Specifically, “the union must come forward with evidence of a proposed modification’s illegality, and the union’s own good cause for rejecting the debtor’s proposal on such grounds, before the burden of showing legality falls on the debtor.” The Code and court precedent are clear about the requirements that must be satisfied before a court can approve the rejection of a collective bargaining agreement under § 1113, but are silent on which labor terms management may actually impose once the court has approved the rejection. With bankruptcy law’s silence on which terms the debtor may impose after obtaining a court’s approval for rejection of a collective bargaining agreement under § 1113, the next intuitive place to search for a solution is NLRB precedent. 30, 1994) [hereinafter ] (stating that because the employer only proposed decreasing contributions to health insurance plans during pre-§ 1113 negotiations, its subsequent action to drop the union’s plan and substitute its own self-insurance plan was unlawful); Advice Memorandum from the NLRB Office of the Gen. After gaining court approval for rejection, the debtor imposed labor terms on the union that included suspending pension contributions for one year and ceasing to make health and welfare contributions for ninety more days. 2003) (permitting rejection of the collective bargaining agreements of the first two locals, but prohibiting rejection of the third because debtor neglected to negotiate in good faith with the third union local); Am. After its factory workers joined Union General De Trabajadores De Puerto Rico in October 1991, the union initiated collective bargaining negotiations and the parties traded proposals via mail through the end of January 1992. Both the NLRB and the Ninth Circuit agreed that the employer’s position that its “managers were businessmen, and they had to take care of business” confirmed that the employer was not meeting at reasonable times with its union, because such a statement evinced that “bargaining was not part of its business, but rather Beyond the behaviors condemned in the above cases, courts have found that several other negotiating behaviors violate the duty to meet at reasonable times. Each of these cases demonstrates the fact-specific inquiries that courts and the NLRB regularly conduct to determine whether employers have satisfied their duty to meet at reasonable times. While surface bargaining is conceptually simple to understand, it can be difficult to identify in practice. 861, 862–63 (1977) (finding that surface bargaining exists where an employer rejects a union proposal, and makes a counterproposal but does not try to reconcile the differences between the two). Furthermore, sessions were often shortened or interrupted by the employer’s habit of arriving late, taking phone calls during meetings, and ending meetings early even when the union desired to continue negotiating. Unions may also act irrationally, withholding offers and concessions in the hopes that the debtor will bargain against itself, and ultimately impose favorable “last, best offer” terms when it faces no alternative. 1988) (holding that union did not show good cause when it declined debtor’s proposal for fear of adverse consequences on collective bargaining negotiations with other employers); (1) the likelihood and consequences of liquidation if rejection is not permitted; (2) the likely reduction in the value of creditors’ claims if the bargaining agreement remains in force; (3) the likelihood and consequences of a strike if the bargaining agreement is voided; (4) the possibility and likely effect of any employee claims for breach of contract if rejection is approved; (5) the cost-spreading abilities of the various parties, taking into account the number of employees covered by the bargaining agreement and how various employees’ wages and benefits compare to those of others in the industry; and (6) the good or bad faith of the parties in dealing with the debtor’s financial dilemma. 303L of the United Steelworkers of America Rubber Plastic Conference to modify a collective bargaining agreement the parties had signed the previous year. After filing, the debtor made a proposal to the union calling for pay cuts; reduced vacation days and paid holidays; a ban on “premium pay;” eliminating established work weeks for part-time employees; and reducing the present health, pension, and welfare benefits, among other reductions. When the union first organized, the employer resisted the organizing campaign strongly enough that the union filed unfair labor practice charges as a result of the employer’s actions. The parties ultimately settled, but not without the employer admitting guilt in “interrogating employees about their union activities . The NLRB ruled the employer’s actions “clearly fall far short of its obligation to meet at reasonable times and to bargain with the [u]nion,” and held the employer had committed an unfair labor practice. 1320, 1323 (1979) (finding failure to meet at reasonable times when the union continually requests that the parties negotiate more frequently and for longer periods, but the employer refuses). 1267, 1273 (1982) (noting that employer’s insistence on negotiating through mailed letters and phone calls reflects a “callous unwillingness” to satisfy its duty to meet with the union at reasonable times). 