[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
AMERICAN WORKERS IN CRISIS: DOES THE CHAPTER 11 BUSINESS BANKRUPTCY LAW
TREAT EMPLOYEES AND RETIREES FAIRLY?
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
COMMERCIAL AND ADMINISTRATIVE LAW
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 6, 2007
__________
Serial No. 110-139
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
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COMMITTEE ON THE JUDICIARY
JOHN CONYERS, Jr., Michigan, Chairman
HOWARD L. BERMAN, California LAMAR SMITH, Texas
RICK BOUCHER, Virginia F. JAMES SENSENBRENNER, Jr.,
JERROLD NADLER, New York Wisconsin
ROBERT C. ``BOBBY'' SCOTT, Virginia HOWARD COBLE, North Carolina
MELVIN L. WATT, North Carolina ELTON GALLEGLY, California
ZOE LOFGREN, California BOB GOODLATTE, Virginia
SHEILA JACKSON LEE, Texas STEVE CHABOT, Ohio
MAXINE WATERS, California DANIEL E. LUNGREN, California
WILLIAM D. DELAHUNT, Massachusetts CHRIS CANNON, Utah
ROBERT WEXLER, Florida RIC KELLER, Florida
LINDA T. SANCHEZ, California DARRELL ISSA, California
STEVE COHEN, Tennessee MIKE PENCE, Indiana
HANK JOHNSON, Georgia J. RANDY FORBES, Virginia
BETTY SUTTON, Ohio STEVE KING, Iowa
LUIS V. GUTIERREZ, Illinois TOM FEENEY, Florida
BRAD SHERMAN, California TRENT FRANKS, Arizona
TAMMY BALDWIN, Wisconsin LOUIE GOHMERT, Texas
ANTHONY D. WEINER, New York JIM JORDAN, Ohio
ADAM B. SCHIFF, California
ARTUR DAVIS, Alabama
DEBBIE WASSERMAN SCHULTZ, Florida
KEITH ELLISON, Minnesota
Perry Apelbaum, Staff Director and Chief Counsel
Joseph Gibson, Minority Chief Counsel
------
Subcommittee on Commercial and Administrative Law
LINDA T. SANCHEZ, California, Chairwoman
JOHN CONYERS, Jr., Michigan CHRIS CANNON, Utah
HANK JOHNSON, Georgia JIM JORDAN, Ohio
ZOE LOFGREN, California RIC KELLER, Florida
WILLIAM D. DELAHUNT, Massachusetts TOM FEENEY, Florida
MELVIN L. WATT, North Carolina TRENT FRANKS, Arizona
STEVE COHEN, Tennessee
Michone Johnson, Chief Counsel
Daniel Flores, Minority Counsel
C O N T E N T S
----------
SEPTEMBER 6, 2007
Page
OPENING STATEMENT
The Honorable Linda T. Sanchez, a Representative in Congress from
the State of California, and Chairwoman, Subcommittee on
Commercial and Administrative Law.............................. 1
The Honorable Chris Cannon, a Representative in Congress from the
State of Utah, and Ranking Member, Subcommittee on Commercial
and Administrative Law......................................... 2
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, Chairman, Committee on the
Judiciary, and Member, Subcommittee on Commercial and
Administrative Law............................................. 4
The Honorable Melvin L. Watt, a Representative in Congress from
the State of North Carolina, and Member, Subcommittee on
Commercial and Administrative Law.............................. 8
WITNESSES
Ms. Kim Townsend, Chief Steward, Local 138, United Automobile,
Aerospace and Agricultural Implement Workers of America (UAW),
Hastings, MI
Oral Testimony................................................. 10
Prepared Statement............................................. 11
Mr. Michael Bernstein, Arnold & Porter LLP, Washington, DC
Oral Testimony................................................. 13
Prepared Statement............................................. 15
Mr. Fred Redmond, International Vice President, Human Affairs,
United Steelworkers (USW), Pittsburgh, PA
Oral Testimony................................................. 20
Prepared Statement............................................. 22
Captain John Prater, President, Air Line Pilots Association,
International, Washington, DC
Oral Testimony................................................. 24
Prepared Statement............................................. 26
Mr. Greg E. Davidowitch, Master Executive Council President at
United Airlines, Association of Flight Attendants, CWA, AFL-
CIO, Washington, DC
Oral Testimony................................................. 31
Prepared Statement............................................. 32
Mr. Richard Trumka, Secretary-Treasurer, AFL-CIO, Washington, DC
Oral Testimony................................................. 37
Prepared Statement............................................. 40
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Prepared Statement of the Honorable John Conyers, Jr., a
Representative in Congress from the State of Michigan,
Chairman, Committee on the Judiciary, and Member, Subcommittee
on Commercial and Administrative Law........................... 7
AMERICAN WORKERS IN CRISIS: DOES THE CHAPTER 11 BUSINESS BANKRUPTCY LAW
TREAT EMPLOYEES AND RETIREES FAIRLY?
----------
THURSDAY, SEPTEMBER 6, 2007
House of Representatives,
Subcommittee on Commercial
and Administrative Law,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:15 a.m., in
room 2141, Rayburn House Office Building, the Honorable Linda
Sanchez (Chairwoman of the Subcommittee) presiding.
Present: Representatives Sanchez, Watt, and Cannon.
Also present: John Conyers, Jr..
Staff present: Susan Jensen-Lachmann, Majority Counsel;
Zachary Somers, Minority Counsel; and Adam Russell, Majority
Professional Staff Member.
Ms. Sanchez. Good morning. This hearing on the Committee of
the Judiciary, Subcommittee on Commercial and Administrative
Law will now come to order. And I apologize for starting this
hearing late.
I will now recognize myself for a short statement.
Earlier this week, the Nation celebrated Labor Day, a
special day dedicated to the social and economic achievements
of American workers. Unlike most other national holidays that
typically commemorate a particular person or historic event,
Labor Day is a tribute to the American worker. As Samuel
Gompers, founder and longtime president of the American
Federation of Labor, observed in 1898, ``It is a day when
workers can look forward to when their rights and their wrongs
would be discussed.''
Today's hearing hopefully will provide that long-overdue
opportunity. As many of you know, in April of this year, our
Subcommittee conducted a hearing on a recent phenomenon in
which chief executive officers of businesses going through
Chapter 11 bankruptcy proceedings receive outrageously large
salaries and bonuses, while they simultaneously slash the
wages, benefits and even jobs of workers who are the backbones
of those businesses. As one union representative observed,
``Chapter 11 is where the rich are getting richer while the
poor are getting poorer.''
Unfortunately, it appears that this is just one of many
inequities that Chapter 11 presents to workers and retirees.
The GAO just released a new study today finding that nearly
one-half of the Chapter 11 employers who were reviewed in the
study terminated their employer-funded benefit plans while they
were in bankruptcy. About 28 percent of Chapter 11 employers
sought to modify non-pension retiree obligations, such as
health insurance plans. And about 29 percent of Chapter 11
employers sought to reject collective bargaining agreements.
These statistics I find very disturbing.
Chapter 11 of the Bankruptcy Code was originally enacted to
give all participants an equal say in how a business that is
struggling to overcome financial difficulties should
reorganize. Unfortunately, this laudable goal does not reflect
reality, especially for American workers. As the head of the
American Bankruptcy Institute has observed, ``In case after
case, bankruptcy courts have applied congressional intent
favoring long-term rehabilitation to sweep aside wage and
benefit concessions won at the bargaining table.''
Bankruptcy is a last resort, a sort of timeout to give
business debtors the breathing room to reorganize their
finances. It is not intended to be and should not be used as a
pretext to negate contracts negotiated in good faith with
employees. If Chapter 11 is being used that way, we have a
responsibility to re-level the playing field for American
workers whose employers seek Chapter 11 bankruptcy protection.
To help us learn more about these issues, we have six
witnesses with us this afternoon. We are pleased to have Kim
Townsend, chief steward and member of UAW Local 138; Michael
Bernstein, partner at the Arnold & Porter law firm; Fred
Redmond, international vice president for human affairs of the
United Steelworkers; Captain John Prater, president of the Air
Line Pilots Association International; Greg Davidowitch, united
master executive council president of the Association of Flight
Attendants; and Richard Trumka, secretary-treasurer of the AFL-
CIO.
Accordingly, I look forward to the testimony of today's
witnesses at our hearing. I would now at this time like to
recognize my distinguished colleague, Mr. Cannon, the Ranking
Member of the Subcommittee, for his opening remarks.
Mr. Cannon. Thank you, Madam Chair.
Today's hearing raises an issue of common interest to the
Members of this Subcommittee: Does Chapter 11 treat employees
and retirees fairly when a business in financial trouble seeks
protection under the bankruptcy laws?
While there is a shared common interest in the issues to be
examined today, there is another shared common interest at
stake. That interest is ensuring that businesses can recover
and return to viability through a Chapter 11 reorganization.
Today we will hear from a panel of witnesses, the vast
majority of which represent organized labor. We must be
cognizant of the fact there are additional interests at stake
when a business is faced with financial trouble. Unfortunately,
many of those interests are not represented here today at the
witness table.
A primary purpose of the Nation's bankruptcy laws is to
permit a failing company, under court supervision, to
rehabilitate and reorganize its business, by allowing it to
relieve itself of the burden of oppressive debt and begin with
a fresh start. This is a primary purpose, because returning a
company to financial health is preferred to forcing a company
to liquidate.
This Nation's big businesses, the employers of the unions
represented here today, employ tens of millions of workers, pay
tens of billions of dollars in taxes, and keep this Nation
competitive in the global economy.
Corporate bankruptcy is not a financial scam, nor is it a
gimmick perpetuated by heartless big businesses seeking to
avoid paying their bills. The reorganization process as
encompassed in Chapter 11 allows troubled companies to keep
their doors open, preserving jobs and continuing to give
consumers access to their products.
If companies are forced to liquidate, all stakeholders
suffer. Employees will lose their jobs; retirees will lose
their retirement benefits; and creditors and shareholders will
have any potential recovery diminished or eliminated.
Liquidation hurts suppliers, customers, taxing authorities, and
local communities.
Essential to the reorganization process is the ability of a
troubled company to discharge its existing obligations. In some
cases, part of those existing obligations are going to be labor
legacy costs, including collective bargaining agreements,
retiree medical benefits, and defined benefit pension plans.
Section 1113 of the Bankruptcy Code allows a company in
Chapter 11 to reject, as a last resort, a collective bargaining
agreement. The company can reject a collective bargaining
agreement under section 1113 only if good-faith bargaining
between the troubled company and the union does not produce an
agreement, the statutory prerequisites have been satisfied and
the bankruptcy court finds that the ``balance of the equities''
favors rejection.
Section 1114 of the Bankruptcy Code makes similar
provisions for the rejection of retiree medical benefits and
pension plans. Rejection of a collective bargaining agreement,
retiree medical benefits, or pension plans is not something to
be taken lightly. But in many cases, such rejection is the only
avenue a failing company has to return to viability and
maintain jobs.
Chapter 11 seeks to reconcile equitably many interdependent
interests, just like other chapters of the Bankruptcy Code. But
the paramount aim of Chapter 11 is to save companies that can
still be saved. To reach that aim, we will have to strike the
right balance between competing interests.
In the Bankruptcy Abuse Prevention and Consumer Protection
Act, we largely, although not completely, left many of the
issues to be discussed today alone. Chief among those reasons
is that some believe that placing any further restrictions,
especially an all-out prohibition, on the termination of
collective bargaining agreements or retiree benefits might
actually put parties in a far worse position than we currently
have under the Bankruptcy Code.
Another concern of further bankruptcy reform in these areas
is that labor legacy costs are not really a bankruptcy problem.
That is to say that the problems with labor legacy costs that
come to the front at the bankruptcy stage were created well
before the company was faced with bankruptcy and only arise
when a company faces financial problems. We don't want to use
the bankruptcy law to fix problems that are really the result
of gaps in other areas of the law.
Critics of the bankruptcy laws often complain that the
bankruptcy laws are too easy on financially troubled companies.
In some areas, this criticism may have some merit and we on
this Subcommittee are committed to make sure that the
bankruptcy system is not exploited. But it is important that we
not overreact.
Many of this country's major corporations, including some
of those whose union representatives are before us today, are
still in business because the bankruptcy laws--including
sections 1113 and 1114--allowed them to reorganize. Moreover,
many companies have moved away from the employee benefit
practices that are at the heart of today's hearing.
So while we in the minority come to this hearing with open
minds and want to work to provide for fair treatment of the
American worker and retiree, we also believe that it is
important that troubled businesses be able to reorganize even
if it means rejecting certain labor legacy costs.
Let me just say, I look forward to hearing from today's
witnesses. And the fact that we have some amazing people--I
don't know, Mr. Trumka, you may not be aware, but I am a big
fan of yours. I worked in the coal industry during the time
that you led the union there and made some amazing progress,
largely because of your concern and the concern of the union
was about mine safety and not necessarily numbers of jobs and
optimizing that.
And we just recently had, as you are aware, of course, a
tragedy in the area that I used to represent in Utah. This was
an awful, awful tragedy. But on the other hand, during the
period of time we were trying to save those workers, we had 168
Chinese workers who were drowned because the Chinese don't
build dykes that are sufficient to protect their workers. And
you are a huge reason why we have such a safe industry today.
And we are going to take another look at that, mine safety, as
a result of this disaster, which I think is largely a function
of local geological factors that we didn't understand at the
time that we did the mine plan.
But I appreciate your being here today. Others, you might
be interested that I actually worked my way through school by
being a Teamster. I am a registered--was a registered Teamster.
That said, the bankruptcy laws are complex and they are
amazingly robust and bipartisan. And so if we are going to do
something with those laws to help on the issues that are before
us today, we have to be very clear and very specific about what
the opportunities are to improve the law. And I think you will
find that there is an openness to do that, although it was so
difficult to get the bankruptcy reform bill passed last
Congress that I am not sure anybody really wants to open it up,
unless we have some great clarity about how and why to do that.
Thank you, Madam Chair. I yield back the balance of the
time.
Ms. Sanchez. I thank the gentleman for his statement.
I would now like to recognize Mr. Conyers, who is a Member
of the Subcommittee and the Chairman of the Committee on the
Judiciary, for an opening statement.
Mr. Conyers. Thank you, Madam Chairman.
Good morning, witnesses. It is a pleasure to see you all
here. Wow, what a crew. We could talk about a lot of subjects,
and sometimes they are all related. I am always happy to have
Chris Cannon with us on whatever our subject matter is in the
Committee, because he is one of my best hopes for
bipartisanship in the entire 110th Congress, not just on
Judiciary Committee. Now, I find out he has a labor background,
which no one ever suspected before. [Laughter.]
And so----
Mr. Cannon. If the gentleman would yield, there are a lot
of reasons for suspecting it.
Mr. Conyers. Yes, but we didn't know any. So we are here
today to examine under easily the most active Subcommittee on
Judiciary the whole question of how bankruptcy ought to be
reviewed by this Committee that has jurisdiction over it.
I introduced last year--and Alan Reuther was at the news
conference with Senator Bayh and myself--when we introduced a
bill that was entitled the Fairness and Accountability in
Reorganizations Act, which simply required disclosures of what
is really going on in some of the bankruptcy provisions,
procedures that occur.
You know, I am reminded that 40 percent to half of all the
bankruptcies are due to health-care indebtedness and other
problems. And frequently, companies in other cases tell, when
they are negotiating, and maybe some of you can confirm this,
that if you don't agree with us, we are going into bankruptcy.
Bankruptcy is now used as a tool of negotiation to force you
into agreements. And it is like, ``you know what will happen to
you there when you go in a bankruptcy,'' because a lot of this
reorganization business is all corporate-oriented.
And so you never get to an honest collective bargaining
negotiation situation because you have the threat of bankruptcy
hanging over your head. And this is something that finally in
this 110th Congress we are going to be examining very
carefully.
I hope somewhere during or after this important hearing we
get to discuss a crisis that I have always wanted to raise with
those of the brothers and sisters of organized labor who are
here this morning. How did we get to this circumstance in
American economic policy where two groups can bargain in good
faith, sometimes very strenuous bargainings, and then their
lawyers battle, their labor leaders and presidents of companies
battle, finally there is an agreement signed, and a year-and-a-
half later, one party comes back and says, ``Oh, by the way,
things have gone really into the tank. Things are very bad now.
It wasn't what we anticipated. And we want to change the terms
of negotiations before.''
I don't know what kind of law practice exists where one
party can come back to the other and say, ``Things are
different than we expected, so guess what? We want to cut labor
forces. We want to reopen the contract we just signed with
great celebration. We are going to have to revisit the pension
agreement, the health care. All the legacy costs are now open.
And, by the way, we are thinking about, under some so-called
free trade laws, we are also thinking about moving out of the
place. We may have to close down, even.''
And this has never happened before, in my experience that I
know about. And I am trying to figure out how this is
permissible. The collective bargaining movement is under
threat, its very existence. And, of course, there have been no
bones about it in this Administration. Let's bust the labor
unions. I mean, what do we need collective bargaining for? Not
to mention that the number of people in organized labor is
getting smaller and smaller every year. So that is the attitude
that I bring to this hearing, and I think it is an extremely
important one.
I would just close with this one observation about my
friend, Bob Nardelli, who, by his own admission, knows nothing
about automobiles. He left Home Depot--well, I won't say they
were in the tank, but they lost several billion dollars' worth
of value immediately after he left--he got $210 million as a
payout, a reward for what he did or a compensation to get him
the heck out of Home Depot. And now he is at Chrysler.
Now, here is my suspicion. I have to put it on the record.
He is a slash-and-burn guy, if I have ever seen one, and the
reason Chrysler has him is because that is what he is good at
and that is what they want him to do. The fact that he knows
nothing about automobiles is beside the point. What difference?
He has an old car in his garage that he likes to pull out to
say, ``I am with cars. I have been with cars much longer than
any of you guys know about.''
But this is the nature of the economy, that we have
bankruptcy hearings with labor people before this Committee.
And I thank the Chairwoman for her indulgence.
Mr. Cannon. Would the gentleman yield?
Mr. Conyers. Of course.
Mr. Cannon. I want to thank the gentleman, first of all,
for his very kind words and his point that the collective
bargaining system, its very existence is under threat, is a
point that I think is well-taken.
I would just like to establish, since we have my bona fides
on the record, I would actually like to take another step. I
was part of the group that bought Geneva Steel in Utah, the
only integrated steel mill west of the Mississippi River. And
as part of that discussion, there was a lot of talk with the
financing folks about getting rid of the union, and I was the
guy who spiked that idea.
The fact is, there is a place in America for unions. There
is a very important place. I try to come down on the side of
being thoughtful about what the role of unions would be, but as
we go into this hearing, I just want the gentleman to know
that, in fact, I am not sure we would call it a bipartisan
agreement, but what we want here is an agreement that actually
makes sense for America. And America is not just big corporate
presidents who make huge salaries. It is also the guys who
actually make America work by coming to the job everyday and
turning the bolts and doing the other things that are necessary
to be done.
For mining the coal, we want to thank the miners of America
for the fact that we have lights on right now. And so I just
wanted to thank the gentleman again and let him know that I
actually care enormously about this issue. And the question is,
what do we do to actually create the appropriate balance here?
Thank you.
Mr. Conyers. Absolutely. And I expected the gentleman to
make that kind of statement. I will look forward to working
with him, as we do on health care and many other matters.
[The prepared statement of Mr. Conyers follows:]
Prepared Statement of the Honorable John Conyers, Jr., a Representative
in Congress from the State of Michigan, Chairman, Committee on the
Judiciary, and Member, Subcommittee on Commercial and Administrative
Law
Today's hearing addresses an area that I believe Congress has long
neglected, namely, how American workers and retirees are treated in
Chapter 11 bankruptcy cases.
I think it is quite clear that the rights of workers and retirees
have greatly eroded over the past two decades, particularly in the
context of Chapter 11. Let me just cite three reasons.
First, it is no secret that certain districts in our Nation
interpret the law to favor the reorganization of a business over all
other priorities, including job preservation, salary protections, and
other benefits. Part of the problem is that the law is simply not
clear, leading to a split of authority among the circuits.
This is particularly true with respect to the standards by which
collective bargaining agreements can be rejected and retiree benefits
can be modified in Chapter 11. Businesses, as a result, take advantage
of these venue options and file their Chapter 11 cases in employer-
friendly districts. According to the American Bankruptcy Institute,
this is among the reasons that Delphi, a Michigan company, filed for
bankruptcy in New York.
Second, some in the labor community believe Chapter 11 is being
used to bust unions or to at least give companies unfair leverage in
its negotiations with unions.
