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