fourth and finally, be prepared for the potential rift between the active workforce and the retirees. He began to flesh this out, speaking first about the struggle of his elderly members facing the uncertainty in their lives caused by unfair corporate tactics.

But he didn’t finish his thought. He wasn't able to. Crandall broke down and needed several moments to compose himself. The commitment of all the panelists, fighting the same battle in different venues, was crystallized in this moment. “I’m sorry. As you can see it gets to all of us. This is something that really is heartfelt. You can’t work with our people and not really take it completely to heart. This is so central: everyone who’s involved in this looks at it that way. There’s nobody for which this is just regular work.”