529, 537 (1980) (holding that surface bargaining exists where employer evinces attitude of not taking the negotiations seriously, refuses to send any company personnel to bargaining sessions or to make any counterproposals, and hesitates to schedule meetings). the NLRB affirmed the ruling of an administrative judge finding that a manufacturer of hotel and restaurant equipment had engaged in surface bargaining with the union representing its employees, Shopmen’s Local Union Number 455, International Association of Bridge, Structural & Ornamental Iron Workers, AFL-CIO. On the contrary, if the parties must negotiate knowing that only terms from the “last, best offer” may be imposed if an agreement is not reached, debtors will function irrationally under both models by not trying sincerely to reach a deal, and making few, if any, concessions. 1988) (union rejecting debtor’s proposal is in good faith if union made compromise proposals that would satisfy its needs while preserving savings for the debtor, but union stonewalling and hoping that the court will reject the § 1113 motion because it doesn’t satisfy other requirements for rejection does not constitute good cause); Bowen Enters., Inc. United Food & Commercial Workers Int’l Union ( Bowen Enters., Inc.), 196 B. , a tire manufacturer filed for chapter 11 bankruptcy and commenced negotiations with Local Union No. The NLRB found that this action violated the employer’s duty to bargain under the NLRA because during pre-§ 1113 negotiations the debtor had only proposed reducing healthcare contributions, not eliminating the plan entirely. 1992) (finding that duty to meet at reasonable times is satisfied when debtor meets with union for ten hours total under the circumstances of the case); , an electrical contracting company and its union, the International Brotherhood of Electrical Workers Local 81, were scheduled to begin negotiations on a new collective bargaining agreement shortly before the existing one lapsed. Relations between the two parties had been contentious from the start. threaten[ing] to reclassify employees as apprentices, [threatening to] close its shop and reopen under a new name with new employees; creating the impression of surveillance; promising benefits; announcing new benefits; and granting a wage increase to discourage employees from voting for union representation.” The union subsequently proposed three possible future meeting times and the employer declined all three, telling the union it would “get back to [it] to set up a meeting sometime in the next two weeks,” but never did. 964, 973 (1968) (employer fails to designate bargaining agent with sufficient authority). Similarly, unions will also feel more urgency to act rationally to reach an agreement because if none is reached, its members will be stuck working under labor terms that the debtor may impose from any point in the negotiations, with little union input required. 2003) (citations omitted) (permitting rejection of the collective bargaining agreements of the first two locals, but not the third where debtor would not negotiate in good faith with union,); , 52 B. at 801 (satisfying requirement when debtor genuinely attempts to negotiate reasonable changes to collective bargaining agreement, but parties’ positions are simply too far apart for agreement to be reached); Royal Composing Room, Inc.), 848 F.2d 345, 349 (2d Cir. The debtor appealed this decision to the Second Circuit, which reversed the district court’s ruling, reasoning that the union did not have good cause to reject the final offer because it was asking for more money than the debtor or potential buyer could afford. (, the debtor filed for chapter 11 and after six months of negotiations with its union failed to produce a new collective bargaining agreement, the debtor filed a § 1113 motion to reject the existing collective bargaining agreement, which the bankruptcy court approved. Maxwell Newspapers, Inc.), 981 F.2d 85, 91 (2d Cir. Under both the economic model and the problem-solving model of negotiation, if courts permit flexibility in the terms the debtor may impose should bargaining fail, the debtor will be more likely to function like a rational actor trying earnestly to reach an agreement, because it will not have to fear the repercussions if negotiations fail. Section 1113(b) and (c) generally require the following steps: Congress enacted Section 1113 favoring voluntary solutions in response to NLRB v. The court is required to rule on any motion for rejection within 30 days after the commencement of a hearing unless otherwise agreed by the parties. Under the NLRA, the employer may unilaterally change working conditions after reaching a legitimate impasse in bargaining, and may then implement only those changes that were reasonably contemplated within the proposals that the union had rejected in good faith bargaining. The asset buyer may wish to consider insisting on relief from any such obligation, especially if the purchaser intends to continue operations as a successor under the NLRA. When a company seeks to reject or modify a collective bargaining agreement under Chapter 11 of the U. Bankruptcy Code, Bankruptcy Code §1113, entitled Rejection of Collective Bargaining Agreements, clarifies the circumstances under which such agreements may be rejected. 513 (1984) where the Supreme Court concluded that a debtor could reject a collective bargaining agreement without engaging in collective bargaining and that such unilateral alterations by a debtor would not violate the National Labor Relations Act (NLRA) 29 U. The court must schedule a hearing within 14 days following the filing of a motion to reject the collective bargaining agreement, but this may be extended. The court also may authorize the debtor to implement "interim changes in the terms, conditions, wages, benefits or work rules provided by a collective bargaining agreement" if those changes are "essential to the continuation of the debtor's business or in order to avoid irreparable damage to the estate." 