Well, it's not just a perception, but a reality. According to a
just-released GAO study that I requested nearly two years ago, 30
percent of companies reviewed sought to reject their collective
bargaining agreements pursuant to section 1113.
Likewise, nearly as many companies sought to take advantage of
section 1114, which allows employers to modify retiree benefits. Let me
be specific here. What we are talking about is terminating retiree
health care benefits, medical benefits, prescription drug benefits,
disability benefits, and death benefits, among other protections.
Remember that these benefits were bargained for by Americans who gave
their all to their employers and now are in retirement. This is a
travesty.
Third, as a result of Chapter 11's inequitable playing field,
employers are able to extract major concessions from workers and
retirees. As we learned at a hearing held earlier this year by this
Subcommittee, executives of Chapter 11 debtors receive extravagant
multi-million dollar bonuses and stock options, while regular workers
are forced to accept drastic pay cuts or even job losses and while
retirees lose hard-won pensions and health benefits. Even though we
tried to stop excessive executive compensation in Chapter 11 by
amending the Bankruptcy Code in 2005, creative practitioners have
already found loopholes to exploit and the problem still continues.
As many of you know, the Ford Motor Company reported a record $12.7
billion loss for last year. But what many of you may not know is that
Ford paid $28 million to its new CEO, Alan Mulally, in his first four
months on the job. This disclosure comes as companies like Ford,
General Motors, and DaimlerChrysler prepare to start negotiations with
the unions to obtain concessions and labor cost savings when their
current contracts end in this month. A factor that will likely be
present at the bargaining table is the threat of a potential Chapter 11
filing.
In recognition of the current law's shortcomings, last year I
introduced H.R. 5113, the ``Fairness and Accountability in
Reorganizations Act of 2006,'' to guarantee that workers are treated
more fairly by requiring greater oversight and approval of all forms of
excessive executive compensation.
Specifically, this simple and effective legislation would have
required any executive bonus package to be approved by the bankruptcy
court for any corporation undergoing reorganization under Chapter 11.
It also would have required the bankruptcy court to take into
account the company's foreign assets before allowing the debtor to
break its collective bargaining agreements with its American workers or
to modify its retirees'health benefits.
Although this long-overdue measure was unfortunately not considered
in the last Congress, I intend to pursue similar, and possibly
expanded, legislation in this Congress in the very near future.
We need to restore the level playing field that the drafters of
Chapter 11 originally envisioned and to ensure that workers and
retirees receive the fair treatment they have earned when their company
is in bankruptcy.
In the last nine years, Congress went to great lengths to grant
advantages to creditors and big business interests over ordinary
Americans. It is time that we include the interests of working families
in the bankruptcy law and consider how we can add a measure of fairness
to a playing field that is overwhelmingly tilted against workers.
Ms. Sanchez. The gentleman yields back? Thank you.
I would now like to recognize Mr. Watt for an opening
statement.
Mr. Watt. Thank you, Madam Chair. And I make an opening
statement advisedly, because I know it is the Committee's and
the Subcommittee's policy generally not to do it. But since
there are not many of us here, perhaps the gentlelady is
waiving the rule to my favor. So I will try to be brief. But
since I am sitting behind Hank Johnson's nametag, and feel like
I can be a little more controversial, and maybe hide behind and
blame it on Hank, let me do that.
But under my own name, let me first praise the Chair of
this Subcommittee for her outstanding work that she has done
since becoming Chair of the Subcommittee. As many of you know,
I was the Ranking Member of this Subcommittee over the last
several terms under the leadership of my good friend, Chris
Cannon. And over all those years, I didn't find out that he was
a labor person, either, Mr. Conyers. So my opinion of him was
already pretty high, and it has escalated even further.
And my opinion of the Chairperson of this Subcommittee, Ms.
Sanchez, was already high before she became Chair and has
escalated even further during her tenure. So let me say that as
kind of the opening shot.
The point I want to make, though, that one of the many
deleterious things that we did during a Republican majority was
the substantial amendments, reforms that were made to
bankruptcy and the bankruptcy law. There are a number of
changes that need to be made to the reform bill that was passed
several years ago or a couple of years ago, and this is one of
them. This is one of the areas we need to pay some attention
to.
And to show you kind of the disparity of the way this plays
itself out, this is one of those areas where the judge has the
authority to reject basically any contract negotiated, reopen
it, rewrite it. At the same time, some of you know I sit on the
Financial Services Committee, and there is an amazing crisis
going on in the mortgage market. And the same judge who can
rewrite the labor contracts has no authority to do anything
related to mortgages, even if he finds that the terms were
entered into outrageously--I mean, there is just nothing he can
do.
So basically, we have made a public policy judgment that
the mortgage on a house is a sacrosanct contract, the labor
agreement that may allow or may not allow a worker to pay that
mortgage is not protected at all in the bankruptcy workout. And
that is simply public policy decisions that we have made about
what we value, and what we don't value, in a bankruptcy
setting.
And those same kind of public policy decisions,
unfortunately, have been made throughout the system. And we
need to go back, having made those bad choices over and over
and over again in a number of contexts, and having seen how
they play out in people's lives adversely, we need to revisit
those things. And this hearing, I think, will be one of the
steps.
The gentlelady has already convened a hearing about this
bankruptcy--the mortgage issue that we need to deal with. But
there are a number of issues like that in the bankruptcy reform
bill that was passed and that need to be revisited. And, the
quicker we can get our arms around all of those things and put
them into one package and get them revisited, I think the
Nation would be much, much better served.
So we thank you all for being here to make that record. And
I know I talked longer than I should have, Madam Chair, and I
apologize. But at least part of it was some good things about
you and the Ranking Member. So those things I don't apologize
for, but the other things I took too long to say.
And I yield back.
Ms. Sanchez. Thank you.
I thank the gentleman for his statement. And without
objection, other Members' opening statements will be included
in the record.
Without objection, the Chair will be authorized to declare
a recess of the hearing.
I am now pleased to introduce the witnesses on the panel
for today's hearing. Our first witness is Kim Townsend. For the
past 20 years, Ms. Townsend has been employed as a machine
operator at Hastings Manufacturing, LLC. She is the chief
steward and member of the three-person bargaining committee for
UAW Local 138, which represents the hourly workers at Hastings.
She was present of the UAW Local 138 from May 2004 to June
2007, before, during and after the bankruptcy and asset sale.
She currently resides in Hastings, Michigan.
Our second witness is Michael Bernstein. Mr. Bernstein is a
partner in Arnold & Porter's bankruptcy and corporate
reorganization practice and has been involved in numerous
bankruptcy cases, including U.S. Airways, TWA, Delphi, and
Continental Airlines. Mr. Bernstein has coauthored two books
and has published many articles on bankruptcy and related
topics.
Our third witness is Fred Redmond. In 1973, Mr. Redmond
joined the Steelworkers Union and became an active member of
Local 3911, serving as shop steward, grievance committee member
and chairman, vice president, and three terms as president of
his local union. Mr. Redmond was elected international vice
president, human affairs, of the United Steelworkers on March 1
of 2006. In addition to his regular union duties, Mr. Redmond
serves as chairman of the USW container industry conference and
coordinates bargaining for the USW health care, pharmaceuticals
and public employees sector.
Our fourth witness on this panel is Captain John Prater.
Captain Prater is the eighth president of the Air Line Pilots
Association, International, elected on October 18 of 2006. As
the ALPA's chief executive and administrative officer, Captain
Prater oversees daily operations of the association, presides
over the meetings of ALPA's governing body, and serves as chief
spokesman for the union. Captain Prater currently serves as a
B767 captain.
Our fifth witness is Gregory Davidowitch. Mr. Davidowitch
is the united master executive council president and serves as
the union chief spokesperson and leader for more than 25,000
flight attendants employed by United Airlines. Mr. Davidowitch
began his flight attendant career on April 17, 1988, and is
devoted to the best interests of the flight attendant
profession as it continues to evolve.
Our final witness is Richard Trumka. In 1989, Mr. Trumka
was elected to the AFL-CIO executive council. He also served as
president of the mineworkers for three terms. And in 1994,
President Clinton named him to the bipartisan Commission on
Entitlement and Tax Reform to represent the interests of
working families. Mr. Trumka became the youngest secretary-
treasurer in AFL-CIO history when he was elected to the post in
October 1995.
I want to thank you all for your willingness to participate
in today's hearings. Without objection, your written statements
will be placed in their entirety into the record, and we would
ask that you limit your oral remarks to 5 minutes.
You will note that we have a lighting system that starts
with a green light. At 4 minutes, it will turn yellow to warn
you that you have a minute left in your testimony. And then it
will turn red at 5 minutes. If you observe the lights turn red
while you are mid-sentence, please finish your thought. We will
allow you to do that. And we want to make sure that we have
time for everybody's testimony. After each witness has
presented his or her testimony, Subcommittee Members will be
permitted to ask questions subject to the 5-minute limit.
With the ground rules now having been stated, I would
invite Ms. Townsend to begin her testimony.
TESTIMONY OF KIM TOWNSEND, CHIEF STEWARD, LOCAL 138, UNITED
AUTOMOBILE, AEROSPACE AND AGRICULTURAL IMPLEMENT WORKERS OF
AMERICA (UAW), HASTINGS, MI
Ms. Townsend. Good morning, Chairwoman Sanchez and Members
of the Subcommittee. My name is Kim Townsend. I am chief
steward and a member of the bargaining committee of UAW Local
138. Local 138 represents 175 hourly workers at Hastings
Manufacturing in Hastings, Michigan. Hastings makes piston
rings for Harley-Davidson, General Motors, Ford and Chrysler.
Hastings Manufacturing was founded in 1915 and has been in
continuous operation since then. I have worked for Hastings
Manufacturing for 20 years. My job is to operate a machine that
makes piston rings, and they are the oil rings that go in your
engine.
On September 14, 2005, Hastings filed for protection under
Chapter 11. On December 5, it was sold in an asset sale
auction. I was president of Local 138 in the period leading up
to and through the bankruptcy and sale. The Anderson Group, a
private equity firm, was the successful bidder in the asset
sale auction. It has operated the company under the name
Hastings Manufacturing Company, LLC, since December 14, 2005.
We make the same products, in the same building, with the same
equipment, for the same customers as we did before the asset
sale.
Just before the bankruptcy, Hastings employed about 375
people, about 250 of whom were in the UAW bargaining unit.
There were about 300 Hastings retirees. The union was doing all
we could to help the company out of its financial situation.
Management said they needed a million dollars in concessions;
we gave them a million dollars in concessions. But it still
wasn't enough to save the company.
Shortly after the company filed for bankruptcy, the union
found itself having to try to bargain a new contract with three
potential buyers. The union had absolutely no clout going into
these negotiations. There was very limited good faith, back-
and-forth bargaining. The buyer dictated the terms. Not
surprisingly, with no clout, we couldn't negotiate much. If we
didn't accept their terms, the plant doors would close, and no
one wanted that.
The Anderson Group agreed to maintain seniority and to
honor accrued vacation. We had agreed to even more concessions,
including paying most of our health-care costs. Of course, it
was much worse for the retirees. The new owners wanted no part
of the so-called legacy costs.
Due to the bankruptcy, our retirees lost a part of their
pensions and all of their health-care coverage. The PBGC took
over the pension plan, but the PBGC only guarantees the base
pension and not the contractual supplements. The way our
contract worked, the monthly-base pension was not very high,
but there was a supplement of $750 a month until you were 62,
if you retired with 20 years or more seniority. But because the
PBGC doesn't recognize contractual supplements, our retirees
under the age of 62 lost as much as $500 a month, more than
half their pensions for some people.
On top of that financial loss, retirees had to start paying
for the health-care insurance for themselves, their spouse, and
their dependents, or go without health-care coverage. It was
really a financial disaster for these folks who had given their
entire work lives to Hastings, and it was hard for all of us
because so many of the retirees were the parents, or the aunts,
or uncles, or the in-laws of the active workers.
In closing, I would just like to say that the current
bankruptcy law seems unfair. The asset sale allowed the new
owners to purchase the company ``free and clear,'' with no
obligations. The net effect of the bankruptcy proceedings was
that the business didn't change at all. The new owners just got
rid of the union contract and the obligations to the company's
retirees.
We knew the new owners would start making money right off
the bat, because the bankruptcy law allowed them to do away
with the legacy costs of retirees. But with the way the asset
sale works, the union was really powerless to negotiate
anything of benefit for retirees or for active workers. I think
the law needs to be changed so that the workers and retirees
have some bargaining clout when we are negotiating in
bankruptcy. And it needs to be changed to provide greater
protection for wages, pensions, and health-care benefits.
Thank you for inviting me to testify before you today.
[The prepared statement of Ms. Townsend follows:]
Prepared Statement of Kim Townsend
Good morning, Chairwoman Sanchez and Members of the subcommittee.
My name is Kim Townsend. I am chief steward and a member of the
bargaining committee of Local 138, United Automobile, Aerospace &
Agricultural Implement Workers of America (UAW). Local 138 represents
175 hourly workers at Hastings Manufacturing in Hasting, Michigan,
which is located about 30 miles south of Grand Rapids. Hastings makes
piston rings that are supplied as original equipment to Harley-
Davidson, General Motors, Ford and Chrysler, as well as to the
aftermarket, especially outside the United States.
Hastings Manufacturing was founded by a local family in 1915 and
has been in continuous operation since then. I have worked there for 20
years. For the last 14 years, my job has been to operate a machine that
makes oil rings.
In 2004, the company came under financial pressure from the banks,
who took over day-to-day management of the plant around June of that
year. On September 14, 2005, the company filed for protection under
Chapter 11. On December 5, it was sold at an asset sale auction
overseen by the bankruptcy court. I was president of Local 138 from May
2004 to June 2007, before and during the bankruptcy proceedings and the
asset sale.
The Anderson Group, a private equity firm, was the successful
bidder in the asset sale auction. It has operated the company under the
name Hastings Manufacturing, LLC since December 14, 2005. We make the
same products, in the same building, with the same equipment, for the
same customers as we did before the asset sale.
Before the bankruptcy, Hastings employed about 375 people, about
250 of whom were in the UAW bargaining unit. There were about 300
Hastings retirees.
The contract was up in February 2004 and the union negotiated a new
one with the company at that time. That was the first of four contracts
the union negotiated and had ratified between February 2004 and the
asset sale in December 2005.
We were doing all we could to help the company out of its financial
situation. Management said they needed a million dollars in
concessions, and we gave them a million dollars in concessions. We gave
up the raises we'd just negotiated in February, agreeing to take no
increases in 2005, 2006, or 2007. We agreed to pay part of the cost of
health care and that if your spouse was eligible for health care at
their place of employment that they had to go on that plan; we also
agreed to the birthday rule for dependents. We gave up one holiday. And
we gave up the attendance incentive program under which you could earn
five paid days off a year if you had perfect attendance. But it still
wasn't enough to save the company.
Shortly after the company filed for bankruptcy, the union found
itself having to try to bargain a new contract with each of the
potential buyers. There were three bidders, including The Anderson
Group. We had never met any of these people before. The union had
absolutely no clout going into the negotiations. There was very limited
good faith, back and forth bargaining. The buyer dictated the terms.
Not surprisingly, with no clout, we couldn't negotiate much. If we
didn't accept their terms, the plant's doors would close and no one
wanted that. The Anderson Group agreed to maintain seniority and to
keep accrued vacation for the higher seniority workers who were hired
by the new owners. We had to agree to pay most of our health care
costs. For example, it now costs us $300 a week to get family coverage.
We also had to agree to cut our sickness and accident benefits in
half, from 26 weeks to 13 weeks, and to reduce the amount of time you
were covered by health care while out on sick and accident from six
months to 30 days. We had to agree to continue the two-tier wage
system, with a top rate of $13.49 an hour. Finally, we gave up having
department stewards and had to lower the number of bargaining committee
members from five to three. We now have only two hours a month during
which we can do union business on company time.
Of course, it was much worse for the retirees. The new owners
wanted no part of the so-called ``legacy costs.'' Due to the
bankruptcy, our retirees lost a lot of their pensions and all of their
health care coverage.
The PBGC took over the pension plan, but the PBGC only guarantees
the base pension and not contractual supplements. The way our contract
had been negotiated a long time ago, the amount of the monthly base
pension was calculated using a multiplier of the top hourly wage rate--
$14--times the number of pension credit years you had when you retired.
But there was a supplement of $750 a month until you were 62 if you
retired with 20 years or more seniority. But because the PBGC doesn't
guarantee contractual supplements, retirees under the age of 62 lost as
much as $500 a month--more than half their pension for some people.
On top of that financial loss, the retirees had to start paying for
the entire cost of health insurance for themselves, their spouses, and
their dependents--or go without health care coverage. When their health
care was terminated in November 2005, every retiree who had coverage
under the company's health care plan got a check for $150. I don't need
to tell you, that didn't go far.
It was a really a financial disaster for these folks who had given
their entire work lives to Hastings. And it was hard for all of us
because so many of the retirees were the parents, or the aunts or
uncles, or the in-laws of the active workers. And now, to make matters
even worse, the PBGC is saying that some of the retirees were overpaid
and they may have to pay money back to the PBGC.
In closing, I would just like to emphasize that the current
bankruptcy law seems unfair. The asset sale allowed the new owners to
purchase the company ``free and clear,'' with no obligations. The net
effect of the bankruptcy proceedings is that the business didn't change
at all--the new owners just got rid of the union contract and the
obligations to the company's retirees.
The Hastings retirees don't exist for the owners of Hastings LLC;
they severed all ties. The new owners started making money right off
the bat because the bankruptcy law allowed them to do away with the
legacy costs of retirees. But it is these same retirees and workers who
helped build this now-profitable company.
And, with the way the asset sale works, the union is really
powerless to negotiate anything of benefit for retirees or for active
workers. I think the law needs to be changed so that workers and
retirees have some bargaining clout when we are negotiating in
bankruptcy. And it needs to be changed to provide greater protection
for wages, pension and health care benefits.
Thank you for inviting me to testify before you today.
Ms. Sanchez. Thank you for your testimony, Ms. Townsend.
The bells that you have been hearing have notified us that
we have two votes across the street. We are going to stand the
Subcommittee in recess until we have a chance to vote, and we
will come back and reconvene the hearing. Thank you.
[Recess.]
Ms. Sanchez. The Committee on the Judiciary, Subcommittee
on Commercial and Administrative Law will come to order. I want
to thank you for your patience in waiting for us to vote.
I believe that we were at Mr. Bernstein. Mr. Bernstein, at
this time, I would invite you to present your testimony.
TESTIMONY OF MICHAEL BERNSTEIN,
ARNOLD & PORTER LLP, WASHINGTON, DC
Mr. Bernstein. Good morning, Madam Chair, Congressman
Cannon, and Members of the Subcommittee. Thank you for inviting
me to appear before your Subcommittee to testify about
important issues concerning collective bargaining agreements
and retiree benefits in Chapter 11.
I am a partner in Arnold & Porter LLP, here in Washington,
DC, and I am chair of the firm's national reorganization and
bankruptcy practice group. However, I am appearing today here
at the invitation of the Committee in my individual capacity
and not on behalf of my law firm or any of its clients. I am
also not here to advocate any position today but, instead,
simply to provide the Subcommittee with some insights into how
the issues surrounding the modification of collective
bargaining agreements and retiree benefits are dealt with by
the parties and by the courts in Chapter 11 proceedings.
Ordinarily, a Chapter 11 debtor who wants to reject a
contract that it entered into before bankruptcy has the right
to do so. It does require court approval, but the standard is a
fairly deferential one, the business judgment test. However, as
a result of the enactment of Section 1113, the rejection
standard is much more rigorous with respect to collective
bargaining agreements.
Section 1113 was intended to do several things. First, it
was intended to prevent a company from unilaterally modifying
or ceasing performance under a collective bargaining agreement.
Second, it was intended to establish a heightened standard for
modification or rejection of a CBA. That is something
substantially harder to achieve than the business judgment
test. And, third, it was intended to promote negotiated
solutions to these issues wherever possible.
Section 1114, which was enacted several years later and
deals with retiree benefits, was intended to serve similar
purposes. The requirements for rejection or modification of a
collective bargaining agreement under Section 1113 are outlined
in detail in my written statement. It is a difficult standard
to satisfy, much higher than for any other sort of contract,
and there are numerous cases in which Section 1113 relief has
been denied by the courts.
These provisions were not, however, intended to make it
impossible for a debtor to modify the terms of a collective
bargaining agreement. Congress and the courts have recognized
that some debtors are so burdened by above-market labor and
retiree costs that, without reducing those costs to a market
level, they will be unable to reorganize and unable to emerge
from bankruptcy as viable and competitive enterprises.
