Bankruptcy ruling gives employer an edge in labor bargaining
Organized labor suffered a serious setback this week as the United States Supreme Court upheld the right of employers to breach union contracts after filing for reorganization under federal bankruptcy laws.Skip to next paragraph
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The AFL-CIO, which already was pressing Congress for legislation to protect union interests in bankruptcy, says it will now seek immediate relief from a court action that ''obviously enhances employer opportunities for union-busting techniques.''
Labor Secretary Raymond Donovan expressed personal concern about the ruling. In Bal Harbour, Fla., meeting with construction unions, Secretary Donovan said the decision, in a New Jersey case, could undermine the collective bargaining process and cause more conflict.
Sal Valente, president of the company involved, the Bildisco Manufacturing Company, hailed the decision for ''upholding the flexibility we needed to survive.'' Other employers responded similarly to the ruling, which could be a precedent in the continuing struggle by financially troubled companies in competitive markets.
The decision developed out of a bankruptcy action by Bildisco in April 1980. The company was under a three-year contract with the International Brotherhood of Teamsters, signed in 1979 and covering 18 employees. Bildisco now has only one.
According to the union, the company had already stopped complying with some provisions of its labor contract and, after filing under Chapter 11 of the Bankruptcy Code, it reneged on wage increases and contributions to health and welfare funds. Noting that the contracts specifically provided that the terms would continue to be binding on the parties if there was a bankruptcy, the Teamsters local filed unfair labor practice charges with the National Labor Relations Board (NLRB).
Bildisco responded by formally asking the bankruptcy court to void its collective bargaining agreement with the union.
The company won the relief it sought in bankruptcy court and on appeal in US District Court. At about the same time, however, the NLRB held Bildisco in violation of federal labor law and ordered the company to honor the terms of its contract. The conflicting decisions were reviewed by the US Court of Appeals in Philadelphia, which in 1982 ruled against the union and NLRB. Its decision was upheld by the Supreme Court this week.
The impact is uncertain, and the decision is not considered likely to set off a new wave of employer petitions for bankruptcy to avoid high labor costs. Companies must still negotiate in good faith with unions on wage and other concessions before reneging on contract terms under bankruptcy laws, and they would risk harsh consequences that bankruptcy has on merchandising, credit, and other business.
Still, the decision unquestionably makes possible the abrogation of contract provisions. Employers need only prove that the terms are ''burdensome'' and would hinder organization plans. The test will be whether the harm to an employer and its creditors would outweigh benefits provided for employees.
The Supreme Court decision had been anxiously awaited by labor and business because of the highly publicized Continental Airlines and Wilson Foods cases, the most important of 22 companies that have filed for bankruptcy reorganization in hope of relief from union contract costs. Of the 22, at least 19 have succeeded.
Labor charges that federal bankruptcy laws are being abused by employers seeking to weaken or oust unions or to force workers to give wage and other concessions. Companies contend that bankruptcy petitions are a chance to become economically sound and to compete more effectively in the marketplace - and by doing so to save jobs that might otherwise be lost.