11 U. Terms and conditions unaffected by the debtor's §1113 proposal may not be changed unilaterally without exhausting the NLRA's bargaining requirements. Finally, where the debtor's collective bargaining agreement contains a successorship clause and a buyer may be waiting in the wings, the debtor may seek to have the collective bargaining agreement voluntarily modified or rejected before the sale of assets is consummated.The legislative history of §1113 strongly suggests that "necessary" should not be equated with "essential" or bare minimum. Section 1113 of the Bankruptcy Code provides courts with a comprehensive set of criteria for determining when chapter 11 debtors can reject collective bargaining agreements during bankruptcy. 1988) (union rejecting debtor’s proposal is in good faith if union made compromise proposals that would satisfy its needs while preserving savings for the debtor, but union stonewalling and hoping that the court will reject the § 1113 motion because it doesn’t satisfy other requirements for rejection does not constitute good cause); Bowen Enters., Inc. United Food & Commercial Workers Int’l Union ( Bowen Enters., Inc.), 196 B. There are just two instances in which courts have addressed this issue and held that a debtor is limited to imposing labor terms from only its “last, best offer” to the union. , the employer acquired a television and a radio station from a third party, and also assumed the collective bargaining agreement negotiated by its predecessor with the American Federation of Television and Radio Artists, AFL-CIO, Kansas City Local. .” It defined the characteristics that should be examined in figuring out whether or not an impasse exists: Whether a bargaining impasse exists is a matter of judgment. These factors include: (1) “[w]hether there has been a strike or the union has consulted the employees about one;” (2) the “fluidity” of the parties’ positions; (3) whether the parties continued to bargain even after one side declared an impasse; (4) whether the parties both believe that impasse has been reached; (5) the union’s hostility level towards the employer, (6) the “nature and importance of issues and the extent of difference or opposition;” (7) the “bargaining history;” (8) whether either party has “demonstrated willingness to consider the issue further;” (9) the “duration of hiatus between bargaining meetings;” (10) the “number and duration of bargaining sessions;” and (11) any “other actions inconsistent with impasse.” Federal courts consistently prevent employers from imposing terms on their unions that were not included in any pre-impasse proposals. (finding that bad faith exists when employer tries “to undercut the authority of the [u]nion as representative of its employees”); NLRB v. Likewise, in proceedings under § 1113(b)(2), courts require the debtor in pre-§ 1113 negotiations to display a similar purpose to reach an agreement with its union, and have found similar bad faith behaviors to violate this good faith requirement. This settlement zone must be susceptible to relatively precise identification and should remain more or less stable during the negotiation process.” Each party decides whether to accept or reject an offer within its settlement zone by evaluating a handful of factors, including its “preferred outcome, the opponent’s current offer, and the costs of deadlock.” When functioning as envisioned, the economic model assumes that the parties’ initial positions do not already fall within the settlement zone, requiring each party to quickly determine before trading proposals both its own bottom line and its estimate for that of the other party. explain why solutions are acceptable or unacceptable in whole or in part based on” analyzing each party’s needs. 1992) (ten hours for union to evaluate and respond to debtor’s proposal before commencement of hearing to reject current collective bargaining agreement is sufficient); Century Brass Prods., Inc., 55 B.
If the court does not issue a timely ruling, the debtor may terminate or alter the provisions of the agreement pending court action. A debtor must propose only "those necessary modifications in the employees' benefits and protections that are necessary to permit the reorganization of the debtor ..." §1113(b)(1)(A). It also draws a comparison to the analogous situation outside bankruptcy of “bargain to impasse,” and suggests that bankruptcy courts should adopt a similar standard that permits employers to impose any terms “reasonably comprehended” in any pre-§ 1113 proposal. According to the Chairman of the Committee on Labor and Human Resources, Utah Senator Orrin Hatch, the goals of the hearing were to:determine what, if any, adjustments are needed to integrate successfully the goals of the National Labor Relations Act and the Bankruptcy Code. The LMRA gave employees the right to refrain from joining a union, made structural changes to the NLRB, further codified what constitutes an unfair labor practice, specifically guaranteed that both unions and employers could freely speak their minds without risk of committing an unfair labor practice, set out fundamental duties for each party during collective bargaining, altered the employee grievance process laid out in the NLRA, increased regulation of internal union affairs, made procedural changes to filing unfair labor practice charges, laid out criteria for when the NLRB should issue injunctions, and prioritized state “right to work” laws over union requirements. Having a similar incentive, the union will surely be aware of this incentive for the debtor and will likely respond by offering