In these situations, it is in the interest of all
constituencies, including the employees, to reduce the labor
and retiree costs to a market-competitive level. If it were
impossible to obtain relief from above-market labor costs, the
result for at least some companies, particularly those that
operate in the most competitive industries, would be
liquidation. They simply could not survive when their
competitors' labor costs were materially lower than their own
costs.
In those situations, employees would lose their jobs,
creditors' and shareholder's recoveries would be diminished, if
not eliminated, and other important constituencies, including
customers and suppliers and trade vendors and taxing
authorities and local communities, would suffer.
Thus, while the courts should not grant Section 1113 relief
lightly--and, in fact, do not do so--it is important that the
courts retain sufficient flexibility to grant relief where
doing so is necessary to preserve the business.
History shows that, while the negotiation of labor and
retiree modifications in bankruptcy is often quite difficult
and quite painful, the purposes of Section 1113, which I
outlined a minute or two ago, have been achieved.
First, it is clear that a debtor may not unilaterally
modify a CBA; so that objective has unquestionably been
achieved. Second, the heightened standard established by
Section 1113 has been applied rigorously by the courts. I can
tell you, as somebody who has participated in the litigation of
Section 1113 issues, that the courts do not grant the relief
lightly, and that a considerable burden is placed upon a debtor
who seeks a rejection order.
Finally, Congress's objective of promoting negotiated
solutions has been achieved. In the overwhelming majority of
cases in which labor cost reductions are sought, the
negotiations that are mandated by Sections 1113 and 1114 have
resulted in consensual agreements.
The fact that these issues--which are often highly
charged--are usually resolved by agreement is, at least in
part, because the company and its employees have an essential
common interest: preserving the business as a going concern.
Negotiated resolutions also occur because both the debtor and
their employees each face substantial risks absent an
agreement, so each has an incentive to try to reach consensus.
Finally, consistent with the articulated objective of the
statute, the courts tend strongly to encourage negotiated
resolutions.
In conclusion, I would say this. The issues concerning the
modification of collective bargaining agreements and retiree
benefits are very difficult ones. Nobody is happy about the
idea of reducing wages or benefits. However, there are some
cases in which labor cost modifications are necessary in order
for the debtor to reorganize and to emerge as a viable and
competitive business. And in those cases, it is better for the
necessary modifications to be made rather than to see the
reorganization fail and the company to go out of business.
[The prepared statement of Mr. Bernstein follows:]
Prepared Statement of Michael L. Bernstein
Madam Chairman S nchez, Congressman Cannon, and members of the
Subcommittee, thank you for inviting me to testify at your hearing on
``American Workers in Crisis: Does the Chapter 11 Business Bankruptcy
Law Treat Employees and Retirees Fairly?'' My name is Michael
Bernstein. I am a partner in the law firm of Arnold & Porter LLP and
the chair of the firm's national bankruptcy and corporate
reorganization practice.\1\ We represent debtors, creditors,
committees, investors and other parties in a wide variety of bankruptcy
and corporate restructuring matters. I have advised and represented
debtors and other parties in connection with matters at the
intersection of bankruptcy and labor law, and I have lectured on this
subject, as well as on numerous other bankruptcy-related subjects. I
have also written various books and articles. For example, I am co-
author of ``Bankruptcy in Practice,'' a comprehensive treatise on
bankruptcy law and practice published by the American Bankruptcy
Institute.
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\1\ The views expressed herein are solely those of the author, and
do not necessarily represent the views of my firm or any of its
clients.
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Section 1113 of the Bankruptcy Code addresses particularly
difficult issues. It attempts to balance the interest of employees in
preserving the wages, benefits and work rules for which their unions
negotiated against the need of a chapter 11 debtor to achieve a cost
structure that enables it to reorganize and emerge as a viable business
that is able to compete in the marketplace. Section 1114 presents
similar issues involving retiree benefits. The interests of employees,
retirees, companies seeking to reorganize and their creditors and other
stakeholders are all legitimate, and often compelling, but they are
frequently difficult to reconcile.\2\ Sections 1113 and 1114 of the
Bankruptcy Code are the mechanism that Congress established to address
these competing interests. While the process of negotiating labor
agreement modifications in bankruptcy is a difficult one, these
provisions have proven to be effective mechanisms to balance the
competing interests and to promote negotiated resolutions.
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\2\ The balancing is more complex than simply a desire on the part
of labor for more pay and benefits and a desire by management to reduce
costs. Labor also has an interest in the company having a cost
structure that enables it to remain viable, because otherwise it will
likely be forced to liquidate and employees will lose their jobs.
Similarly, management has an interest in providing wages, benefits and
work rules that are at least at a market level, so that the company
will be able to retain its employees and attract new employees.
---------------------------------------------------------------------------
An important tool available to debtors seeking to reorganize in
chapter 11 cases is the ability to reject contracts. Rejection
(essentially, a court-approved breach or abrogation) is often necessary
to enable a debtor to restructure its business and to emerge from
bankruptcy as a viable going concern. For example, a debtor may be
burdened by an expensive long-term lease for space it no longer needs
or an agreement to purchase some product at what has turned out to be
an above-market price. Section 365 of the Bankruptcy Code permits a
debtor to reject such contracts with court permission. Under Sec. 365,
the court uses a ``business judgment'' standard to determine whether to
approve a rejection of a contract. This is a relatively deferential
standard.
Section 1113 was enacted in response to the Supreme Court's
decision in NLRB v. Bildisco & Bildisco, 465 U.S. 513 (1984), which
held that a debtor could unilaterally alter the terms of its collective
bargaining agreements under Sec. 365 of the Bankruptcy Code without
having thereby committed an unfair labor practice. When the decision in
Bildisco was announced on February 22, 1984, ``labor groups mounted an
immediate and intense lobbying effort in Congress to change the law.''
\3\ Several months later, Sec. 1113 was enacted as part of the
Bankruptcy Amendments and Federal Judgeship Act of 1984.\4\ Section
1113 was enacted to ensure that debtors could not unilaterally alter
the terms of a collective bargaining agreement, but instead could do so
only after satisfying a heightened standard and obtaining bankruptcy
court approval.
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\3\ See In Wheeling-Pittsburgh Steel Corp. v. United Steelworkers
of Am., AFL-CIO-CLC, 791 F.2d 1074, 1082 (3d Cir. 1986).
\4\ Pub. L. No. 98-353 (1984).
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The standard for modification or rejection of a collective
bargaining agreement under Sec. 1113 is far more difficult to satisfy
than the business judgment standard.\5\ Further, Sec. 1113 provides
that unilateral termination or alteration of any provision of a
collective bargaining agreement is prohibited.\6\ Instead, a debtor is
required, under the Bankruptcy Code, to adhere to the terms of a
collective bargaining agreement until it has complied with all the
procedural and substantive requirements of Sec. 1113 and obtained court
approval for rejection, or negotiated consensual modifications with its
employees.\7\
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\5\ See Comair, Inc. v. Air Line Pilots Ass'n, Int'l (In re Delta
Air Lines, Inc.), 359 B.R. 491, 498 (Bankr.S.D.N.Y.2007) (``Congress
enacted Section 1113 not to eliminate but to govern a debtor's power to
reject executory collective bargaining agreements, and to substitute
the elaborate set of subjective requirements in Section 1113(b) and (c)
in place of the business judgment rule as the standard for adjudicating
an objection to a debtor's motion to reject a collective bargaining
agreement.'').
\6\ See 11 U.S.C. Sec. 1113(f), which reverses the portion of the
Bildisco opinion holding that a debtor could unilaterally modify or
terminate provisions of a collective bargaining agreement.
\7\ Where a debtor requires interim relief from a collective
bargaining agreement, it may apply for such relief under Sec. 1113(e),
but such interim relief is available only when it is ``essential to the
continuation of the debtor's business, or in order to avoid irreparable
damage to the estate.''
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Based on the text of Sec. 1113, courts have established a stringent
nine-part test to determine whether a collective bargaining agreement
may be rejected.\8\ The test is:
---------------------------------------------------------------------------
\8\ The test was initially articulated by the court in In re Am.
Provision Co., 44 B.R. 907, 908 (Bankr. D. Minn. 1984), and has
subsequently been adopted by many other courts. See, e.g., In re Family
Snacks, Inc., 257 B.R. 884 (B.A.P. 8th Cir. 2001); In re Appletree
Mkts., Inc., 155 B.R. 431 (S.D. Tex. 1993); In re Elec. Contracting
Servs. Co., 305 B.R. 22 (Bankr. D. Colo. 2003); In re Nat'l Forge Co.,
289 B.R. 803 (Bankr. W.D. Pa. 2003); In re Blue Diamond Coal Co., 131
B.R. 633 (Bankr. E.D. Tenn. 1991); In re Ind. Grocery Co., 138 B.R. 40
(Bankr. S.D. Ind. 1990); In re Big Sky Transp. Co., 104 B.R. 333
(Bankr. D. Mont. 1989); In re Amherst Sparkle Mkt., Inc., 75 B.R. 847
(Bankr. N.D. Ohio 1987); In re Salt Creek Freightways, 47 B.R. 835
(Bankr. D. Wyo. 1985). Other courts have combined factors one, two, and
five from the American Provision analysis, resulting in a seven-part
analysis. See, e.g., In re Carey Transp., Inc., 50 B.R. 203, 207
(Bankr. S.D.N.Y. 1985), aff'd sub nom Truck Drivers Local 807 v. Carey
Transp., Inc., 816 F.2d 82 (2d Cir. 1987).
2. The debtor in possession must make a proposal to the union
to modify the collective bargaining agreement.
2. The proposal must be based on the most complete and
reliable information available at the time of the proposal.
3. The proposed modifications must be necessary to permit the
reorganization of the debtor.
4. The proposed modifications must assure that all creditors,
the debtor and all of the affected parties are treated fairly
and equitably.\9\
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\9\ See, e.g., In re Century Brass Prods., Inc., 795 F.2d 265, 273
(2nd Cir. 1986) (``The purpose [of Sec. 1113(b)(1)(A)] is to spread the
burdens of saving the company to every constituency while ensuring that
all sacrifice to a similar degree.''); see also In re Maxwell
Newspapers, Inc., 981 F.2d 85, 89 (2nd Cir. 1992) (``This statute
[Sec. 1113] requires unions to face those changed circumstances that
occur when a company becomes insolvent, and it requires all affected
parties to compromise in the face of financial hardship. At the same
time, Sec. 1113 also imposes requirements on the debtor to prevent it
from using bankruptcy as a judicial hammer to break the union.'').
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5. The debtor must provide to the union such relevant
information as is necessary to evaluate the proposal.
6. Between the time of the making of the proposal and the time
of the hearing on approval of the rejection of the existing
collective bargaining agreement, the debtor must meet at
reasonable times with the union.
7. At the meetings the debtor must confer in good faith in
attempting to reach mutually satisfactory modifications of the
collective bargaining agreement.
8. The union must have refused to accept the proposal without
good cause.
9. The balance of the equities must clearly favor rejection of
the collective bargaining agreement.
The debtor must satisfy all nine of these standards in order to
obtain relief. Failure to satisfy any of the factors will result in
denial of the debtor's motion to modify or reject the collective
bargaining agreement.\10\
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\10\ Most often when courts deny Sec. 1113 relief to a debtor it is
on the grounds of failure to negotiate or bargain in good faith,
failure to show that the debtor's proposal was ``fair and equitable,''
and/or failure to meet the ``necessary'' or ``essential'' standard. See
In re Delta Air Lines (Comair), 342 B.R. 685 (Bankr. S.D.N.Y. 2006)
(debtor failed to confer in good faith); In re Nat'l Forge Co., 279
B.R. 493 (Bankr. W.D. Pa. 2002)(debtor did not meet its burden of
proving that the proposed modifications were fair and equitable); In re
U.S. Truck Co., 165 L.R.R.M. (BNA) 2521 (Bankr. E.D. Mich. 2000)
(debtor failed to meet its burdens of proving the proposal to be
necessary, fair and equitable); In re Jefley, Inc., 219 B.R. 88 (Bankr.
E.D. Pa. 1998) (court concluded ``that the proposal, as presented, is
not `necessary' to the Debtor's reorganization; [and] does not treat
the union workers `fairly and equitably' ''); In re Liberty Cab &
Limousine Co., 194 B.R. 770 (Bankr. E.D. Pa. 1996) (debtor's proposal
was not fair and equitable); In re Lady H Coal Co., 193 B.R. 233
(Bankr. S.D. W. Va. 1996) (debtor failed to treat all parties fairly
and equitably and did not bargain in good faith); In re Schauer Mfg.
Corp., 145 B.R. 32 (Bankr. S.D. Ohio 1992) (debtor ``has failed to show
that the Proposal which it made to the Union makes `necessary
modifications . . . that are necessary to permit the reorganization of
the debtor. . . .''); In re Sun Glo Coal Co., 144 B.R. 58 (Bankr. E.D.
Ky. 1992) (``the debtors have failed to sufficiently quantify the
results of such proposed changes to allow this Court to find that they
are `necessary' to the reorganization of the debtors.''); In re GCI,
Inc., 131 B.R. 685 (Bankr. N.D. Ind. 1991) (debtor failed to negotiate
in good faith); In re George Cindrich Gen. Contracting, Inc., 130 B.R.
20 (Bankr. W.D. Pa. 1991) (debtor ``did not provide sufficient
information to enable union to determine whether the specific
concessions sought by debtor were reasonable or necessary''); In re
Pierce Terminal Warehouse, Inc., 133 B.R. 639 (Bankr. N.D. Iowa 1991)
(debtor failed to prove that the proposed collective bargaining
agreement modifications were ``necessary'' to permit reorganization and
failed to ensure that all affected parties were treated fairly and
equitably); In re Express Freight Lines, Inc., 119 B.R. 1006 (Bankr.
E.D. Wis. 1990) (debtor's proposal contained modifications that were
not necessary to reorganization and the proposal was not fair and
equitable to all concerned); In re Ind. Grocery Co., 136 B.R. 182
(Bankr. S.D. Ind. 1990) (debtor ``has not borne its burden of proof
that it is fair and equitable to ask for wage cuts. . . .''); In re
William P. Brogna and Co., 64 B.R. 390 (Bankr. E.D. Pa. 1986) (proposal
was not fair and equitable); Wheeling-Pittsburgh Steel Corp. v. United
Steelworkers of Am., AFL-CIO-CLC, 791 F.2d 1074 (3d Cir. 1986)
(reversing decision authorizing rejection because the bankruptcy court
failed to consider and determine whether the proposed modifications
both were necessary and treated all parties fairly and equitably); In
re Cook United, Inc., 50 B.R. 561 (Bankr. N.D. Ohio 1985) (debtor
failed to show that its proposed collective bargaining agreement
modifications were necessary to permit reorganization and that its
proposal was fair and equitable); In re Valley Kitchens, Inc., 52 B.R.
493 (Bankr. S.D. Ohio 1985) (debtor failed to satisfy the requirement
that the proposal deal only with modifications necessary to permit
reorganization); In re Fiber Glass Indus., Inc., 49 B.R. 202 (Bankr.
N.D.N.Y. 1985) (debtor had failed to show how its proposed reductions
were necessary to reorganization); In re K & B Mounting, Inc., 50 B.R.
460 (Bankr. N.D. Ind. 1985) (debtor failed to show the proposed changes
were fair and equitable); In re Am. Provision Co., 44 B.R. 907 (Bankr.
D. Minn. 1984) (debtor failed to show that the proposed collective
bargaining agreement modifications were necessary).
---------------------------------------------------------------------------
Some courts, in deciding whether to allow rejection of the
collective bargaining agreements, have focused on the term
``necessary'' in Sec. 1113(b). In Wheeling-Pittsburgh Steel Corp. v.
United Steelworkers of Am., AFL-CIO-CLC, 791 F.2d 1074, 1088 (3d Cir.
1986), the court focused on the word ``necessary'' and concluded that
Congress intended the word ``necessary'' to be construed strictly. The
court commented that ``[t]he `necessary' standard cannot be satisfied
by a mere showing that it would be desirable for the trustee to reject
a prevailing labor contract so that the debtor can lower its costs.''
Id. The court suggested that the use of the word ``necessary'' equated
to ``essential'' and that rejection under Sec. 1113 was to be used only
when necessary to prevent liquidation. In 1987, the Second Circuit
rejected the Third Circuit's approach. In Truck Drivers Local 807 v.
Carey Transp. Inc., 816 F.2d 82, 89-90 (2d Cir. 1987), the court
concluded that ``'necessary' should not be equated with `essential' or
bare minimum. . . . [rather] the necessity requirement places on the
debtor the burden of proving that its proposal is made in good faith,
and that it contains necessary, but not absolutely minimal, changes
that will enable the debtor to complete the reorganization process
successfully.'' While the ``necessary'' standard outlined by the Third
Circuit in Wheeling is more stringent than the standard articulated by
the Second Circuit (and other courts), in practice, even outside of the
Third Circuit, courts impose a heavy burden upon a debtor that is
seeking to modify its collective bargaining agreements, and if the
changes go beyond what is needed in order to reorganize and emerge as a
viable and competitive business, then--regardless of precisely how the
term ``necessary'' has been defined--the changes are unlikely to be
authorized by the courts.
Section 1113 was designed to encourage negotiated resolutions. It
requires the company to engage in good faith negotiation before it
seeks relief under Sec. 1113 and to continue such negotiations even
after filing a Sec. 1113 motion. In practice, courts have been vigilant
to assure that a debtor seeking Sec. 1113 relief is not just ``going
through the motions'' of negotiation, but is in fact engaging in good
faith negotiation. At Sec. 1113 hearings, the courts typically hear
extensive testimony about the course of negotiations, the details of
each proposal and counterproposal, the number and length of meetings,
and the information exchanged. If a court is left with the impression
that the company did not negotiate in good faith--making every
reasonable effort to reach agreement--it will ordinarily deny relief.
If the court believes that further negotiations might yield an
agreement, it may defer ruling on a rejection motion and order the
parties back to the negotiating table. The strong emphasis that the
bankruptcy courts place on negotiated resolution of labor issues
appears to be consistent with the goal of Congress in enacting
Sec. 1113. While no Senate or House Report was submitted with the
legislation, statements made at the time of enactment suggest that
Congress intended the provision to encourage negotiated
resolutions.\11\
---------------------------------------------------------------------------
\11\ For example, in discussing the legislation, Senator Hatch
stated ``I feel that the conference version is a practical, workable
mechanism. This provision will require negotiations to attempt to save
both the labor contract and the business prior to court adjudication to
reject the contract. . . . Only if these good faith negotiations fail
does the court get involved in granting an application to reject the
contract.'' See 130 Cong. Rec. H7489 (June 29, 1984), reprinted in 1984
U.S.C.C.A.N. 576, 591. Congressman Rodino, Chairman of the House
Committee on the Judiciary, also commented that the provision would
work to ensure ``that a process of negotiation will take place between
the employer and the union in a reorganization case. . . .'' Id. at
577.
---------------------------------------------------------------------------
In practice, the goal of encouraging negotiated resolutions has
been achieved. In the overwhelming majority of situations where a
debtor sought to modify a collective bargaining agreement, the issues
have been resolved by agreement of the company and the union. This is
true, in large part, because both the debtor and its employees face
substantial risks absent a consensual resolution.
The company's risks include the following:
First, absent an agreement, the company's request for Sec. 1113
relief may be denied by the bankruptcy court, with the result that the
company cannot obtain any relief from the terms of its collective
bargaining agreement. Even if the court is convinced that the changes
proposed by the debtor are necessary, relief may be denied if the court
believes that the debtor has failed to negotiate in good faith, to
provide the union with sufficient information, to spread the sacrifice
among labor and other constituencies in a fair and equitable manner, or
to satisfy any of the other requirements for relief. Companies
reviewing the case law will observe that denial by the courts of
Sec. 1113 relief is not uncommon. If a company cannot modify its
collective bargaining agreements, its reorganization effort may be
doomed to failure. Thus, if the company can achieve adequate (even if
not ideal) cost savings through negotiation, it has every incentive to
do so.
Another risk to the company is that, even if it prevails in court,
the company could face a break-down in employee relations, which may
imperil the company's future. It is difficult for a company--
particularly one trying to rebound from bankruptcy--to prosper with an
unhappy and resentful workforce. Any time there are modifications to a
collective bargaining agreement, there is likely to be some unhappiness
among the labor group that was called upon to make a sacrifice, but the
extent of acrimony is likely to be much greater where the modifications
were imposed by a court, after litigation, as opposed to having been
agreed upon by the parties, as a result of open and good-faith
negotiations.
