Liquidating 1113 collective bargaining
The treatment of labor agreements in bankruptcy is governed by Bankruptcy Code Section 1113, 11 U. Second, unless the debtor has met these pre-requisites, the debtor may not unilaterally change any provision of a collective bargaining agreement.Courts have disagreed over whether the ban on unilateral modifications applies to payments that are owed under the collective bargaining agreement but that are based on pre-petition employment. As an employer takes steps to address pension plan funding and pension plan termination in the public arena of a bankruptcy case, these issues can become highly charged flash points involving a number of affected parties. Among the most alarming concerns may be the question: What will happen to my pension?Here, I will review these issues from the vantage point of the employees and their union. Once an employer has started a bankruptcy case, a decision about funding a defined benefit pension plan can signal the employer's intention regarding the ultimate fate of the plan.Companies in bankruptcy likely will be told by their professional advisers that bankruptcy concepts can be used to suspend payment of pension contributions during bankruptcy.For the courts that have followed Ionosphere, a failure to pay is not the same as a unilateral change in the agreement because the obligation simply becomes a claim in the bankruptcy and does not disappear altogether.However, the facts in the Ionosphere-type cases generally are different from the scenario described in the companion article, where a debtor at the beginning of a bankruptcy case tries to maintain a semblance of "business as usual" through "first day" requests to make various payments that might be considered pre-petition claims.
In reviewing its options, a debtor may decide that avoiding an early battle that can seriously undermine workforce morale makes sense as a means of establishing confidence in the reorganization effort. As described in the companion article, the plan administrator of a single employer defined benefit plan (including a debtor in Chapter 11) can terminate the plan only as permitted under ERISA.
1988), the Sixth Circuit ruled that, by failing to pay retiree health benefits owed under a labor agreement, the debtor had unilaterally modified the agreement in violation of Section 1113.
Given the potential significance of continued pension funding, whether or not to fund thus may be a matter of "location, location, location." Most courts outside the Sixth Circuit have followed the Ionosphere line of reasoning.
In order to enforce its collective bargaining agreement (and stave off a decision by PBGC to seek involuntary termination), the union may seek to compel continued contribution payments. Enacted in 1984, Section 1113 protects collective bargaining agreements in two ways.
In doing so, the union can take advantage of special rules under bankruptcy law that apply to obligations under a collective bargaining agreement. First, unlike other contracts of the debtor, collective bargaining agreements may only be rejected if the debtor follows procedures and meets a heightened standard detailed in the statute.