little private information as well. ( Orion Pictures Corp.), 4 F.3d 1095, 1099 (2d Cir. It is sufficient that those who know their interest best, management and unions, divide as follows: The employer community praises the decision, and we condemn it. Part III discusses the perverse incentives debtors would have during negotiations if limited to imposing only terms from their “last, best offer” to unions. Together, these statutory schemes should function to ensure that a unionized debtor can undergo financial rehabilitation in a timely and equitable manner, without really subverting the collective-bargaining process or undermining the ability of a union to fulfill its representative responsibility on behalf of its particular employees. Leaders from a variety of unions and labor advocacy organizations, including the AFL-CIO, the Food & Commercial Workers Association, and the International Brotherhood of Teamsters, Chauffeurs, Warehousemen & Helpers of America submitted statements to the Committees opposing the He also criticized the ruling for “giv[ing] debtors a practical assurance that collective bargaining agreements may be repudiated with impunity, at least as long as there is some minimal attempt to negotiate with the union.” . 2006) (citation omitted) (“Section 1113 has been characterized as resulting from a major lobbying effort by labor that was directed at reducing the authority of the bankruptcy court and increasing the role of negotiations between parties.”). The NLRA also provides specific guidance on how unions should be organized internally, sets out unfair labor practices, and creates the National Labor Relations Board to adjudicate unfair labor practice claims. By contrast, if post-§ 1113 debtors have broader authority to impose terms from any pre-§ 1113 proposal, should negotiations fail, each party will be more likely to collaborate in order to find a mutually beneficial solution. 1996) (highlighting the congressional intent of § 1113 to encourage parties to negotiate for mutually agreeable, new collective bargaining agreement, instead of forcing courts to do the leg-work). 523, 550 (1943) (citation omitted) (“[T]he question whether a lease should be rejected and, if not, on what terms it should be assumed is one of business judgment.”); Orion Pictures Corp. 1993) (“[A] bankruptcy court reviewing a trustee’s or debtor-in-possession’s decision to assume or reject an executory contract should examine [the] contract and the surrounding circumstances and apply its best ‘business judgment’ to determine if it would be beneficial or burdensome to the estate to assume it.”); Control Data Corp. 1996) (holding that union did not establish good cause for rejecting collective bargaining agreement when its counterproposals and cost analyses are unrealistic and a sham); Sierra Steel Corp., 88 B. Looking beyond this gap in the Code, there is also little bankruptcy case law that addresses what terms the debtor may impose after rejection. , Advice Memorandum from the NLRB Office of the Gen. 8-CA-20323 et al., 1988 NLRB GCM LEXIS 167, at *14 (Feb. , the metal manufacturing employer filed for chapter 11 and, after two subsequent strikes by the union, received permission from the bankruptcy court to make interim adjustments to the parties’ existing collective bargaining agreement while the negotiations on permanent modifications continued. Other proposed terms included reducing travel expense reimbursements, requiring employees to supply their own tools, permitting employees to transport tools in their own vehicles, permitting the employer to hire replacement workers if the union went on strike in the future without requiring those workers to join the union, and modifying the provision regarding appointing union stewards. In July, the employer reduced the scheduled meeting times on the last two days of talks, and in October, the employer walked out on the third day of negotiations in protest over an unwanted representative the union brought. 1979) (holding that employer who makes predictably unacceptable proposals and refuses to consider alternatives engages in surface bargaining); Neon Sign Corp., 229 N. These behaviors would not be tempting for debtors if they had flexibility to impose terms from any pre-§ 1113 proposal, because then they could negotiate with the purpose of making a deal, instead of with the purpose of hedging against the possibility of imposing concessionary terms that they do not want to impose if negotiations fail. The union filed unfair labor practice charges, alleging that the employer’s bargaining positions on those six core issues, combined with its frequent practice of responding to union complaints about its proposals by making even broader proposals, constituted surface bargaining. all authority customarily exercised by Management and ‘each and every right, power and privilege that it had ever enjoyed, whether exercised or not . When the case reached the Eleventh Circuit, the court sided with the union. The economic model of negotiation treats bargaining “as a process of convergence over time involving a sequence of offers and counteroffers on the part of the participants.” Under the economic theory, each negotiation can be broken down into individual issues, and each issue can be visualized on a continuum, with extremes at each end of the continuum representing the optimal position for one party involved in the negotiations.