Finally, there may be a risk that the union will strike after a
collective bargaining agreement is rejected. Unions often threaten to
strike if Sec. 1113 relief is granted. Particularly, in the case of a
company that is already suffering financial distress, a strike may
destroy the company. Of course, destroying the company is not in
labor's interest any more than it is in the interests of any other
constituency, but the company nonetheless faces a risk that an employee
group, perhaps acting out of anger or resentment or with any eye toward
influencing the outcome in future cases, will strike even if doing so
would destroy the business.\12\ Avoiding a strike is another incentive
for a company to seek an agreement rather than litigate against its
unions.
---------------------------------------------------------------------------
\12\ In some recent airline bankruptcy cases, courts have enjoined
threatened strikes following Sec. 1113 decisions, where a strike would
have been likely to have put the airline out of business. See Northwest
Airlines Corp. v. Assn. of Flight Attendants--CWA, AFL--CIO (In re
Northwest Airlines Corp.), 349 B.R. 338 (S.D.N.Y. 2006), aff'd, 483
F.3d 160 (2d Cir. 2007); Comair, Inc. v. Air Line Pilots Ass'n, Int'l
(In re Delta Air Lines, Inc.), 359 B.R. 491(Bankr. S.D.N.Y. 2007); In
re Mesaba Aviation Inc., 350 B.R. 112 (Bankr. D. Minn. 2006). Because
they involved airlines, these cases were governed by the Railway Labor
Act (``RLA'') rather than the National Relations Labor Act (``NRLA'').
It is less clear that the federal courts could enjoin a strike against
a company whose labor relations are governed by the NRLA rather than
the RLA. See Northwest Airlines Corp. 483 F.3d at 173 (Commenting that
``[i]n cases governed by the NLRA, we have also hinted that a union is
free to strike, even following contract rejection under Sec. 1113.'').
---------------------------------------------------------------------------
The unions, and the employees they represent, also face risks if no
agreement is reached. First, they run the risk that the company may
prevail in rejection litigation, leaving the employees without any
collective bargaining agreement or potentially with more substantial
pay and benefits reductions and work rule modifications than could have
been achieved through negotiation.
Another risk to the union is that in litigation the court is forced
to make ``up or down'' decisions, while in negotiations the union has
more flexibility to construct an agreement that is responsive to the
particular concerns of its membership, prioritizing those issues that
are most important to the employees it represents.\13\
---------------------------------------------------------------------------
\13\ In negotiations, it is not uncommon for a debtor to try to
establish a level of cost savings that it needs to achieve in order to
be viable, but then to give the union considerable flexibility in how
to achieve that level of cost savings so that the union can prioritize
those items that are of greatest concern to its membership. The union
is obviously better able to do this than a court would be.
---------------------------------------------------------------------------
The union also faces the risk that, even if it wins the litigation,
it may destroy the company in the process. Many companies that seek
Sec. 1113 relief do in fact need that relief in order to remain viable
and competitive. Typically, these companies are paying wages and
benefits and offering work rules that are more generous than their
competitors, and they need to adjust their wages, benefits and work
rules to a market level in order to reorganize and remain in business.
If the union refuses to make concessions and succeeds in defeating the
company's Sec. 1113 motion, the result may be a liquidation of the
company and loss of all jobs. Thus, the union faces not only the risk
of losing the Sec. 1113 litigation, but often the equally great risk of
winning.
These risks, faced by the company and its employees, create
bargaining leverage for both sides. As a result, Sec. 1113 cases are
settled much more often than they are litigated. In the best of
circumstances, they are treated by the parties as ``business problems''
rather than ``us versus you'' disputes, with the company and the union
sharing information and analysis and collaborating to arrive at a
solution that will result in a workable, fair and market-competitive
labor cost structure. Even in those cases with more hostility, though,
the parties eventually tend to come to the conclusion that a negotiated
solution is preferable to the alternatives. The fact that the unions,
as well as companies, tend to be advised by experienced counsel,
financial advisors, and other professionals, who recognize the risks to
each side, promotes consensual resolutions. Finally, the courts tend to
push all the parties for consensual resolution. Most judges seem to
prefer a solution crafted by the parties to one imposed by the court.
The courts recognize that encouraging consensual resolutions is
consistent with the intent of Congress in enacting Sec. 1113 and also
that an arrangement worked out between the parties is likely to be more
responsive to each of their concerns, and more workable in practice,
than one imposed by the court.
In the relatively few cases where the parties are not able to reach
agreement, and the court must therefore rule on a Sec. 1113 motion, the
debtors sometimes prevail and the unions sometimes prevail. Each case
that is litigated will, of course, be decided based on its own
particular facts. However, as a general matter it would be fair to say
that the burden imposed on a debtor seeking to reject a collective
bargaining agreement over a union's objection has been a heavy one, and
the courts have rigorously imposed the requirements set forth in the
statute.
Many of the same concerns and competing issues are raised by
Sec. 1114. Section 1114 provides that the debtor ``shall timely pay and
shall not modify any retiree benefits,'' unless the parties all agree
to the modifications or the debtor follows the procedures in the
statute and receives court approval to modify such benefits.\14\ The
requirements for obtaining court approval to modify retiree benefits
are similar to the requirements set forth in Sec. 1113, including the
need to first attempt to negotiate before seeking court approval, the
requirement that any modifications be ``necessary'', and the fair and
equitable requirement.\15\ In fact, Sec. 1114, which was enacted
approximately four years after Sec. 1113, tracks the language of
Sec. 1113 in important respects.\16\ Judicial interpretation of
Sec. 1114, as well as legislative statements made at the time of
enactment, suggest that the standards are intended to be very similar
or identical.\17\
---------------------------------------------------------------------------
\14\ See 11 U.S.C. Sec. 1114(e).
\15\ Prior to attempting to modify the benefits, the debtor must
``make a proposal to an authorized representative of the retirees,''
the proposal can only provide for ``those necessary modifications in
retiree benefits that are necessary to permit reorganization of the
debtor,'' and the debtor must assure ``all of the affected parties are
treated fairly and equitably.'' See 11 U.S.C. Sec. 1114(f)(1)(A).
\16\ Compare Sec. 1113(b) to Sec. 1114(f), setting forth the
conditions precedent to requesting modification of retiree benefits.
Also, compare Sec. 1113(c) to Sec. 1114(g), establishing the standards
for modification of retiree benefits.
\17\ See In re Horsehead Indus., Inc., 300 B.R. 573, 583 (Bankr.
S.D.N.Y. 2003) (``The statutory requirements under both sections [1113
and 1114] are the same. Accordingly, the discussion relating to
requirements under 1113 also applies to 1114.''); In re Ionosphere
Clubs, Inc., 134 B.R. 515, 519-20 (Bankr. S.D.N.Y. 1991)
(``[C]ompliance with 1114 is substantially and procedurally the same as
compliance with 1113.''). The Senate Report (Judiciary Committee) No.
100-119, provides the following comment about the intent of Sec. 1114:
``These standards are intended to be identical to those contained in
Section 1113. In adopting this standard the Committee believes that it
is important to use a standard with which the courts are already
familiar. The Committee believes that the Section 1113 standards strike
a fair and reasonable balance between the need to protect the rights of
retirees and the rights of other creditors.'' See S. Rep.100-119 (July
17, 1987), reprinted in 1988 U.S.C.C.A.N. 683, 687-88.
---------------------------------------------------------------------------
In practice, Sec. 1114 issues are treated much like Sec. 1113
issues. The retirees are represented either by a labor union or by a
retiree committee. The union or committee engage counsel and other
professionals to represents its interests. Most often, the company and
the retirees' representatives reach agreement on modifications that are
necessary to give the company a workable cost structure and that
``spread the pain'' among present workers, retirees, creditors and
other constituencies.
In conclusion, issues involving modification of collective
bargaining agreements or retiree benefits are among the most difficult
issues faced by the parties, and the courts, in chapter 11 cases. The
prospect of reducing employees' wages and benefits, or retirees'
benefits, is not something the courts take lightly. A debtor proposing
to do this faces a heavy procedural and substantive burden. At the same
time, courts recognize, as they must, that some debtors are so
hamstrung by above-market or otherwise unaffordable labor and retiree
costs that, without relief from such costs, they will not be able to
emerge from bankruptcy as viable and competitive enterprises. If these
companies are forced to liquidate because they cannot reduce these
costs, all constituencies will suffer, including workers who will lose
their jobs, retirees who will lose their benefits, creditors and
shareholders whose recoveries will be diminished or eliminated,
suppliers and customers, taxing authorities, and local communities.
Sections 1113 and 1114 provide a framework for the parties, and when
necessary the courts, to balance these competing concerns and
interests.
While in any given case, one party or the other may be more or less
satisfied with the outcome, as a general matter Sec. Sec. 1113 and 1114
have worked well in achieving a balance between the objectives of
preserving bargained-for wages, benefits and work rules to the maximum
extent possible and achieving a cost structure that will enable chapter
11 debtors to reorganize. Congress' goal of placing a heightened burden
on debtors seeking to modify labor agreements, providing all parties
with bargaining leverage, and encouraging negotiated resolutions has
been largely achieved.
Ms. Sanchez. Thank you for your testimony.
At this time, I would invite Mr. Redmond to begin his
testimony.
TESTIMONY OF FRED REDMOND, INTERNATIONAL VICE PRESIDENT, HUMAN
AFFAIRS, UNITED STEELWORKERS (USW), PITTSBURGH, PA
Mr. Redmond. Thank you. Good morning, Madam Chair and
Members of the Committee.
I would first like to bring you greetings on behalf of the
1.2 million active and retired members of the United
Steelworkers. Our members are found in nearly every
manufacturing industry, as well as health care, service and
public employment. On behalf of the steelworkers union, I am
filling in this morning for International President Leo Gerard,
who is unable to appear today. But Leo has a very, very strong
passion toward this issue that we are discussing, so I thank
the Subcommittee for the invitation to appear.
Unfortunately, Madam Chair, our union is all too familiar
with the Chapter 11 process. And for me, one corporate
bankruptcy hit especially close to home. The aluminum plant
that I worked in, in a small town right outside of Chicago,
Illinois, called McCook, went through bankruptcy in the McCook
Metals case.
The company ultimately liquidated, and that meant the
termination of a defined pension benefits and retiree health
insurance program for men and women that I have known my entire
adult life, including family members. So I cannot forget their
losses, nor those suffered by all the steelworkers in other
cases. And that is, in part, why I appear before you today.
If we look at the steel cases alone, more than 40 steel
companies earlier in the decade filed bankruptcy cases. And
that was the result of great overcapacity in the world steel
industry, followed by unfair imports from America's trading
partners. During that period of time, more than 55,000
steelworkers were laid off. The Pension Benefit Guaranty
Corporation terminated pension plans covering 240,000
steelworkers and retirees, and nearly 200,000 retirees and
surviving spouses lost retiree health insurance coverage during
that period of time.
Now, beyond steel, in the aluminum, iron ore, glass, paper,
and automotive parts industry, steelworkers have also faced
devastating corporate bankruptcies. Our folks at the bargaining
table have had to wrestle with enormous challenges within a
system that is stacked against the interests of workers and
retirees. In light of our experience, I am here today to ask
the Subcommittee to lead a reform of the Bankruptcy Code aimed
at treating the American worker and retirees more fairly.
The last major reform to the Bankruptcy Code that focused
on worker and retiree interests were enacted in the 1980's, and
the steelworkers union was central in those deliberations.
Insofar as the ability of a reorganizing company to reject a
negotiated labor agreement is concerned, legislation in the
1980's sought to balance collective bargaining rights against
the need of an employer with proven distress to obtain
necessary and limited relief. We believe Congress have always
intended that this balance to allow a reorganizing company to
reject a labor agreement was only as a last resort; that is,
only after full and earnest bargaining had failed, and only
when it became necessary to avoid liquidation.
But the experience of the last 20 years illustrates that
this balance has been upset. Employers have pushed aggressively
for changes to labor and pension and retiree insurance
agreements, often as the first shot rather than as a last
resort.
So in light of the strict time limit, let me simply touch
upon four specific areas in which I would urge the Subcommittee
to adopt reforms. First, we suggest to Congress that we should
seek to recapture the balance that I was referring to, giving
stronger recognition to the important role of collective
bargaining, and limiting the right of employers to violate
labor agreements.
Second, reform should assign higher priority to the payment
of employee and retiree obligations, allowing them to be paid
before other creditors who are more able to absorb losses than
is a worker and a worker's family. These other creditors with
deeper financial resources include highly compensated lawyers
and investment bankers.
And, third, reform should enshrine the principle of shared
sacrifice and do it with specificity, meaning that executives
should not be allowed to improve their own salaries and
benefits while workers and retirees see their quality of life
devastated.
Speaking of that last subject, controlling executive
compensation in bankruptcy, Congress in 2005 limited the
ability of companies to ask for retention bonuses to be paid to
executives of bankrupt companies simply for remaining with the
company. In fact, it was a steelworker leader from Ohio, David
McCall, who first pointed out the abuses of executive retention
schemes in testimony before the Senate Judiciary Committee in
early 2005.
Employers, however, have found loopholes in the current
law, Madam Chairman, and now simply recast and rename these
retention schemes as so-called incentive programs. This is
semantics. As one judge in a recent steelworker case said, in
considering one of these so-called incentive programs, ``If it
walks like a duck, quacks like a duck, then it is a duck.'' And
Congress must close this loophole.
And, fourth, bankruptcy reform also must take into account
the impact of sales and liquidations upon workers and retirees.
For example, Congress should clarify that a bankruptcy judge
may, in supervising the sale or auction of assets, give
preferential weight to the buyer who intends to retain jobs and
benefits in the community as opposed to a buyer who simply
wishes to liquidate assets. Congress should also, in our
opinion, take special steps to protect their health insurance
benefits of retirees in the sale process to ensure that
retirees are not left at the side of the road while a proper
buyer moves on.
So, Madam Chairman, we recognize that reforming the U.S.
Bankruptcy Code will not, by itself, solve all of the problems
of American industry, American manufacturing, and at least not
to exacerbate the problems being faced by so many American
workers and retirees.
So I want to thank you very much for your attention toward
this issue that we take very seriously. Thank you, Madam
Chairman.
[The prepared statement of Mr. Redmond follows:]
Prepared Statement of Fred Remond
I am Fred Redmond, International Vice President (Human Affairs) of
the United Steelworkers (USW). The USW has 850,000 members in the
United States and Canada. Our members are found in nearly every
manufacturing industry, not only steel, but paper, forestry, rubber,
energy, mining, automotive parts, and chemicals, as well as health
care, service and public employment. On behalf of the USW, and filling
in for International President Leo Gerard, who is unable to appear
today, I thank the Sub-Committee for the invitation to appear today.
Our union is all too familiar with the Chapter 11 process. And for
me, one corporate bankruptcy hit especially close to home. The aluminum
plant I worked in for 25 years in McCook Illinois, near Chicago, went
through bankruptcy in the McCook Metals case. The company ultimately
liquidated, and that meant the termination of a defined benefit pension
and a retiree insurance program. Men and women with whom I had worked
for years, including family members, lost almost everything in the
McCook bankruptcy. I cannot forget their losses, nor those suffered by
Steelworkers in other cases, and that's one reason why I appear before
you today.
Looking at steel cases alone for just a minute, more than 40
steelmakers earlier this decade filed bankruptcy cases, and that was
the result of great overcapacity in the world steel industry followed
by unfair imports from America's trading partners. The human dimensions
were vast. Many of our largest steel industry employers were affected--
Bethlehem Steel, LTV Steel, National Steel, Wheeling-Pittsburgh Steel,
WCI Steel, and Republic Technologies. More than 55,000 Steelworkers
were laid off in that period. The Pension Benefit Guaranty Corporation
terminated pension plans covered nearly 240,000 steelworkers and
retirees. And, nearly 200,000 retirees and surviving spouses lost
retiree health insurance coverage.
The steel industry recovered substantially, as a result of both the
tariffs imposed in March 2002 and the sacrifices made by our members to
restructure the industry. Over these years our union has also led an
effort for steel industry consolidation, which did not come without a
price, but which has helped to create a stronger industry that even now
faces still more real and threatened increases in foreign imports.
Beyond steel, in such industries as aluminum, iron ore, glass,
paper, and automotive parts, USW members and retirees have also faced
devastating corporate bankruptcies. Our bargainers have had to wrestle
with enormous challenges and do so within a system that is stacked
against the interests of workers and retirees. In light of our
experience, I ask the Sub-Committee today to lead a reform of the
Bankruptcy Code aimed at treating American workers and retirees more
fairly.
The last major reforms to the Bankruptcy Code that focused on
worker and retiree interests were enacted in the 1980s, and the United
Steelworkers was central in those deliberations. Insofar as the ability
of a reorganizing company to reject a negotiated labor agreement is
concerned, legislation in the 1980's sought to balance collective
bargaining rights against the need of an employer with proven distress
to obtain necessary and limited relief. We believe Congress always
intended this balance to allow a reorganizing company to reject a labor
agreement only as a last resort, that is, only after full and earnest
bargaining had failed and, even then, only when necessary to avoid
liquidation.
But the experience of the last 20 years illustrates that this
balance has been upset. The courts have interpreted the bankruptcy law
in such a way as to regularly grant employer requests for relief under
a more lax standard than we believe Congress had intended. Employers
now push aggressively for changes to labor and pension and retiree
insurance agreements, often as a first shot rather than a last resort.
In light of this experience, there are numerous ways in which Congress
can and should reform the bankruptcy laws to treat worker and retiree
interests more fairly.
First, Congress should seek to recapture the balance I referred to,
giving stronger recognition to the important role of collective
bargaining and limiting the right of employers to violate labor
agreements, which is after all what rejection really amounts to. This
would include defining more narrowly the meaning of the term
``necessary to reorganization'' so as to force employers to clear a
higher bar and placing meaningful limits on the length of proposed
concessions. Honoring the collective bargaining process also would
protect the fundamental right to strike, which has been a particular
concern to our brothers and sisters in the airline industry.
Second, reform should assign higher priority to the payment of
employee and retiree obligations, allowing them to be paid before the
claims of other creditors who are typically more able to absorb losses
than is an individual worker and his or her family. Among the other
creditors with greater financial reserves are highly-compensated
lawyers and investment bankers.
Third, reform should enshrine the principle of shared sacrifice and
do it with specificity, meaning that executives should not be allowed
to improve their own salaries and benefits while workers and retirees
are forced to sacrifice their quality of life. Before exposing workers
and retirees to cuts, the courts should simply ask whether executives
and managers have first made sacrifices themselves.
On this subject--controlling executive compensation in bankruptcy--
Congress in 2005 limited the ability of companies to ask for retention
bonuses to be paid to executives of bankrupt companies simply for
remaining with the company. In fact, it was a Steelworkers leader from
Ohio who first pointed out the abuses of executive retention schemes in
testimony to the Senate Judiciary Committee in early 2005. Employers,
however, have found loopholes in the current law and now simply recast
and re-name these retention schemes as so-called ``incentive
programs.'' This is semantics. As one judge in a recent USW case said
in considering one of these so-called ``incentive'' programs: ``if it
walks like a duck, and quacks like a duck, it's a duck.'' Congress must
close this loophole.
Fourth, bankruptcy reform also must take into account the impact of
sales and liquidations upon workers and retirees. For example, Congress
should clarify that a bankruptcy judge may, in supervising the sale or
auction of a company's assets, give preferential consideration to a
purchaser who plans to retain jobs and benefits in the community as
compared to the buyer who would simply liquidate assets. Congress also
should take steps to extend protection to retiree health benefits in
sale situations. Even where a seller in bankruptcy meets an exacting
standard for modifying retiree benefits, Congress should require the
buyer as well to set aside monies to restore some of the devastating,
and oftentimes, life-threatening losses of health care benefits
suffered by retirees. That will ensure that retirees are not left by
the side of the road as a profitable buyer moves forward.
We at the USW know that a different bankruptcy process is possible.
We represent approximately 280,000 members in Canada. Our Canadian
employers have not been immune from many of the same problems that have
afflicted our U.S. employers, though Canadian employers have not been
hamstrung by the gross inefficiencies of the U.S. health care system.
In the Canadian insolvency process, we are not aware of any judge who
has used the legal process to void a collective bargaining agreement,
and our union was instrumental in 2005 in leading the Canadian House of
Commons to pass legislation that confirmed that collective bargaining
agreements are beyond the authority of the courts (though that law is
now under attack by the current government). Our experience in Canada
proves that worker interests need not be subordinated in the bankruptcy
process.
