Chicago, IL
Bankruptcy is no longer a last resort. Managers increasingly wield it as a proactive weapon to drastically and unfairly slash labor costs industry-wide—and to enrich themselves. This misuse of bankruptcy threatens the hard-won living standards of America’s working families and requires restoration of fairness and balance in the bankruptcy process through comprehensive reform of the bankruptcy laws.
The courts have enabled misuse of the bankruptcy laws by wrongly interpreting provisions enacted to protect workers and retirees in ways that facilitate business reorganization at almost any cost to employees and retirees. For example, most courts have watered down the standards for employer rejection of collective bargaining contracts and termination of health and pension benefits, so that they are now virtually meaningless—no more than series of mechanical steps. If employers comply with these steps, they can break almost any contractual promise to their employees, and then impose a virtually limitless array of contract modifications, cuts in retiree health coverage, and pension cost reductions of their choosing. At the same time, the courts approve almost every outrageous package proposed to enrich managers on the faulty premise that approval is necessary for successful reorganization and a sustainable competitive enterprise.
The unfairness of the current bankruptcy laws has been amply demonstrated in many recent bankruptcy cases. United Airlines executives received generous stock awards upon emergence from bankruptcy, while union-represented employees took significant pay cuts and lost their pension plans. At Delphi Corporation, where the company is claiming it must drastically cut hourly wages, eliminate all retiree health benefits, and destroy most of its U.S. jobs, Robert “Steve” Miller received a “signing bonus” of $2.8 million and the court approved bonuses of up to $46 per year million for Delphi management. Other examples of corporate gluttony include WorldCom CEO Michael Capellas, who agreed to lead the beleaguered company for a salary of $1.5 million, a signing bonus of $2 million, another $18 million in stock, and a guaranteed bonus of 100 percent of his base salary. Enron turnaround consultant Stephen Cooper received a $1.32 million salary, and 15 associate directors got salaries of $864,00 each. The Cooper team was guaranteed a bonus of at least $5 million upon confirmation of a Chapter 11 plan or a sale of all of Enron’s assets.
On April 6, 2006, Senator Bayh and Representative Conyers introduced a bill, the “Fairness and Accountability in Reorganization Act of 2006” (S.2526/H.R. 5113), which aims to reign in excessive executive pay in bankruptcy and to plug other loopholes in the current bankruptcy law. The Bayh/Conyers bill is a good start, but it does not go far enough. Comprehensive bankruptcy reform requires adoption of the following principles, which the Executive Council approves and endorses.
AFL-CIO Principles for Reform
- Executives should do no better than ordinary workers in bankruptcy—unless they can prove to a judge that the survival of the business requires they do better and that their pay is reasonable.
- Workers should have larger wage priority claims that are paid ahead of other creditors; their claims for unpaid wages of up to $15,000 should be paid before other creditors in bankruptcy.
- Workers should not be penalized for receiving health care because unpaid employer healthcare contributions are only paid ahead of other creditors if the wage priority limit is not reached; claims for unpaid healthcare contributions of up to $15,000 should be a separate claim that is paid before other creditors in bankruptcy.
- All workers should have a claim in bankruptcy court for lost pensions, just like other people whom the bankrupt company owes money and hasn’t paid.
- To further protect the interests of workers and retirees in their pensions, all collectively bargained pension plans should have union trustees.
- Workers who lost their retirement funds in Enron-like company stock frauds should go to the front of the line in bankruptcy.
- Workers who have been laid off without the 60 days notice required by the WARN Act should have their claims for back pay honored and not be subject to loopholes that release companies from their WARN obligations.
- Workers’ collective bargaining agreements should only be changed in bankruptcy after mediation with the company has failed and an arbitrator has found that only worker givebacks will save the company.
- Companies should not be able to siphon money into their healthy businesses and then claim that workers must give up wages and benefits to keep their employer afloat.
- · Companies should not be able to sell assets to escape having to pay for workers’ pension and health benefits they had previously promised to pay.