The Code requires debtors to submit a proposal to the union containing only “necessary” modifications to the existing collective bargaining agreement to gain court approval for rejection under § 1113, but once rejection is approved, the debtor is not limited to imposing only the exact terms contained in this pre-§ 1113 proposal. Like bankruptcy courts, however, the NLRB has rarely touched this issue, and on the few times it has, it has served only to limit debtors to imposing labor terms that had been proposed during pre-§ 1113 negotiations. Counsel to Federick Calatrello, Regional Director of Region 8, Amherst Sparkle Mkt., No. But, the employer subsequently appealed the ruling to the Second Circuit, which ultimately permitted the employer to impose a labor term on the union from its initial § 1113 proposal, thereby functionally overruling the NLRB’s opinion limiting the employer to imposing terms only from its last, best offer. The NLRB ruled that because the changes to the pension, health, and welfare contributions had not been contained in any of the employer’s pre-§ 1113 proposals, they constituted a violation of the NLRA and were thus illegal. The parties also agreed to meet for three days at the end of March for face-to-face negotiations, but when the employer’s representatives arrived in Puerto Rico they announced that they were unable to meet on the third scheduled day. For example, employers can breach this duty when they refuse to meet unless a federal mediator is present, Alle Arecibo Corp., 264 N. Surface bargaining occurs when “forms of negotiation have been employed to conceal a purpose to frustrate or avoid mutual agreement.” Maywood Do-nut Co., 248 N. The NLRB and courts must examine the “totality” of a party’s words and actions to determine if “the party is engaging in hard but lawful bargaining to achieve a contract that it considers desirable or is unlawfully endeavoring to frustrate the possibility of arriving at any agreement.” the NLRB identified several behaviors constituting surface bargaining, including “delaying tactics, unreasonable bargaining demands, unilateral changes in mandatory subjects of bargaining, efforts to bypass the union, failure to designate an agent with sufficient bargaining authority, withdrawal of already agreed-upon provisions, and arbitrary scheduling of meetings.” , the NLRB has identified other behaviors constituting surface bargaining that employers would be incentivized to mimic if courts do not provide them flexibility in imposing terms on the union after court approval of § 1113 rejection. Wright Motors, Inc., 603 F.2d 604, 606–10 (7th Cir. While court oversight required by § 1113 would preclude debtors from engaging in several of these behaviors, three in particular—delaying tactics, unreasonable bargaining demands, and withdrawal of already agreed upon provisions—would prove appealing to debtors if courts were to limit the terms they can impose when pre-§ 1113 negotiations fail to yield an agreement. 763, 770 (1994) (employer tries to bypass union by making direct offer to employees on condition that they oust union); Billups W. a company that produced sandwiches and pies for distribution to convenience stores engaged in contentious collective bargaining negotiations with the Hotel, Motel, Restaurant Employees & Bartenders Union, Local Number 737 that represented its production and maintenance employees. ’”; (3) the employer’s proposed “zipper clause” where “the parties [waived the] right to bargain during the life of the agreement regarding any subject or any matter referred to or covered in the agreement or any other subject matter which could be considered a mandatory or permissive subject of bargaining”; (4) the employer’s proposed “no-strike clause” that prohibited the union from striking for either economic or unfair labor practice reasons; (5) the employer’s desire to retain uninhibited control over all disciplinary matters; and (6) the employer’s demand for full discretion over laying off and recalling employees based on productivity instead of seniority. Thus, because parties to most negotiations will follow one of these two models, it is logical for courts to permit post-§ 1113 debtors to impose terms from any pre-§ 1113 proposal because it maximizes the chances of the parties acting rationally and reaching an agreement. Maxwell Newspapers, Inc.), 981 F.2d 85, 92 (2d Cir. The Court agreed with the NLRB, noting that due to the “special nature of a collective bargaining agreement . The Court, however, rejected this claim, stating that accepting it “would largely, if not completely, undermine whatever benefit the debtor-in-possession otherwise obtains by its authority to request rejection of the agreement.” at 529. Applying a standard similar to the “reasonably comprehended” approach to post-§ 1113 debtors would permit courts to consistently apply the law in two analogous scenarios. In The employer thought it had satisfied its bargaining obligation by merely meeting with the union while, at the same time, repeatedly vowing not to sign any written agreement with the union regardless of the proposed terms. clearly show that the [employer] was not then negotiating, nor did it intend to negotiate, in good faith with the representatives of its employees . Later, during negotiations, the employer rejected all of the union’s proposals, refused to offer any counterproposals, and attempted to circumvent union leadership by communicating directly with rank and file employees. Parties operating under the problem-solving model are also more likely to reach an agreement if courts permit the debtor to impose terms from any pre-§ 1113 proposal should the parties fail to reach an agreement. Reasoning that § 365(g) of the Code regards rejection of executory contracts as a prepetition action, claims relating to rejection must be considered only through the normal bankruptcy claims administration process.