Madame Chairperson, we recognize that reforming the U.S. Bankruptcy
Code will not, by itself, solve all of the problems of American
industry. We do not confuse prevention with cure. And on the prevention
side are vital questions about our trade and tax policies, our lack of
international health care competitiveness, the need for a pro-
manufacturing agenda, and other policies that stop the hemorrhaging of
jobs in American industry. At the same time, the bankruptcy laws should
work in tandem with manufacturing-friendly measures and, at the very
least, not exacerbate the problems being faced by so many American
workers and retirees. The lives of far too many American workers and
retirees have been crushed by corporate reorganizations. Congress can
begin to set things right by reforming the bankruptcy laws. Thank you
very much Madame Chairperson.
Ms. Sanchez. Thank you, Mr. Redmond, for your testimony and
your recommendations.
I would invite Mr. Prater to begin his testimony.
TESTIMONY OF CAPTAIN JOHN PRATER, PRESIDENT, AIR LINE PILOTS
ASSOCIATION, INTERNATIONAL, WASHINGTON, DC
Mr. Prater. Good morning, Madam Chairwoman, and Members of
the Subcommittee. On behalf of the 60,000 ALPA members who fly
for 41 airlines in the United States and Canada, I want to
thank you for this opportunity to describe how airline
management has exploited this Nation's bankruptcy laws
following the tragic events of 9/11, and how you can act to
level a playing field that kept workers on the sidelines.
Unfortunately, I am no stranger to airline bankruptcies.
Having flown for Continental Airlines for 29 years, I know
first hand the effect that the deregulation act of 1978 and the
bankruptcies that followed had upon our industry and our
pilots. During the 1980's, we fought this battle to prevent
management's unilateral abrogation of labor contracts and
advocated for bankruptcy legislation to protect American
workers. Nearly 24 years later, we are back fighting once again
to restore balance to the Bankruptcy Code.
The events of 9/11 presented a narrow window of opportunity
for airline managements to crush workers, and they took
advantage of that window of opportunity with complete abandon.
While pilots and other workers rallied to save our airlines
after that dark day in September, management and the law we
discussed today forced us to give too much. Now that the
emergency is over, it is time to fix the Bankruptcy Code.
Since 2001, pilots have given more than $30 billion in
concessions to save our airlines and our jobs. As one example,
pilots at United Airlines endured two rounds of concessions
that included pay cuts of 30 percent, followed by another 12
percent, harsher work rules, less job security, and a
terminated pension plan. After United returned to
profitability, those pilots have so far been rewarded with only
a 1.5 percent pay raises and forms of profit sharing worth
about 0.5 percent of their annual W-2 earnings.
In contrast, United's CEO received a compensation package
last year worth over $40 million, a 3,500-plus percent increase
over the prior year. I ask you: Who saved United Airlines? The
CEO who made business decisions that led to bankruptcy, or the
pilots and the workers who did their jobs flawlessly, gave up
salary and pensions, and flew more hours? I challenge any
person in this room or in this industry to tell me the pilots
and their fellow United employees did not save that airline.
Pilots at Hawaiian Airlines faced a Section 1113 motion by
a profitable company as a lever to wrest employee concessions
to either facilitate a sale or to improve the carrier's
competitive position. After having already made pre-petition
concessions demanded by management to avoid a Chapter 11
filing, pilots were then stunned when management approved a
self-tender of the airline's stock at well below market rate
following September 11th and before the bankruptcy filing. You
can't make this up. No one would believe us.
Delta's management used bankruptcy at two airlines. First,
they exacted deep concessions from mainline pilots while in
bankruptcy; then, they had the gall to claim that wholly owned
subsidiary Comair was simply not profitable enough and also
needed to enter bankruptcy. The bankruptcy judge there did not
dispute our claims and argument that Comair's Section 1113
motion for a 22 percent pay cut would qualify some full-time
pilots for Federal welfare assistance. He simply ignored that
fact.
In the end, we reached a concessionary agreement, but it
wasn't pretty, and it isn't pretty today. Not long after that,
Delta was boasting that it had plenty of cash on hand to fight
a hostile takeover attempt by U.S. Airways, and the only reason
U.S. Airways could try to buy another airline was because it
had used the bankruptcy process twice to cut the wages and the
work rules and terminate all the pension plans of its workers.
Wait, it gets worse. The most egregious case of bankruptcy
abuse involved Mesaba Aviation, which flies as Northwest
Airlines, which was also in bankruptcy. Not only did Mesaba
refuse to bargain in good faith, but its management argued in
court against the pilots' rights to withhold their services if
their contract was rejected, a right that every other party to
a rejected contract has under the Bankruptcy Code. Two
bankruptcy courts, a Federal district court and the 2nd Circuit
Court of Appeals, affirmed that airline employees can be forced
to accept the utter destruction of their contract, but may not
strike in response. Again, we can't make this up; we are living
it.
The willingness of the courts to enjoin any strike in
response to the imposition of unilateral terms has taken away
any incentive for airlines to negotiate. Why bother, when you
can dictate terms in bankruptcy court?
Clearly, Congress must once again overhaul the Bankruptcy
Code. Managements have found the loopholes in the law, and the
judges have only been too willing to let them exploit those
advantages. The current Bankruptcy Code must be overhauled so
that the breach of a collective bargaining agreement can be
sanctioned only and when truly necessary and only to provide
the employer with what it truly needs: to ensure the company's
survival.
I would like to sum up by saying that we thank you and the
Subcommittee for the opportunity to testify today. I sincerely
believe that Congress must restore the balance to the
bankruptcy process so that, when our next crisis hits, our air
transportation system will serve the public's and the Nation's
best interest.
I would be happy to entertain any questions. Thank you.
[The prepared statement of Mr. Prater follows:]
Prepared Statement of John Prater
Good morning Madame Chairwoman and members of the Subcommittee. I
am Captain John Prater, President of the Air Line Pilots Association,
International. ALPA represents 60,000 professional pilots who fly for
41 airlines in the United States and Canada. On behalf of our members,
I want to thank you for the opportunity to testify today about the
urgent need for legislation to restore balance and basic fairness to
the Section 1113 process under Chapter 11 of the Bankruptcy Code.
In the aftermath of the events of Sept. 11, 2001, ALPA and other
labor unions faced continuous efforts by airlines to use the bankruptcy
process as a razor-sharp tool to strip away working conditions and
living standards that were built over decades of collective bargaining.
Airline workers have borne far more than their fair share of the pain
to save their airlines, as massive pay cuts, lost pensions and other
deep concessions clearly attest. Section 1113 of the code has been
applied by the bankruptcy courts, at management's instigation, in a
manner far removed from the original intent of these provisions.
Instead of protecting employees, the 1113 process has been used by
employers to unfairly gut the wages and working conditions of airline
and other employees. These same employers also used the bankruptcy law
to rubber stamp multimillion dollar rewards for the corporate
executives who perpetrate these abuses on workers.
After 9/11, many airline managements used the 1113 procedures to
not only gut employee wages and working conditions, they also exploited
the bankruptcy process to cut staff to the bone. Both of these factors
have combined to make piloting a far less desirable job than it used to
be, contributing to increased pilot frustration, attrition and turnover
at a number of airlines. Added to the understandable employee
frustration and anger, these additional, related problems make the
implications of failing to restore balance to the bankruptcy process
more serious than just ending the immorality of this unfairness. The
current imbalance has created a poisoned environment that has greatly
undermined labor relations and employee good will in the airline
industry, which are critical to the efficient operation of our
essential national air transportation system.
Indeed, ALPA has seen that airline managements' successful efforts
through Section 1113 to turn back the clock decades on workers' pay,
rights and benefits have far exceeded any legitimate shared economic
sacrifices that might have been necessary for the economic survival of
the airlines. For example, a typical pilot at United Airlines endured
two rounds of concessions that included a 30 percent pay cut, a second
pay cut of 12 percent, harsher work rules, less job security, and a
terminated pension plan. In 2007, that pilot has so far received only a
1.5 percent pay raise and forms of profit-sharing worth only about 0.5
percent of his W-2 earnings. As harsh a reality as that is, imagine
that pilot's disbelief and anger upon learning that the airline's CEO
received a compensation package last year worth over $40 million
dollars. The contrast of many unionized airline employees losing more
than a third of their pay, work rules, and decades-old pension
benefits, while outrageous executive compensation and benefits programs
are approved for top airline managers, is enough to show that the
current Section 1113 process is unbalanced and grossly abused.
Similar horror stories exist among the thousands of pilots flying
in the US Airways family of airlines, as managers there departed the
scene with golden parachutes, leaving behind employees who now struggle
mightily to take care of their families while delivering millions of
their passengers safely day after day. Distressing tales of employee
suffering wrought by the 1113 process are also told by pilots and other
workers at Northwest, Delta, Comair and Mesaba.
As the Subcommittee knows, the Section 1113 procedures are the
mechanism by which employers can seek judicial permission to reject and
thereby breach collectively-bargained obligations to their employees,
and impose in their place dictated pay and working conditions. This
Section 1113 process was originally intended to prevent employers from
using the Chapter 11 process as an ``escape hatch'' to simply wipe away
with a bankruptcy filing the binding, long and hard-fought pay and
working condition achievements of workers secured by their collective
bargaining agreements.
Prior to its enactment, in 1984 the Supreme Court ruled in the
Bildisco case that an employer could walk away from binding collective
bargaining agreements after a bankruptcy filing without first making
any showing of necessity as to the need to reject the terms of the
agreement. In response, the Congress, at the urging of ALPA and other
unions, acted swiftly to establish procedures that sought to protect
the rights of employees in bankruptcy to prevent such results. The so-
called 1113 process was inserted into the bankruptcy code to require a
showing of justification and good-faith bargaining between labor and
management in order to obtain needed concessions. Failing such a
consensual agreement, a company could impose dictated terms and
conditions on its employees after court process only if those
concessions were determined by the court to be truly necessary to its
survival.
Since that time, the employee protective purpose of Section 1113
has been turned on its head by the bankruptcy courts and subverted by
employers to achieve precisely the contract-destroying, worker-bashing
results that Congress originally sought to prevent. ALPA has seen the
requirements of Section 1113 repeatedly ignored or misapplied, without
due regard for the financial security interests of airline employees
and their families. The most extreme examples of the one-sided nature
of the current process are in recent court decisions which allow
management to reject binding collective bargaining agreements and
impose working conditions, while prohibiting employees from withdrawing
their services under those agreements, as other parties facing such
rejection are routinely allowed to do under bankruptcy law. Corrective
legislation is urgently needed to restore the original intent and
purpose of these Section 1113 provisions, and to restore balance and
basic fairness to the bankruptcy process as it impacts honest workers
called upon to sacrifice to help save their employers.
ALPA believes that Congress must act to overhaul the Section 1113
process by: (1) tightening the standards governing when management can
reject their contractual obligations to workers, so that a breach of a
collective bargaining agreement can be permitted only when truly
necessary, and only to provide the employer with no more than is truly
necessary to ensure the competitive survival of the business; (2)
ensuring fair treatment and equitable sacrifices from both executives
and workers in the bankruptcy process so as to prevent further
outrageous abuse by corporate officers lining their own pockets while
their employees disproportionally sacrifice to help save the company;
and (3) making it clear that employees have the right to strike in
response to a breach of their collective bargaining agreements if a
consensual agreement between the parties cannot be reached. This
clarification is desperately needed to restore balance to the 1113
process and to help foster superior, mutually acceptable labor-
management solutions to bankruptcy crises through collective
bargaining.
All of these changes are urgently needed to restore some semblance
of a level playing field in collective bargaining between workers and
management, and to deter employers from ever again using the bankruptcy
process as the vehicle for widespread and unjustified abuse of workers.
I will now describe a number of additional examples which show what has
gone wrong with the current administration of the 1113 process, both in
the corporate boardrooms and in the courts, and illustrate why such
legislation is so urgently needed to correct the employer abuse which
has flourished unchecked in the current environment.
I. THE BANKRUPTCY COURTS HAVE ALLOWED EMPLOYERS TO USE THE SECTION 1113
PROCESS AS LEVERAGE TO GUT LABOR CONTRACTS WITHOUT REQUIRING EMPLOYERS
TO SHOW THAT THE CONCESSIONS ARE NECESSARY OR FAIR.
The courts, egged on by opportunistic employers, have progressively
undermined the ``necessity'' standard for granting employer relief in
Section 1113. As I have alluded to, this standard is supposed to allow
only those changes in working conditions that are truly ``necessary to
permit the reorganization'' of the employer. In practice, these limits
have all but been ignored by both employers and the bankruptcy courts,
which in many cases have used the bankruptcy process as leverage to
simply jam draconian wage and benefit cuts down employees' throats.
These scorched-earth tactics of using the 1113 procedures to force
extraction of concessions that are not truly necessary or otherwise
achievable in consensual bargaining have led to widespread tension and
resentment among employees, creating lasting damage to labor relations.
ALPA's experience has shown that circumstances where consensual
solutions have been reached by the parties have led to far superior
outcomes for airlines, their pilots and the flying public. Congress
needs to take steps to restore support for consensual negotiations in
such circumstances. Both employers and the bankruptcy courts need to be
reined in to ensure that the numerous recent abuses of the 1113 process
are never repeated.
It gets worse: we have seen profitable airlines use Section 1113 as
a bargaining lever to wrest employee concessions to either facilitate a
sale or other transaction or just to improve the competitive position
or profitability of the carrier. In the case of the bankruptcy of
Hawaiian Airlines, pilots faced a Section 1113 motion by a profitable
company after having made pre-petition concessions demanded to avoid a
Chapter 11 filing. All this after management approved a self-tender of
the airline's stock at a substantial premium to market value following
September 11 and before the bankruptcy filing. This scheme by Hawaiian
was an outrageous abuse of the process.
In the case of Delta Airlines, even after many months of litigation
before the bankruptcy court, management continued to demand extreme
concessions. Only after the establishment of a special neutral
arbitration tribunal, which took the matter out of the hands of the
bankruptcy court, did management finally reduce its demands and, in
response to ALPA's demands, offer the pilots a bankruptcy claim in
exchange for substantial concessions. After a consensual agreement was
reached on this basis, the Company completed its successful
reorganization and returned to profitability. I would note legislative
reforms should build off this success and allow consensual use of such
expert arbitration panels versed in the industry as an alternative to
court proceedings in 1113.
In the Comair bankruptcy, pilots were forced into Section 1113
litigation because the operation was simply deemed not profitable
enough to its corporate parent, Delta, while at the same time Delta
proclaimed that it had plenty of money on hand as a justification to
creditors for fighting a hostile takeover attempt by America West/US
Airways.
Additionally, testimony at the hearings on Comair's Section 1113
motion established that the Company's demands for a 22% pay cut would
qualify some full-time pilots for federal welfare assistance. In
response to testimony from a pilot whose family would qualify for
federal food stamps were he to work full-time under the Company's
demands, the bankruptcy judge indicated that he would not be persuaded
by these facts of employee hardship and suffering, because he viewed
the issue purely in economic terms. In fact, in his decision granting
Comair's Section 1113 motion, the judge failed to take into
consideration the impact the Company's 1113 proposal would have on the
pilot group and its families. A concessionary agreement was only
reached after the airline effectively moderated its demands by offering
the pilots meaningful ``upside'' benefits. This case alone cries out
for legislative remedy.
In the case of Mesaba Aviation, the bankruptcy court approved as
``necessary'' a wage cut of almost 20% that would have lasted for 6
years, within a structure that did not envision any reversal or
mitigation of the cuts during that lengthy period. After the district
court agreed with ALPA that such overreaching amounted to bad-faith
conduct and an abuse of the bargaining process, and subsequent
consensual negotiations, the Company finally agreed to a contract that,
while definitely concessionary, provided a significantly smaller pay
cut but did not prevent the Company from successfully reorganizing
under a plan that is expected to provide close to a 100% recovery for
all creditors.
All of these circumstances, taken together, show beyond doubt that
the current 1113 process, which does not impose effective limits on the
``necessity'' of employer concession demands, is open to employer abuse
and grants inappropriate leverage for employers to wrest unwarranted
concessions from employees. These examples also show that consensual
solutions to financial crises are always superior to the imposed
alternatives. The current 1113 process undermines consensual,
legitimate solutions to financial crises. Necessary modifications to
that process must correct these imbalances and support superior
consensual solutions.
Reforms are also needed to ensure that an employer would not be
permitted to commence the 1113 process seeking court permission to
reject a collective bargaining agreement unless there has been good-
faith bargaining over proposed modifications to the agreement for a
reasonable period of time and the parties reach impasse. Reforms should
also include setting specific limits on the scope of labor cost relief
that can be sought by an employer, including requiring clearly
expressed financial contributions that would be asked of employees to
help the carrier exit bankruptcy, which would not be permitted to
extend more than a short time period following successful exit of the
employer from bankruptcy. Such a provision would help prevent the abuse
of employers ``locking in'' long-term drastic concessions which
continue long after the exit of bankruptcy, as has been the case at
United, Northwest, US Airways, Delta, Comair and Mesaba. Reforms should
also require the court to consider whether alternative proposals for
relief from the union would be sufficient to permit successful
reorganization. Additionally, the bankruptcy court should be required
to consider the effect of the proposed cuts on the workforce, the
employer's ability to retain a qualified workforce and the effect of a
strike in the event the collective bargaining agreement is allowed to
be rejected. All of these changes are necessary to ensure that the
sacrifices that are extracted from employees are truly fair, reasonable
and necessary, and to stem employer abuse of the current administration
of the 1113 process.
II. THE CURRENT DOUBLE STANDARD UNDER CHAPTER 11: DEEP SACRIFICE FOR
WORKERS, HUGE PAYOUTS FOR THOSE AT THE TOP.
Modifications should require that the economic relief sought from
employees not be disproportionate to the treatment of executives and
other groups. These changes are urgently needed to restore basic
fairness and credibility to the 1113 process. The current system has
led to outrageous unfairness, with workers absorbing huge, long-term
cuts in pay, work rules, and retirement benefits while management
executives have enjoyed huge payouts which appear to be nothing more
than rewards that are directly tied to the level of pain they have
inflicted on the employees. For example:
Pilots at United Airlines, who took concessions of
40% or more in pay, lost numerous important work rules, had
their defined benefit pension plan terminated in multiple
rounds of Section 1113 litigation, and were locked into a
nearly seven-year deeply concessionary agreement, saw the
injustice of the United Board raising the pay of Chief
Executive Glenn Tilton 40% just months later. This staggering
increase is on top of stock grants to Mr. Tilton and other
United executives worth in excess of $20 million, as well as
stock options worth millions more, made as part of United's
plan of reorganization.
Northwest Airlines' pilots were also forced to accept
huge wage cuts of nearly 40%, as well as accept numerous
rollbacks to their quality of life by losing key protective
working conditions. By contrast, the CEO was rewarded with $1.6
million in salary and bonus payments last year. The revelation
that he will also be rewarded with more than $26 million in
stock-related compensation over the next few years under a
court-approved management equity plan further demonstrates the
basic unfairness and abuse of the 1113 process.
We urge reforms that would include a requirement that compensation
to be paid to officers and directors be subject to oversight for
reasonableness by the court as part of the employer's emergence from
bankruptcy. Under current law, executive compensation is only required
to be disclosed in the reorganization plan but is not subject to court
review. The courts should be required to ensure that executive
compensation is reasonable and not disproportionate in light of the
other concessions made by other groups during bankruptcy.
Reforms are also needed to require the court to impose an adverse
presumption against granting employee relief if the employer has
implemented an executive compensation program either during bankruptcy
or within six months prior to bankruptcy. If such a program has been
implemented, a presumption should be created that the employer has not
met the requirement that the proposed cuts not overly burden the
affected employee group. These changes are urgently needed to stop any
future court-assisted looting of employees by greedy executives of the
type that has already occurred.
III. MORE UNFAIRNESS: DEEP CONCESSIONS ARE EXTRACTED FROM EMPLOYEES,
while other stakeholders suffer few or no adverse consequences.
Legislative reforms are also needed because employees have also
suffered extreme unfairness at the hands of the 1113 process compared
to other stakeholders and participants in the bankruptcy process. For
example:
Pilots at Hawaiian Airlines faced demands for
concessions despite a plan of reorganization that paid
unsecured creditors in full.
Professional advisors, banks, economic experts,
financial managers and executives who participate in the
Section 1113 process on behalf of airlines do not share in the
sacrifices. Instead they earn lucrative fees and even
``success'' bonuses with the approval of the bankruptcy court,
while the workers' pay, work rules and pensions are allowed to
be gutted.
Reforms should require the bankruptcy court to conclude, before it
can allow an employer to reject a collective bargaining agreement, that
the economic relief sought from employees is not disproportionate to
the treatment of other stakeholder groups. This is not the case today,
and it is a basic flaw of the current system that needs urgent
correction.
