Corporate Bankruptcy Reforms

In recent years corporations have increasingly used the bankruptcy system as a strategy to reject collective-bargaining agreements, dump pension plans and retiree health benefits, slash wages and eliminate jobs. At the same time, these companies have provided lucrative compensation packages for top executives, and in some cases have continued to invest substantial resources and make large profits in their foreign operations.

These abuses of the bankruptcy system have rippled through the steel, airline and auto parts industries. UAW members have seen these abuses firsthand in the bankruptcy filing by Delphi, Tower Automotive, Collins & Aikman and other auto parts firms. At the same time, other employers have used the threat of bankruptcy filings to push devastating cutbacks in wages and benefits for active and retired workers.

The UAW believes that our bankruptcy system is broken, and urgently needs to be reformed to stop these types of abuses. Congress enacted Sections 113 and 1114 of the Bankruptcy Code to stop companies from using the bankruptcy process as a device to destroy collective-bargaining agreements and retiree benefits. These provisions were supposed to promote legitimate, good-faith bargaining and the balancing of all parties’ interests, so that any modifications to wages and benefits would be limited to those that are absolutely necessary to prevent the liquidation of a company.

Unfortunately, in practice bankruptcy judges have routinely approved draconian proposals by companies to slash wages and benefits for workers and retirees, and to tear up collective-bargaining agreements. This has given unscrupulous CEOs, like Delphi’s Steve Miller, a green light to use the bankruptcy process as a device to evade their collectively bargained commitments to workers and retirees. Instead of fostering good-faith bargaining and a fair balancing of the interests of all parties, the bankruptcy process has become a mechanism to implement disastrous low-road corporate strategies that shift good-paying manufacturing jobs overseas, and leave behind only low-wage, no-benefit jobs for a shrinking number of Americans.

In 2005 Congress enacted several provisions that were intended to stop companies in bankruptcy proceedings from continuing to award huge compensation packages to executives at the same time they are pleading poverty and trying to slash wages and benefits for workers and retirees. But bankruptcy judges have narrowly construed these provisions, leaving large loopholes that have been exploited by the management of bankrupt companies to enrich themselves with outrageous bonuses and other types of compensation.

The UAW believes Congress needs to act promptly to stop these abuses of our bankruptcy laws. That is why we and the rest of the labor movement are strongly supporting the proposed Protecting Employees and Retirees in Business Bankruptcies Act of 2007 (S. 2092; H.R. 3652), which has been introduced by Sen. Dick Durbin, D-Ill. and Rep. John Conyers, D-Mich. This comprehensive legislation would amend the Bankruptcy Code to:

• Close loopholes that have allowed management to propose lucrative compensation deals for top executives, at the same time they are trying to slash wages and benefits for workers and retirees.

• Allow bankruptcy judges to consider the financial condition of a company’s entire operations – both foreign and domestic.

• Provide greater protections for pension and retiree health benefits.

• Expand the protections for the wages and benefits of active workers.

• Reform the bankruptcy process to encourage legitimate, good-faith bargaining between management and any labor unions, and a fair balancing of the interests of all affected parties.

Action