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 filings 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. It needs to be reformed to stop these abuses. Congress enacted Sections 1113 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 current economic and financial crises make corporate bankruptcy reform even more urgent. Business bankruptcies increased significantly in 2008. The threat of possible bankruptcy filings by the Detroit-based auto companies has underscored the need to enact reforms now.

In the 110th Congress legislation was introduced in the House and Senate to stop abuses of our bankruptcy laws. Thanks to the efforts of the UAW and the rest of the labor movement to educate members of Congress about this issue, 85 representatives and senators co-sponsored this legislation.

These bills included the following provisions:

• closing loopholes that have allowed top management to receive lucrative compensation deals at the same time they are trying to slash wages and benefits for workers and retirees;

• allowing bankruptcy judges to consider the financial condition of a company's entire operations – both foreign and domestic;

• providing greater protections for pension and retiree health benefits;

• expanding the protections for the wages and benefits of active workers;

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

In the 111th Congress, we need to get this legislation enacted in order to protect workers and retirees from abuses of the bankruptcy laws.

Action