IV. EVEN MORE UNFAIRNESS: AIRLINES USE SECTION 1113 TO AVOID BINDING
OBLIGATIONS TO EMPLOYEES, BUT HAVE CONVINCED SOME COURTS THAT THE
BANKRUPTCY LAWS IMMUNIZE THEM FROM FACING ANY EMPLOYEE SELF-HELP IN
RESPONSE.
The last item that I wish to bring to the Subcommittee's attention
is what I perceive to be the most egregious of the many aspects of
unfairness that exists in the current administration of the Section
1113 system that I have highlighted today. As I have explained,
airlines have used the Section 1113 process as leverage to obtain what
they could never obtain in consensual bargaining--deep, lasting and
unfair changes to avoid the binding commitments that they made to their
employees in collective bargaining agreements, but that has not been
enough for them. They have gone to the bankruptcy and federal courts
and asked them to declare that airline employees do not have the right
to respond to these unilateral, fundamental breaches of their
collective bargaining agreements by withholding services, as common
sense, fairness and the basic tenets of labor law would seem to
dictate. In fact, two bankruptcy courts, a federal district court, and
the Second Circuit Court of Appeals have ruled that airline employees
can be forced to accept the utter destruction of their fundamental
rates of pay and working conditions in collective bargaining
agreements, but may not strike in response. This approach, of course,
leaves employees chained to the railroad tracks as the 1113 Express
bears down on them. Airline employees are being singled out unfairly by
being denied the right to withhold services under a labor contract
after it is rejected, which is a right that every other party to a
rejected contract has under the current bankruptcy code. In fact, a
split panel of the Second Circuit could only justify this highly
inequitable result with the fiction that management is not actually
breaching a collective bargaining agreement when it obtains judicial
permission to reject a labor contract through the Section 1113 process,
a notion wholly at odds with settled bankruptcy doctrine.
The willingness of the courts to enjoin a strike in response to
management imposition of unilateral terms under Section 1113 has taken
away any incentive for airlines to negotiate rather than dictate terms
in bankruptcy. Airline employees have a right under the Railway Labor
Act to strike after a bankruptcy court grants a motion to reject a
collective bargaining agreement under Section 1113 and management
imposes new inferior rates of pay, benefits, job security and/or
working conditions. We believe that under the Norris-LaGuardia Act
(which was enacted in the 1930's to generally preclude injunctions
against strikes) bankruptcy judges and U.S. District Court judges do
not have jurisdiction to issue injunctions against such strike activity
when management has acted unilaterally to change the status quo and
tear up a binding labor contract outside of the negotiations process.
It is essential that any reform legislation explicitly preserve the
right of airline employees to strike after a Section 1113 contract
rejection, and our proposal does that. If the rule were otherwise, as
some courts have concluded, management would be allowed to impose
conditions without having to face the prospect of a strike. Such
blatant inequality allows management free reign to impose conditions
without any check on the kind of overreach and abuse that has occurred
to date. Legislation is needed to restore the economic balance
contemplated in the anti-strike injunction mandates of Congress in the
Norris-LaGuardia Act, which the Supreme Court found ``was designed
primarily to protect working men in the exercise of organized, economic
power, which is vital to collective bargaining.'' Balance will be
restored and management will be forced to act responsibly and fairly in
bankruptcy towards its employees only if it is faced with the real
possibility of a responsive strike.
In sum, while ALPA recognizes that substantial economic sacrifices
may be necessary by employees during severe economic disturbances, and
in fact has repeatedly acted in a leadership role to help many airlines
survive the ravages of the post 9-11 environment, management and the
courts have moved the 1113 process far from its original intent to
protect workers. Today, it is an extreme and one-sided process that is
used to destroy workers' lives. ALPA believes that corrective
legislation is urgently needed to fix the misinterpretation and abuse
of the 1113 process that has snowballed in the last five years. The
Congress must act to restore the original intent of this legislation
and protect employees from unfair, dictated sacrifices made while the
corporate chieftans reap huge payoffs.
Madame Chairwoman, I appreciate the opportunity to testify here
today, and I would be happy to answer any questions you have.
Ms. Sanchez. Thank you, Captain Prater.
At this time, I would invite Mr. Davidowitch to present his
testimony.
TESTIMONY OF GREG E. DAVIDOWITCH, MASTER EXECUTIVE COUNCIL
PRESIDENT AT UNITED AIRLINES, ASSOCIATION OF FLIGHT ATTENDANTS,
CWA, AFL-CIO, WASHINGTON, DC
Mr. Davidowitch. Thank you. Good morning, and thank you,
Chairwoman Sanchez, for holding this important hearing. I am
here today on behalf of AFA-CWA's 55,000 members at 20 airlines
around the country.
The lives of too many airline workers and retirees have
been devastated by the exploitation of corporate bankruptcy. As
president of the flight attendant's union at United Airlines, I
spent 38 months of my life, day in, day out, battling
unfettered corporate greed during the longest airline
bankruptcy in history.
Something must be done to level the playing field.
Bankruptcy must no longer be used as a business strategy that
simply transfers money to executives' pockets and leaves hard-
working Americans with nothing more than slashed pay,
diminished health care, destroyed retirement, and the prospect
of personal bankruptcy. Flight attendants have lost their homes
because of management's cuts; others have had to move back in
with their parents, sell their car, cancel college classes, and
lose custody of children.
One hundred and forty thousand airline workers have lost
their jobs. We have seen drastic wage cuts. For example, at
Mesaba Airlines, management's demands for cuts in wages would
have reduced some flight attendants' pay to less than $10,000
per year before taxes. This is nothing short of corporate-
induced poverty, shifting responsibility for a living wage from
the company to the taxpayers.
Management has slashed our medical benefits and, with a
devious twist, has also cut retiree medical benefits, a move
authorized by the law, but until now was largely taboo. United
enticed flight attendants to retire early in order to preserve
their retiree medical benefits. After enticing thousands of
flight attendants to agree to leave the company in exchange for
guaranteed retiree health benefits, management then went to the
court to file their Section 1114 motion, demanding immediate
individual retiree cost increases that were 10 times that cost
of premiums with no cap on future increases. In the end,
retirees were forced to shoulder $300 million in changes to
their health-care benefits that were approved by the bankruptcy
court.
However, United's maneuver prompted the bankruptcy court to
appoint a special examiner shortly after they filed their
Section 1114 motion. While the examiner questioned the tactics
of United management, the bottom line was that the law allowed
management to do what they did. A law designed to give extra
protection to retiree medical benefits had been turned on its
head.
While other major carriers struggle to protect their
pension promises with help from Congress, management at United
Airlines and U.S. Airways destroyed workers' pensions. AFA-CWA
fought to save those pensions using every legal avenue at our
disposal, but the bankruptcy court approved a legal maneuver by
management that made an end run on the pension protections in
the law.
It should be noted that the agency that was created by
Congress to protect the interests of the workers' pensions had
a hand in destroying our retirement security for a short-
sighted gain of $1.5 billion. And at the same time, they put
the country's entire pension system billions of dollars closer
to total collapse. This was neither fair nor did it make sense
as a matter of public policy.
We should be clear that one United employee's pension did
survive. CEO Glenn Tilton was careful to shield his own $4.5
million pension trust from termination. If this Committee wants
to enact a law that will be 100 percent effective at all times,
let me suggest this: Adopt legislation mandating that pensions
of corporate executives are treated exactly the same as those
of other employees. If workers' pensions are terminated,
executive pensions must be terminated, too, no exceptions.
I protect that, if such a law were passed, not a single
additional worker would have to suffer the loss of a pension
plan in bankruptcy or that any other provision of their
collective bargaining agreement that is not absolutely
necessary for the survival of their company. It is really just
that simple.
Finally, no consideration of the fairness of the current
bankruptcy process would be complete without the mention of
executive bonuses and executive compensation in the bankruptcy
process. It is simply out of control. Although flight
attendants are obligated to work under concessions for an
additional 4 years following the exit from bankruptcy, there is
no evidence that United's top executives had to make any
sacrifices at all.
In the end, how could any of this be considered fair? I
implore the Committee to fix the bankruptcy law before there is
any more devastation. Put an end to management abuses in the
use of bankruptcy laws as just another business tactic to cut
costs and line their own pockets. Level the playing field for
the workers we represent and enact a law that provides
protection of restructuring a company for the good of the long-
term, dedicated workers who are committed to the success of
their companies.
Thank you.
[The prepared statement of Mr. Davidowitch follows:]
Prepared Statement of Greg E. Davidowitch
Good morning, and thank you Chairwoman Sanchez for holding this
important hearing. We are truly fortunate to have someone like yourself
and Chairman Conyers in the position to help shape a reform of
corporate bankruptcy laws so that what I and many other workers around
this country have faced the past several years does not happen again.
My name is Greg Davidowitch and I am the Master Executive Council
President of the Association of Flight Attendants-CWA, AFL-CIO at
United Airlines. I am here today on behalf of AFA-CWA's 55,000 members
at 20 airlines around the country.
In a way, it is unfortunate that as a flight attendant and airline
worker in the U.S. aviation industry, I am qualified to testify on the
subject of today's hearing. The lives of so many airline workers and
retirees have been devastated by the exploitation of corporate
bankruptcy. I spent 38 months of my life, day in and day out, battling
unfettered corporate greed as management used the bankruptcy laws like
a weapon to obliterate pay, pensions, healthcare and the jobs of hard-
working Americans. The depth of my experience and the devastation
experience by the workers I represent will only be summarized in this
testimony; there is simply too much to tell. Something must be done to
help level the playing field so that bankruptcy is no longer a
``business strategy'' that simply transfers money to executives'
pockets and leaves the rank-and-file employees with nothing more than
slashed pay, diminished health care, destroyed retirement security,
bitterness, mounting debts and the prospect of personal bankruptcy.
Before I address the impact the bankruptcy process has had on AFA-
CWA flight attendants, let me take the Committee back to the fall of
2002. This Committee needs to understand how my airline wound up in
bankruptcy in the first place.
United Airlines was driven into bankruptcy by the Bush
Administration. The decision of the Air Transportation Stabilization
Board (ATSB) to reject United Airlines' request for $1.8 billion in
loan guarantees was the opening salvo by the White House in an
unprecedented attack on not just United Airlines employees, but also on
the jobs, wages and working conditions of workers throughout the
airline industry.
The ATSB was established by Congress to provide assistance to the
airline industry as it attempted to recover from the economic impact of
the historic terrorist attacks of September 11th. As one of the two
airlines whose planes were hijacked for use in that devastating
attack--attacks that included the horrible murder of flight attendants,
pilots and passengers--United Airlines was in a unique position to need
the assistance that the ATSB was created to provide. In fact, United's
situation was a clear example of what Congress intended when it voted
to create the ATSB with strong bipartisan support.
When it met to give final consideration to United's application for
this vital economic assistance to recover from the attacks of 9/11, the
three-member ATSB, with representatives appointed by the White House
from the Federal Reserve, the Treasury Department and the Department of
Transportation, rejected the application as inadequate. This was
despite the fact that the employee groups at United had already agreed
to concessions to keep the airline out of bankruptcy. These agreements
with AFA-CWA and the other unions at the airline would have generated
$5.8 billion in labor cost savings over 5 and a half years--part of a
package of cost cuts that United management believed were sufficient to
save the airline and return it to profitability. But the ATSB demanded
even greater cuts, and decided that bankruptcy was the preferred option
despite agreement by all of United's decisions makers--at that time--
that deeper cuts were not necessary.
The White House realized that it could use the ATSB as a tool for
re-engineering the airline industry, particularly airline labor costs.
As one of the only industries remaining with a majority of union jobs,
the Bush Administration seized the opportunity to exploit bankruptcy as
a business strategy for social engineering. It was an opportunity to
destroy the voice of the hard-working people of the middle class by
cutting union jobs and obliterating the protections and benefits
negotiated and earned by union members. The ATSB was created by
Congress to administer loan guarantees designed to save the airlines
from liquidation in the aftermath of September 11. But the White House
decided to use the denial of the loan guarantees to force an economic
reshaping of the airline industry. As far back as the Reagan
Administration, Republican-appointed Secretaries of Transportation had
complained that the only thing wrong with the airline industry was that
airline workers are paid too much. Forcing United into bankruptcy was
the Administration's way of pushing costs far lower than would have
been possible or necessary in any other scenario. They knew the
economics of this competitive industry would do the rest--forcing
similar cost cutting at all the major airlines. Their strategy--
unfortunately for airline workers--was devastatingly effective.
United's bankruptcy and drastic slashing of employee wages and benefits
created a cascade of similar actions throughout the industry. Airline
employee wages, benefits and work rules across the industry were soon
slashed to levels not seen in decades.
The story that unfolded at United and other airlines in bankruptcy
would have been difficult to imagine only five to ten years ago. Like
most major carriers, United racked up record profits during the late
1990s, having expanded domestically and internationally. It grew its
fleet by more than one-third, to a total of over 600 aircraft. Flight
attendant ranks swelled from 15,000 in 1990 to nearly 27,000 by 2000.
However, with the collapse of the US airline industry in late 2001,
United Airlines found itself losing more than $9 million a day; not
simply because of September 11, but also because of the reckless
spending, poor planning and other failures of airline management. For
example, one failed management business maneuver included an ill-
conceived merger with U.S. Airways that cost the airline hundreds of
millions of dollars and yielded a personal profit of $50 million for
just one executive even though the merger was never approved.
By mid-2002, United was headed toward a record annual loss of over
$3 billion, and management began hurried negotiations with the unions
that represented the various employee groups. Labor groups ratified a
concession package valued at $5.8 billion over five years, including a
$412 million cut by United Flight Attendants to help the airline avoid
filing for bankruptcy protection. Apparently it was not enough; at
least not enough for the White House.
As this Committee looks into whether the current bankruptcy system
is fair to workers, I think you will agree that there was nothing fair
about this process from the perspective of the workers. The White House
apparently had no concern with fairness.
The devastation we see today for airline workers is the aftermath
of the decision by the White House not to help stabilize United
Airlines. It only took the destabilization of one major carrier to
trigger a domino effect of labor cuts throughout the industry. One
hundred forty thousand airline workers have lost their jobs. Workers
who were not forced out have lost our pensions. We have seen our wages
cut by as much as 20 to 40 percent. Management has forced changes in
work rules that cause us to work many more hours at reduced pay, and to
be away from our homes and our families for more days every month.
Management has slashed our medical benefits, even cutting retiree
medical benefits--a move authorized by the law but until now was
largely taboo.
Many of our flight attendants--and many other airline workers--have
had their lives destroyed by these bankruptcies, and by management's
use of the law to force devastating cuts on the employees. There have
been over 150 airline bankruptcies since the industry was deregulated
in 1978, with at least twenty-one in just the six years since September
11.
These most recent rounds of bankruptcy have been especially
devastating. One needs to look no further than the numbers. At several
of the airlines represented by AFA-CWA, which have gone through
bankruptcy, the slashing of union jobs has been dramatic. At ATA
Airlines when the company entered bankruptcy on October 26th, 2004 the
company had 1,946 active flight attendants and as of April 16, 2007
there were 877 actively employed flight attendants. When Mesaba
Airlines entered bankruptcy on October 13, 2005 there were 611 flight
attendants on the Mesaba payroll. On April 16, the total number of
flight attendants on the payroll had been reduced to just 336. Aloha
Airlines had 440 employed flight attendants on December 1, 2004. As of
April 16, 2007 there were 386 flight attendants employed by Aloha.
USAirways had 7,790 active flight attendants when they entered
bankruptcy and almost five years later, their number of active flight
attendants was down to 4,770. The nearly 12,000 flight attendant jobs
cut at United Airlines is another chilling example. At the same time,
there are more passengers traveling today than there were in the year
2001 prior to these cuts, resulting in an unprecedented productivity
increase--an increase which, to date, has largely only gone to enrich
executives and shareholders.
The total annual flight attendant cost cuts have been dramatic at
carriers throughout the industry. Over a five year period between 2002
and 2006, annual flight attendant costs at ATA were reduced from $62
million a year to $38 million. At Northwest the costs went from $631
million to $533 million. US Airways went from $623 million to $267
million. At United the annual costs went from $1.4 billion to $945
million, and prior to the cuts the 27,000 flight attendants only
comprised 7.1% of the total labor cost at our airline.
The painful cuts absorbed by the employees were repeated, numerous
and stretched out over several devastating years of uncertainty. US
Airways, where AFA has represented the flight attendants for decades,
went through bankruptcy twice, with multiple rounds of concessionary
bargaining each time. At my carrier, United, management dragged the
employees through two rounds of full-blown Section 1113 negotiations,
while holding bankruptcy court rejection of our entire collective
bargaining agreement like a gun to our head each time.
In between rounds of Section 1113 negotiations in 2003 and 2005
United management launched an attack on our retiree medical benefits
under Section 1114 of the Bankruptcy Code in January of 2004. Once
again they used the law and the threat that all benefits would be cut
off as a hammer to beat drastic cuts out of the workers who had
invested their entire working lives in the airline. United management
added an especially devious twist to this attack on their employees.
For months before they actually filed their Section 1114 motion they
pretended that they had no intention of filing such a motion. They even
enticed workers to retire early before July of 2003 in order to
``preserve'' their retiree medical benefits. After getting thousands of
United flight attendants to agree to leave the company in exchange for
``guaranteed'' retiree health benefits, they then went to the court to
file their Section 1114 motion, demanding immediate increases of costs
for individual retirees that were 10 times the cost of premiums with no
cap on future healthcare costs. A coalition of unions and retiree
representatives negotiated a lower premium increase with a cap on
future costs for retirees, but sadly, retirees were forced to shoulder
$300 million in health program cuts that were approved by the court in
June of 2004. Tens of thousands of retirees were devastated that their
health benefits had been slashed through the rarely used section of the
bankruptcy code.
The twist in this bankruptcy approved process came just shortly
after thousands of United employees, most with many decades of
commitment to United Airlines, fell victim to management's deceit. Just
after they voluntarily left their careers and income in the hopes of
preserving their medical benefits, United management filed its Section
1114 motion seeking permission to slash those promised benefits. This
bankruptcy court-approved move is one of the most outrageous examples
of unfairness for the workers.
That maneuver prompted the bankruptcy court to appoint a special
examiner shortly after the section 1114 motion was filed. While the
examiner questioned the tactics of United management, the bottom line
was that the law allowed management to do what they did. The bankruptcy
court gave its blessing for this bait and switch--which devastated
thousands of flight attendants--and blessed this underhanded tactic by
management. A law designed to give extra protection to retiree medical
benefits had been turned on its head, and was now another weapon in
management's arsenal.
As if the cuts in wages, work rules and medical benefits were not
enough, United management also destroyed our pensions, as did other
carriers in bankruptcy. Still other major carriers struggled to protect
their pension promises with help from Congress, but management at
United and US Airways walked away from their promises and used the
bankruptcy process to destroy pensions. AFA-CWA fought to save those
pensions, using every legal avenue at our disposal. Unfortunately, in
the end, tens of thousands of flight attendants found themselves facing
an uncertain retirement as the bankruptcy court approved a legal
maneuver by management that made an end run on the pension protections
in the law.
In meetings with the Pension Benefit Guarantee Corporation (PBGC),
in an effort to save the flight attendants' pensions, we were told that
the agency thought the United flight attendants' pension plan could and
should be saved. We worked in good faith with the PBGC toward that end,
and negotiated with United management. Management, however, refused to
reach a consensual agreement and turned instead to the bankruptcy court
to terminate our pension plan. We were in the courtroom on April 22,
2005 with AFA-CWA and PBGC attorneys ready to oppose United's motion,
when principals from United and the PBGC entered the courtroom and
announced that a deal had been struck: the PBGC was to receive one and
a half billion dollars in consideration of its bankruptcy claim and the
pension plans of over one hundred thousand United employees and
retirees would be terminated.
Flight attendants never had the opportunity to defend our pension
plan according to the provisions within the Employee Retirement Income
Security Act (ERISA) and the Bankruptcy Code. They dressed up this
sell-out in legal sheep's clothing, sufficient to withstand the
scrutiny of the courts under the current law. But no one was fooled--
the PBGC reversed course and set off on the path of terminating our
pensions precisely because United management agreed to pay the agency
over a billion dollars. So, the agency that was created by Congress to
protect the interests of workers' pensions instead had a hand in
destroying our retirement security for a short-sited gain of 1.5
billion dollars while putting the country's entire pension system
billions of dollars closer to total collapse. Instead of saving airline
employee pensions, it made a deal with United management that dumped
billions of dollars of liability for our pensions onto the taxpayers.
Is that fair? Does that even make sense as a matter of public policy?
Despite what management, the PBGC and the courts might have said,
Congress could never have envisioned that the law would be twisted into
results like this.
The claims of United management, like the executives at other
airlines, that the impact of the pension termination may be mitigated
assumes that United flight attendants will now have to work an extra
nine years to recover the benefit levels they had in their defined
benefit plan. Their analysis disregards the present value of money and
also makes a number of highly unlikely financial assumptions.
Especially ridiculous is their formula assumption that flight
attendants would receive a four percent annual wage increase every year
between the date of termination and the date of retirement, at the same
time that wages were being cut an additional 9.5% in a second round of
Section 1113 labor contract cuts. That simple statement, obviously
misleading, is designed to confuse and mislead flight attendants and
others as to the impact on our Members. Nevertheless, the self-serving
statement is typical of the assertions United management makes on this
specific issue as well as numerous others.
Is there any fairness in the current law regarding termination of
pension plans in bankruptcy? One other event at United should answer
that question for this Committee. One pension plan survived the United
bankruptcy. Or, more accurately, one person's pension plan survived.
CEO, Glenn Tilton, was careful to shield his own pension from
termination. Prior to the bankruptcy he executed a legal maneuver,
putting his $4.5 million pension into a trust that successfully
insulated it from the bankruptcy. Is it fair that the law allows this
drastic disparity of treatment between employees of a bankruptcy
company? Obviously not.
It is difficult to describe the sheer scope and the magnitude of
the devastation. Billions of dollars have been extracted from the
compensation of airline workers. When our good friend Representative
George Miller of California conducted the first ever E-hearing during
the United bankruptcy, the testimony submitted by our members was
nothing short of heart-wrenching. United flight attendants told of
losing their homes because of management's cuts. Others have told us
they have had to move back in with their parents, sell their car,
cancel college classes, or lose custody of a child. Personal
bankruptcies have become commonplace among airline workers and with
good reason--how could anyone be expected to survive when their
earnings are slashed 20, 30 even 40 percent? At Mesaba Airlines,
management's demands for cuts in wages would have reduced some flight
attendant's pay to less than $10,000 per year before taxes. That is
nothing short of corporate-induced poverty, shifting responsibility for
a living wage from the company to the taxpayers.
Finally, no consideration of the fairness of the current bankruptcy
process would be complete without mention of the issue of management
bonuses and compensation. If the current system had any element of
fairness it would not allow massive bonuses and incredible compensation
packages for the very executives who took these companies into
bankruptcy in the first place, and who then inflicted massive pay cuts
on the workers under color of law.
But, that is exactly what happens. A huge bonus for executives of a
bankrupt corporation is simply wrong in light of the enormous
sacrifices made by the workers during the course of the bankruptcy.
They often give lip service to the concept of pay for performance, but
the reality is much different: huge bonuses while workers take cuts.
Management typically demands that the workers' concessions be locked in
for four, five or even six years. But for management employees they
steadfastly refuse to make any long-term commitment to such cuts, while
making very modest upfront cuts to give the appearance of fairness.
Mesaba President and COO John Spanjers was asked under oath in a
Section 1113 hearing in bankruptcy court to provide some assurance that
management cuts would stay in place for the same length of time as
those of the employees. Spanjers flatly refused to agree that he and
his management team would live under the sacrifice he was asking the
employees to make. He is not alone. His colleagues at other airlines
have taken bonuses and quickly renegotiated contracts or shifted titles
to increase pay during bankruptcy and in the months immediately
following bankruptcy while workers continue to suffer the effects years
after Chapter 11 is closed.
While airline employees have shouldered the heavy financial burden
of the bankruptcy process, airline management has suffered incredibly
little--if any at all--sacrifice. While the front line employees have
seen their numbers slashed, pay drastically reduced, benefits
eliminated and work rules destroyed, the management level employees
reap unearned rewards.
Our experience with management compensation at United illustrates
that management compensation in the bankruptcy process is simply out of
control. Although every other United employee is obligated to work
under four additional years of concessions following the date of exit
from bankruptcy, there is no evidence that United's top executives have
agreed to make any sacrifices during the next four years. To the
contrary, 400 members of management stand to cash in on an excess of
$400 million. After destroying our contract and career, United's CEO
alone reaped over $40 million in 2006, 2000 times the pay of a first
year flight attendant. The bonuses were awarded regardless of their
past or future performance. When the judge ruled on this cash reward
for management following objection by the unions he acknowledged our
concern, but essentially said there was nothing he could do about it
because the law did not give him the authority to second guess
management compensation, or a standard by which to determine ``how much
is too much.'' The same judge had already approved millions of dollars
in Key Employee Retention Program (KERP) bonuses, several times over,
during the course of the bankruptcy.
In a report prepared to defend their additional bonuses, United
management argued that the Management Equity Incentive Plan (MEIP) was
intended to align the interests of management and other stakeholders.
If one were to accept this premise, then the executives of this company
do not deserve one penny more than what they are currently compensated.
If the executives interests were to be aligned with those of the
workers they too would need to experience the grief associated with
losing their home, losing their jobs, or not being able to make ends
meet. At some point, the greed exhibited by corporate executives must
be stopped. That time is now.
Such equity bonuses clearly do not reflect either sound business
judgment or good faith, much less respect for the enormous sacrifices
of flight attendants and other workers. If there is so much equity
available to enrich management, that equity rightfully belongs to those
who have sacrificed the most to ensure our company's survival.
All too often management focuses its efforts not on the success of
the corporation, but on their own personal gain. This profiteering
comes predictably at the expense of the dedicated workers who strive
daily to ensure our airlines' viability and success. The prospect of a
select group of executives rewarding themselves at the expense of
flight attendants and other employees adds fuel to a simmering fury and
to a relationship void of trust. Companies with overly-generous
salaries, KERPs and very lucrative management profit sharing programs--
far above any reasonable measure for a company in bankruptcy--simply
cannot pass the test of fairness in using the current law to force
billions of dollars in annual concessions from employees.
In the beginning of its bankruptcy, United claimed a successful
reorganization depended upon ``the fair treatment of employees.''
Management promised to ``equitably share the pain of United's
restructuring.'' Unfortunately, the record reflects an entirely
different reality, at United and at most of the other airlines that
have been through bankruptcy. In every instance, employees have been
forced to make life-changing sacrifices while executives are richly
rewarded. In light of the sacrifices made by the dedicated front-line
workers whose commitment has been critical to the success of these
airlines, these snatch-and-grab schemes by management not only evidence
poor judgment, but also reflect downright avarice.
To the Committee's question of fairness I can only respond with my
own question: how could any of this be considered ``fair?'' Any
conversation about terminated pensions, reduced healthcare, slashed
wages, destroyed careers and lives in shambles could never be measured
with fairness.
I would implore you, on behalf of thousands of AFA-CWA members, and
tens of thousands of workers in the airline industry, and many more
hundreds of thousands of workers in other industries: fix the
bankruptcy law before there is any more devastation. Put an end to
management abuses and their use of the bankruptcy laws as just another
business tactic to cut costs and line their own pockets. Level the
playing field for the workers we represent. Enact a law that provides
the protection of restructuring a company for the good of the long-term
dedicated workers who are committed to the success of their companies.
Again, thank you Chairwoman Sanchez for the opportunity to testify
today. I look forward to answering any questions that you or any
members of this Committee may have.
Ms. Sanchez. Thank you.
At this time, I would invite Mr. Trumka to present his oral
testimony.
TESTIMONY OF RICHARD TRUMKA, SECRETARY-TREASURER, AFL-CIO,
WASHINGTON, DC
Mr. Trumka. Thank you, Madam Chairman and Members of the
Committee.
On behalf of the 10 million members of the unions of the
AFL-CIO, I would like to express our gratitude to you and this
Subcommittee for holding this oversight hearing on the
bankruptcy system's treatment of America's workers.
Our bankruptcy laws are a critical safeguard in our
economy, but one that has become dangerously unbalanced. For 75
years, Congress has repeatedly acted to define bankruptcy as a
process of shared sacrifice among corporate constituencies.
Congress has always recognized that employees are uniquely
vulnerable in bankruptcy. But unlike other creditors, employees
generally have only one employer, have only one retirement
plan, and have only one health-care plan, yet today the
bankruptcy system has become effectively a device for the
wholesale transfer of wealth from workers to other creditors.
It is become a system that exploits workers'
vulnerabilities, rather than seeking to create a balance
between workers and other creditors. As you listen today to
witnesses telling the grim stories of what happened to workers
in airlines, steel and auto part plants, remember that no mere
lender of money gets treated this way. No bank president will
sit across the table from their families after the bankruptcy
court has done its work wondering how to provide health care to
their children or what retirement will mean. No CEO, no matter
how dismal the failure, contemplates losing their home or faces
a court order to refrain from quitting their job after their
pay was cut in half.
In America in 2007, our bankruptcy system reserves that
fate for the people who do that work, who make the planes,
forge the steel, mold the rubber, and stamp out the part. So
how did we get here?
First, bankruptcy judges have allowed the procedural
details of major bankruptcy cases to structurally disadvantage
workers. Debtors have been allowed to deal with motions, to set
aside labor contracts, and attack worker benefits separately
and in advance of addressing the fate of other creditors.
Frequently, the other creditors are left nearly whole.
Second, bankruptcy courts have increasingly treated
procedural protections--Section 1113 provides for workers
collective bargaining agreements--not as a last resort, but as
formalities, signaling a willingness to set aside contracts
early in cases, which emboldens management to not make
concessions in the bargaining that precedes the filing of an
1113 motion by management.
Third, bankruptcy courts have agreed to pay packages that
actually reward management that took the company into
bankruptcy as a strategic choice rather than forcing management
to share in the pain.
Fourth, the PBGC has treated bankruptcy and the abandonment
of pension obligations as a routine part of the landscape,
rather than using every tool in their arsenal to make companies
meet their obligations under their plan. The result? The
retirement security protections Congress sought to provide all
Americans working in the private sector through ERISA have been
rendered an empty gesture by the bankruptcy courts.
Fifth, while Congress recently increased the wage priority,
both the amount of the wage priority and the status of
severance and health benefits under the wage priority have
proven to be insufficient to protect workers in major
bankruptcies, like Enron and the following.
And, finally, and most appalling, as President Prater
noted, in the last 2 years, we have seen decisions holding that
airline workers covered by the Railway Labor Act whose
contracts were rejected by bankruptcy courts did not have the
right to strike following a rejection of their contract. Our
bankruptcy law says to workers in the airline industry, ``You
can have your contracts rejected, but unlike every other
creditor, you cannot act to protect yourself.''
Oil companies can withhold fuel delivery. Aircraft leasing
companies can take back airplanes. Bankers can refuse to lend.
But mechanics, flight attendants and pilots are not entitled to
the rights that we give other commercial actors.
Last month, the AFL-CIO sponsored a presidential forum in
Chicago. Seventeen thousand people attended. And the most
powerful moment of the forum came from--not from the
presidential candidates, but from Steve Skvara, who was here a
little earlier, a retired worker at bankrupt LTV Steel. See,
Steve can't afford health care for himself and his wife after
the bankruptcy courts and the PBGC stripped him and his co-
workers of one-third of their pensions and their retiree health
care.
Steve asked, ``What is wrong with America, and what will
you do to change it?'' Well, I bring Steve's question here
today to this Subcommittee. What is wrong with the bankruptcy
system is not a mystery, and Congress can act to fix it.
The AFL-CIO and all of its affiliates look forward to
working with you, Chairman Sanchez, and the entire Subcommittee
and the entire Congress to do just that: Fix a bill that is
crying out for fixing.
Thank you.
[The prepared statement of Mr. Trumka follows:]
Prepared Statement of Richard L. Trumka
Ms. Sanchez. Thank you for your testimony, Mr. Trumka, and
thank you to all our witnesses.
We will now begin our round of questions. And I will begin
by recognizing myself first for 5 minutes.
My first question is for Ms. Townsend. In your written
testimony, you state that Hastings employees currently pay for
most of their own health-care costs and that it costs about
$300 a week for family coverage. Does this mean that Hastings
employees currently are paying $1,200 a month for family
health-care insurance?
Ms. Townsend. Some of those are, if they choose to take the
top coverage.
Ms. Sanchez. And how are those employees able to pay those
premiums?
Ms. Townsend. They are not paying very well. They basically
aren't taking home a paycheck.
Ms. Sanchez. Okay. Do you think that the Hastings retirees
got a fair shake in the bankruptcy, or do you think that they
bore the brunt of the restructuring?
Ms. Townsend. They bore the brunt of the restructuring.
Ms. Sanchez. And did the business of the company change as
a result of the bankruptcy, or do you think the bankruptcy just
served as a mechanism for getting rid of the benefits of the
workers and the retirees?
Ms. Townsend. It just served as a mechanism to get rid of
the contract and the retirees' negotiated benefits.
Ms. Sanchez. And is that just your sentiment, or do you
think the overwhelming majority of employees feel the same?
Ms. Townsend. Overwhelming majority.
Ms. Sanchez. Okay, thank you.
Mr. Redmond, in your prepared statement, you account how
you personally experienced the impact of Chapter 11 while an
employee at the McCook Metals company. When the company
liquidated, it resulted in the termination of the company's
defined benefit pension plan and the retiree insurance plan, is
that correct?
Mr. Redmond. That is correct.
Ms. Sanchez. Can you explain to us what it means to have
your defined benefit pension plan terminated, what the impact
is?
Mr. Redmond. Well, the impact on the defined pension
benefit plan--and this was a Taft-Hartley plan that was assumed
by the Pension Benefit Guaranty Corporation--and that plan was
negotiated for specific payments based on your years of
service. And we have seen people in the McCook situation that,
because of the funding situation with the PBGC and the rules
that has been established by the PBGC, some of those people
lost as much as 50 percent of their scheduled pension payments
that they would have been entitled to had the plan not
liquidated.
Ms. Sanchez. And please explain for me what the retirees
had to do after they lost their insurance coverage?
Mr. Redmond. Well, after they lost their insurance
coverage, then the majority of the retirees that were young
enough or able enough to go out and get other jobs, they had to
find alternative means to try to assume some form of health
care. There was an effort made by the union to try to reemploy
some of these folks, along with the State, do retraining
programs in other industries. But in this particular
liquidation, the insurance plan was completely terminated, and
most of those folks was left without insurance, except those
that qualified by age for Social Security, to get Medicare on
the Social Security.
Ms. Sanchez. Thank you.
Mr. Bernstein, Mr. Trumka and I think Mr. Redmond alluded
to the idea of shared sacrifice. Do you think that all
participants in a Chapter 11 case, including the CEOs and other
managerial types, should have to share the pain that line
workers must endure over the course of a company's financial
restructuring?
Mr. Bernstein. Yes, Madam Chair, I do believe that there
should be shared sacrifice among all constituencies in a
Chapter 11 reorganization. I think that, in determining the
extent and nature of the shared sacrifice, however, it is
important to keep in mind the market forces under which a
Chapter 11 company operates so that it needs to pay its
salaried employees, and its union employees, and its executives
market-based wages so that it can be competitive.
And in determining the way that the shared sacrifice is
structured, those market forces need to be taken into account.
And, indeed, in Section 1113, one of the factors that the court
must find exists in order to grant the debtor 1113 relief is
that the 1113 proposal is fair and equitable. And the way that
has been interpreted by the courts is meaning that the pain, if
you will, is spread in an appropriate manner among the various
constituencies.
Ms. Sanchez. Okay, correct me if I am wrong, but it sort of
seems fundamentally unfair for a CEO, such as Glenn Tilton, to
preserve a $4.5 million pension fund from termination while the
pension plans of all other United employees are terminated. And
I think it was Mr. Davidowitch who suggested, ``Hey, if you are
going to wipe out the pension plans of the line workers, why
not write into existence a law that says all pensions,
including managers and corporate CEOs, if one of them goes,
they all go?''
Don't you think that that would be a huge step toward
ensuring the pensions would only be wiped out in the most
compelling of circumstances?
Mr. Bernstein. Well, I think that, as it is, the cases in
which the courts allow pensions to be terminated or modified
are very compelling circumstances and only those circumstances.
Ms. Sanchez. And yet the CEOs can retain their pensions?
Does that sound like shared sacrifice?
Mr. Bernstein. I don't know the details of Mr. Tilton's
overall compensation package, but I would say--and so I can't
speak to his personal situation--but what I would say as a
general matter is that there is no reason for corporations in
bankruptcy to be paying materially above-market compensation to
anybody, including the senior executives.
However, in looking at the full compensation package for
salaried people or executives or even the CEO, a Chapter 11
company needs to look at what the market for CEOs is and pay
compensation and benefits and pension benefits that is at least
at the market level so that the airline or the other company in
Chapter 11 is able to retain its management, just as it needs
to pay its represented workforce, its union workers, market
wages, or else they will leave and go to a competitor.
Ms. Sanchez. Well, it seems to me that, in some instances--
and my time is expired, so I will be brief--in some instances,
the line workers are bearing the brunt, and they are often
getting slashes to their salaries and their benefits, which
puts them, you know, below market. But because either they
can't strike or because there aren't any other employment
opportunities in the areas where these folks live, they are
not--the pain is not shared equally among the two classes of
workers.
And with that, I will yield. And I would recognize the
Ranking Member of the Subcommittee, Mr. Cannon, for 5 minutes
of questions.
Mr. Cannon. I would just make the point by beginning and
say that the disproportion between workers and executives is
that there is--the market is likely different. And I think the
goal of what we do here ought to be to create a more robust
economy so that workers have the choice of leaving and going to
someplace where they will get better compensation, as well.
I will just tell you, an under 3 percent unemployment rate
in Utah, workers write the ticket, and that is America. I think
that is the good part of it.
Let me ask you, Mr. Redmond, is the standard United
Steelworkers contract, does that include a defined benefit
program still or have you shifted to a defined contribution?
Mr. Redmond. In most of our contracts, we still have the
defined benefit, but in many others we have shifted to defined
contribution plans.
Mr. Cannon. Are you familiar with the Geneva Steel mill and
the history of the contracts there in Utah?
Mr. Redmond. Vaguely. Vaguely. Not that much, but----
Mr. Cannon. I think they were the very first that had a
defined contribution contract. Are you familiar with that?
Mr. Redmond. I know that Geneva did, that the Geneva Steel
contract did go from defined benefits to defined contributions,
that is correct.
Mr. Cannon. Right, and that happened earlier, like 1987,
right?
Mr. Redmond. That is correct.
Mr. Cannon. There was some attempt by the United
Steelworkers to renegotiate that and make it a defined benefits
program. Are you familiar with that?
Mr. Redmond. Yes, somewhat, yes.
Mr. Cannon. Do you recall the worker response, that is the
union member response to that?
Mr. Redmond. No, no, I am not.
Mr. Cannon. It was like a rebellion. It was like, ``We are
going to leave the union if you try to change our defined
contribution,'' because they got such a--my understanding.
Look, I get this--this is not my testimony that I stand by. I
just have heard that the defined contribution contract became
much more beneficial than what it would have been if it was
defined benefits.
Mr. Redmond. If I may, Congressman, it is a matter of, you
know, the situation that we are dealing with when we go to the
bargaining table. And our recommendation, what we are asking is
that the imposition of terminating the collective bargaining
agreement be strictly used as a last resort.
Now, we have had many situations where companies have came
to us as a first resort, tried to negotiate as opposed to
liquidating, and in some of those situations--in a great
majority of those situations--we found it necessary, due to the
financial situation of the company, in order to keep jobs in
the community, to go from a defined benefit to a defined
contribution. So we are not opposed to that particular concept.
Mr. Cannon. But you are saying you respond to companies.
Have you gotten to the point at United Steelworkers where you
are willing to say there may be a huge benefit long term to
having a defined contribution plan instead of a defined benefit
plan?
Mr. Redmond. No, we have not taken that as a institutional
position, and we have not taken that as a position clearly
across the board portending to our collective bargaining
agreements, no, sir.
Mr. Cannon. Have you done anything with health savings
accounts, which would do essentially the same thing for health
care, give people sort of a control of their money and the
opportunity to accumulate value in a health savings account?
Mr. Redmond. We have been involved in some situations where
the health safety account approach have made some sense to some
distressed companies that we have had, and we have sat down in
a few of our contracts and negotiated health savings accounts.
Mr. Cannon. But you have done that in response to ailing
companies, as opposed to going into healthy companies and
talking about health savings accounts?
Mr. Redmond. Well, we have done them in response to the
collective bargaining process. We have been in collective
bargaining situations where health-care savings accounts made
sense. We have been in collective bargaining situations where
we have rejected health-care savings accounts because they did
not make sense.
These decisions were made by the bargainers at the table,
and they are mostly based on the financial situations of the
companies and also the willingness amongst our membership to
apply different approaches to try to deal with the health care
situation.
Mr. Cannon. Let me shoot to Ms. Townsend. You lost your
pension. I suspect you lost your health-care benefits, as well;
I think you said that. Would you have preferred to have had a
defined contribution plan, where you owned whatever it was that
you put in, and a health savings account, where you owned the
value in that health savings account and that would have been
able to keep those? Or do you think that the union
representation was adequate in that regard?
Ms. Townsend. I do believe we were adequate in that regard,
because our people don't make enough money to be able to have
the health savings account. It costs more money out of pocket
to have those kinds of accounts and to have money up front----
Mr. Cannon. There is sort of a transition period where you
have to have the money in the----
Ms. Townsend. Yes.
Mr. Cannon. But your union could have negotiated a
relationship which would have safeguarded you and other
employees through that period. Have you looked at that?
Ms. Townsend. Yes, we have.
Mr. Cannon. And is that something that you would have found
attractive?
Ms. Townsend. No, we did not find that attractive.
Mr. Cannon. But now, after having looking back to the
bankruptcy and the loss of your benefits, would that have been
more attractive? Would it be more attractive to you now?
Ms. Townsend. I still contend no, and so have our members.
Mr. Cannon. Thank you.
Ms. Sanchez. The time of the gentleman has expired. Thank
you, Mr. Cannon.
Mr. Conyers, you are recognized for 5 minutes of questions.
Mr. Conyers. Thank you very much.
What an incredible picture is being painted here today. The
whole economy is in need of reexamination, and opening up
bankruptcy is only one small part of this equation. What is
wrong with this economic picture, and how do we begin to turn
this ship around and get it moving right?
And so we have a lot of great lawyers that are working with
us on shaping a new bankruptcy approach. And we are going to be
working on that. We want to hear from some of these judges, and
we want to have fair hearings, so that there won't be any
complaints about, you know, how we came to the conclusions.
But I am thinking of Harry Lester, of the steelworkers in
Detroit, who told me, because I was going to China--and I went
before the steelworkers had a big conference in Dearborn
recently--and he said, ``Congressman, when China gets through
building all of their steel mills, there will be no way that
any steel company in the United States of America will be able
to compete with them.'' He said that is what it looks like, the
prospect, to be.
I raise the question with all of you about universal health
coverage, as I have with Chris Cannon, instead of health
accounts. I mean, more costs going out of the employees wages
to protect them against health incidents, to me it is like we
don't know that, in most industrial countries in the world,
they already have had universal health care and that we don't
have to copy anybody's. We can and have created a system that
is better than theirs, because we have learned from them. So
the Ranking Member on the Subcommittee and I have talked about
health care, and we are in constant dialogue about it.
We don't have a full employment policy in America. How many
of you remember the Humphrey-Hawkins Full Employment and
Balanced Growth Act? As we move from this industrial era to a
digital era, we have to find out what gives all these companies
the right to start breaking contractual agreements. You can't
do that in any other circumstance in America where you say,
``Things have gone bad now, fellows. Guess what? The contract
we signed in broad daylight, sober, doesn't count anymore, and
you have to come around, we have to renegotiate that.'' The
lawyer being told that would laugh at his colleague if that
were raised.
We have trade laws that encourage taking industries and
shops and plants out of America, that encourage it. They aren't
neutral on it. It is encouraged. We all know how this is
hemorrhaging our workforce. And it is not just people--has my
time expired? Is that red?
Ms. Sanchez. It goes quickly doesn't it, Mr. Conyers?
Mr. Conyers. What color light am I?
Ms. Sanchez. You have a red light.
Mr. Conyers. I don't have my glasses on. But let me just
say this, because I really wanted to get a response from
everybody on this table on the next round about where we come
down on this, because this system--you talk about a powerful
economic system that is now going into the waste basket.
Here we have people that go to work everyday that are
opening up the Detroit News and the Detroit Free Press to
wonder if there is anything about their company thinking about
going out, or an equity firm that knows nothing about an
industry buying it out merely to usually rip it off, and
bankruptcy, here we come, or whatever, or sell it to another
higher bidder. Just take the profit out of it, and keep moving,
as has been reported here.
So it goes back to this old phrase, ``Everything is
everything.'' This is all connected up. Fixing bankruptcy is
only a small, but vital, sliver of the revisitation of how we
set this country straight. And there has been too little
oversight, no hard examination of where we are going.
I would just close on this note, because I hear--and I
can't believe my ears--we have young people going around
saying, ``Why go to college? First of all, we can't afford it.
But second of all, it may not make any difference anyway,
because now everybody is changing jobs every couple of years.''
I mean, people--when my dad came to Detroit, you got one
job, and you work in it until you retire. That was it; that was
the tradition. And all of this is being changed and very little
of it is being realistically examined. And that is why I think
this may be one of the most important hearings that the
Judiciary Committee's Subcommittees, of which there are five,
will be holding this year.
This could be a very important beginning change that could
go through the whole Congress. Almost every other Committee is
involved in this, and that is why I praise the Chairwoman and
the Ranking Member for putting this together today.
Ms. Sanchez. Thank you. Does the gentleman yield back? The
gentleman yields back his time.
I would now like to recognize Mr. Watt for 5 minutes of
questions.
Mr. Watt. Thank you, Madam Chair.
Two things. Let me just start by saying two things. Number
one, how delighted I am that the Chairman of the full Committee
followed the precedent that his father set and, once he got in
one job, stayed in it all the way through a career. Isn't that
a wonderful thing?
Now, his father might have been in--I don't know what his
father did, maybe worked for the automobile industry or he
did--there are different careers, but in that sense we are so
indebted to his father and to the fact that he stayed the
course in one career and has become our leader in this
Committee.
The second point I want to make is just to apologize to the
witnesses for not being able to be here and hear your
testimony. My intent was to be here. I thought I had an hour of
general debate on a bill that was on the floor before they
would reach the amendment I had. And when we went to vote, they
told me that they would probably take 5 minutes in general
debate, and then I would be on with my amendment. So I had to
stay on the floor and do my amendment.
But I did want to come back and participate in this
discussion, because I think it is so timely and important that
we try to establish the things that need to be addressed in
bankruptcy reform that need to be changed. I have spent a good
portion of my life before I heard the adage, ``Consistency is
the hobgoblin of small minds,'' trying to reconcile things and
kind of make them consistent.
While we were out on the break, I taught an introductory
civil rights class. I sat in as a guest instructor, and I
started with this basic phrase that they start the Constitution
with, ``We hold these truths to be self-evident that all''--and
then I left a blank--``are created equal.'' In a sense, my
whole aspiration has been to make sure that that blank was
filled not only with White men--because that is what they were
talking about when they wrote it--but to make sure that it
applied to everybody.
So if I am looking for consistency in things, you all will
have to forgive me. I keep looking for a consistent world.
And so, Mr. Bernstein, I am going to start with you, and
then I hope the rest of the panel will weigh in. How can I make
consistent the notion that a bankruptcy court can rewrite a
labor contract in bankruptcy, but a bankruptcy court cannot
rewrite a mortgage contract in bankruptcy? Is there some way
that I can reconcile those two concepts? I am just interested.
Mr. Bernstein. Let me start with the general rule,
Congressman, in section 365, which says that, as a general
matter, any contract in bankruptcy can be rejected by the
debtor. The debtor has to go to the bankruptcy court, but the
standard--as I said in my remarks--is a deferential one. And so
ordinarily the debtors' business judgment, if it is rational,
is approved, and the contract is rejected.
For collective bargaining agreements, Congress in 1113
enacted a substantially higher standard so that it is much more
difficult for a debtor to reject a collective bargaining
agreement than it would be any other sort of contract.
Now, with respect to home mortgages, these are not treated
under the Bankruptcy Code as executory contracts. They are
treated as secured loans. So the concept of rejection of the
contract simply doesn't apply under the code. However, there is
a concept called cram-down, where a debtor, under some
circumstances in bankruptcy, can modify the terms of the
secured debt, and ordinarily that can be done with secured
debt. That is not the same as rejecting or abrogating the
contract, but it can, under some circumstances, modify the
terms of the loan.
And you are correct that, with respect to home mortgages,
which are secured debt, not executory contracts, there is a
prohibition on lien splitting under those circumstances. That
is a particular provision in the code that prohibits lien
splitting for individual debtors, but it has really nothing to
do with the notion of rejecting contracts.
Mr. Watt. Before anybody else responds, can I just take 15
seconds to explain to Mr. Bernstein that----
Ms. Sanchez. Without objection, the gentleman is granted 2
additional minutes.
Mr. Watt [continuing]. That I took my constitutional law
from a gentleman named Robert Bork at Yale University. And most
of what he said in my constitutional law class sounded about as
bizarre as what you just said. Most of what he said, I never
agreed with. It was a great way to learn the law.
But I understand that there are distinctions that we have
made. I guess the question I am asking is, how in the world can
you rationalize that? And I mean, you probably gave as--I mean,
you gave a lawyer's answer. There are distinctions that we have
made as a matter of public policy. I think the question I was
asking was a broader question of, is there some public policy
rationale to this? Or maybe you all will want to weigh in.
Mr. Prater wants to weigh in.
Ms. Sanchez. The time of the gentleman has expired, but we
will allow the witnesses to answer.
Mr. Prater. Thank you, Madam Chairwoman.
The problem is, is that bankruptcy has destroyed collective
bargaining at the companies where we try to negotiate a
contract. Market rates for labor are set at the bargaining
table, not by a bankruptcy judge. Now, a bankruptcy judge can
dictate to us what our labor is worth. It has destroyed
industries.
Anybody like the airline industry that has been created out
of 21 bankruptcies in the last 5 years knows, let us establish
our value as working men and women by negotiating, but we can't
be forced to take the rate given by the bankruptcy judge. Give
us the right to withhold our services. Don't let the judge take
away our right to withhold our service. Establish that. We will
establish a fair market price for our services to our employer.
Thank you, sir.
Ms. Sanchez. There is enough interest, I think, for a
second round of questioning, so I will recognize myself for 5
minutes.
Captain Prater, you note in your prepared statement that,
in the aftermath of September 11, 2001, ALPA and other unions
faced continuous efforts by airlines to use the bankruptcy
process as a razor-sharp tool to strip away working conditions
and living standards that were built over decades of collective
bargaining. Why did the events of September 11, 2001, cause
this marked change in the airline industry? And how were its
workers treated?
Mr. Prater. As workers in the industry, we recognize the
devastation caused to our industry. We were willing and did
meet with all of our managers to try to find the solutions to
stay out of bankruptcy. Many places we took round after round
of concessions trying to find those consensual approaches to
avoid bankruptcy and then had the bankruptcies foisted upon us.
At that point, the system turned. We were no longer able to
negotiate. We were dictated to. Yes, the process was met; 1113
made the judge call both parties together. But at the end of
the day, the hammer was hanging over our head.
Now, there is no pilot that wants his or her airline to go
out of business. We established those long-term relationships
with our employer. We made those decades' worth of pension
plans by taking money out of our pocket and putting it into
those pension plans. So to see those pension plans, 5 out of
the 6 people at this table have looked at members in the eye,
who are 58, 59, 60 years old, and seen the faces when their
pension plans have been killed. We have had to live with that.
That is why we are here asking for the help of Congress to
allow us to not see those faces again. Thank you, ma'am.
Ms. Sanchez. Thank you.
In light of the Delta Airlines case, you argue that a
neutral expert arbitration panel should resolve certain labor
issues in a Chapter 11 case rather than a bankruptcy judge. Can
you please explain why?
Mr. Prater. Yes, we found that--again, we are looking for
the consensual approaches that will work between management and
labor. And we found specifically in that case that, by removing
it from the bankruptcy judge, taking it off of the bench and
putting it into negotiations with a third-party neutral and
arbitrator, we were able to reach a consensus.
It was very difficult. Again, those members lost their
pensions. They lost over 40 percent of their wages. We are
asking to be able to get that back, but would hate to see this
repeated in other industries. Our entire industry has been
ravaged by the use of bankruptcy over labor.
Ms. Sanchez. Thank you.
Mr. Davidowitch, you note that there have been 150 airline
bankruptcies since the industry was deregulated in 1978,
including 21 bankruptcies just in the 6 years since September
11, 2001. I would like you to please explain, if you can, the
role that deregulation, if any, has played in the financial
well-being of the airline industry and explain why you think so
many airlines have filed since September 11, 2001.
Mr. Davidowitch. Well, in short, the barriers to entry into
the aviation industry are little to none existent. So anybody
with a big ego and a pocketful of cash can go out and buy some
planes and start up a new service.
The discussion relative to what has happened in the
industry is, one, it is a vital service that we provide to our
Nation's communities, the people that we represent and the
families that we support, or is it a commodity? If it is viewed
as a vital service, then certainly there should be certain
regulations put into place to protect the workers, as well as
the communities in which they live and support.
So when we look at what has transpired in the near term, in
the events since September 11th, what has occurred--it is taken
it one step further. We now see a degree of social engineering
that has occurred, the abandonment of corporate social
responsibilities, pulling the rug out from workers mid-career,
late-career, creating the next generation of impoverished
Americans with no retirement security and no health care.
Nobody more than the long-term dedicated employees of these
companies want to see that company be successful. Their futures
are inextricably linked. So any premise, any belief that the
employers and the unions can't sit down at a level playing
field and find a truly consensual agreement is without merit.
The current process forces employees to negotiate with a
gun to their head. It is just that simple. The notion that
employees are facing no work, a company liquidating, is
nonsensical. It is a red herring. Employees want to see their
companies be successful because their families' future, their
own future are linked to the success of that corporation.
It is not a question of companies liquidating. What we are
confronted with at the bargaining table, under the current
process, is being put into a position of facing the rejection
of our entire collective bargaining agreement that puts the gun
to the heads of the employees.
Ms. Sanchez. Thank you.
My time has expired, but I am going to ask for some
indulgence from the Members of the Subcommittee and ask for 1
additional minute. I have one last question I would like to get
through.
Any objection? Without objection, so ordered.
Mr. Trumka, my final question was reserved for you. My
question is, do you believe that Chapter 11 has effectively
become a device for transferring the wealth of workers to other
creditors? And why or why not?
Mr. Trumka. Well, the answer is, unquestionably, yes. And
quite frankly, I would like to answer, if you might, and answer
part of what Representative Conyers asked and part of what
Representative Watt's asked.
You see, about in the 1970's, we began to adopt policies in
this country that can best be described as growth based on
corporate profit; in other words, everything that was good for
corporate profit is the policy that we would adopt. Therefore,
Mr. Watt, that is why you can, say, reject the union contract
and not a mortgage contract, because both of those maximize
corporate profit.
What we should be looking at in the country is a policy
that is based on growth based on worker prosperity, so that
more prosperity to the workers actually stimulates the economy
and pushes it up. All the policies that we have been adopting,
including bankruptcy, feed into the growth based on corporate
profit. That is why they have been interpreted the way they
are; that is why they have hurt workers the way they are; that
is why they are the way they are.
Each one of those policies has roughly two things in
common: One, they inevitably transfer power from workers to
their employer; and, two, they ultimately result in fewer good
jobs in this country. So, you see, the bankruptcy court or the
bankruptcy policies that were originally put into the country
to help protect workers and make sure that the pain is shared
equally by all the constituents, it is skewed.
You can look at policy after policy, Representative
Conyers, that does precisely that very thing. So when you say
that bankruptcy is just the tip of the iceberg, I have never
heard a more correct or eloquent statement, because truly it
is.
Ms. Sanchez. Thank you, Mr. Trumka. My time is expired.
I would turn to Mr. Cannon for 5 minutes of questions.
Mr. Cannon. I am struck by the nature of the discussion of
the panel, because we are talking about sort of like class
warfare here, workers versus management, whereas I think the
major difference--and, Mr. Prater, I want to particularly ask
you about this--the major difference here is that managers
could walk, because they are in a competitive environment,
whereas employees are engaged in a collective group. And so you
are now talking about the rights of an individual to walk, a
manager, and his ability to bid up his price, versus the
ability of a group.
And I think, Mr. Trumka, this actually comes back to your
concept that--your statement transcends what I think we can do
in this hearing, so I am not going to come back and talk about
that so much, that is, with larger policy, whether we want to
support workers and workers' wealth versus corporate profits.
What I want is a world of freedom.
And so I want to focus--and that is why I want to come back
to you, Mr. Prater--I want to focus on the difference here.
Don't we do better as a society--and this is the big picture
here--don't we do better as a society empowering every
individual, not just the managers, not just the guys who have
the degrees, but empowering every individual? They are not
policies that you, as unions, can implement that would empower
your people.
In other words, if you want your people as a block to
empower you, as unions, then you want to keep them tied in with
defined benefits and Medicare, medical plans, and that sort of
thing, and then you are negotiating as a group, as opposed to
saying, ``Let's give every individual in America the
opportunity for mobility.''
So take a defined benefits plan that is portable to your
next job, take a health savings account or some other kind of
health plan that is portable so you can take to your next job,
isn't that where we really want to go? Don't we want to make
all Americans, like the big guys that were--what was the term
that--that are the beneficiaries of the transfer of wealth from
the collective--don't we want to make all Americans portable,
independent and in a market so they can raise their value, Mr.
Prater?
Mr. Prater. Thank you, Congressman. What is the market
value of a pilot, and should we be willing to just cross lines
to other companies at a moment's notice?
Mr. Cannon. No, I don't think that is the issue. The issue
is, can we let that pilot work with a company he loves and
induce the company to want to keep him because he can go, as
opposed to being a member of a collective where he loses
significantly if he changes employment? That diminishes the
power of the union, but it empowers the individual. Now, that
doesn't mean the individual goes willy-nilly to whatever
employer, but it means that he has the ability to negotiate
himself.
Mr. Prater. We use a system of seniority that everyone is
well aware of in different industries. But the value of not
leaving is, I am expected to pass along my knowledge, as a
senior captain, to the next generation of pilots. If I value my
experience and my knowledge so much that I want to bargain for
myself, why would I create a competitor?
No, that is not the way we do it. We know, on a seniority
system, we are entitled. We need as a profession to pass our
value, our experience to that next generation. How do we just
leave one employer and start over? That is a problem. Right
now, with 30 years of flying experience, if I start over
tomorrow, I will start at a new pilot's salary of $17,000 a
year. How transportable is that?
Mr. Cannon. Well, that is not. But if you have been around
for 30 years, you've got a lot of experience. You have a lot of
value. In part, that value will be passed on wherever you go to
other pilots, because they are going to look to you for your
guidance and counsel and experience. That experience has value.
Now, if you leave an employer because--if you have a
contract system that demeans you by, when you leave an
employer, from whatever your salary is to a new pilot's salary,
that is silly. Why do you want to support a system that would
do that?
Mr. Prater. I think you missed part of the reason that we
are collectively organized and try to work under a contract. It
is so that we can stand up to our employer if pushed too far.
If an employer says, ``Yes, you have been on duty for 16 hours,
but go ahead and take that trip, because that airplane is full
of passengers,'' that individual can't stand up and say,
``No,'' unless he has a union to back him. That happens, sir.
Mr. Cannon. If you have been working 16 hours--I know it
does.
Mr. Prater. That happens.
Mr. Cannon. Clearly, it is going to happen, and those
things will happen. And there are some regulations that try to
constrain that, but there is also some latitude. But there are
also market forces that effect that, because if you force a
pilot to fly more than he is capable of doing and the airplane
crashes, then you lose a lot more than just the lives of the
people involved in that plane. You lose your market position.
Now, the value of lives is incalculable, frankly, but there
are forces here at play. What you are arguing is that the
collective is better from the individual. And in America, we
sort of think that the individual and his rights are primary.
And it seems to me that that is where, as unions, that is the
future.
We are not back in the 1920's, when mine workers had no
choices. We are in a world where, if unions adapt, there are
great things that can be done. I am a big fan of collective
bargaining. There is a place for you all to play. But limiting
your members' choices just seems to me to be the wrong way to
go.
Mr. Prater. Well, certainly, within the collective
bargaining, we are not trying to limit--you know, we are
looking forward. You asked many questions about the value of a
defined contribution plan? Our members have said, ``Get our
money out of that company now. Don't let them hold on to one
red cent into a defined benefits plan.'' So that is where we
will go in the future. But we have to think about those people
who have already served 25, 30 years.
Mr. Cannon. I see that my time has expired, but I just want
to--are you saying that your members--may I have an
additional----
Ms. Sanchez. The gentleman is recognized for an additional
minute.
Mr. Cannon. Are you saying that you are providing--that
your union is providing the defined benefits plan and keeping
the funds in the union? Or are you saying it is moving away
from defined benefits toward defined contributions?
Mr. Prater. At the bargaining table, we are moving into
more defined contribution plans, because our members have seen
the failure of the defined benefit plans.
Mr. Cannon. I think that is very good. Congratulations.
Thank you.
I yield back.
Ms. Sanchez. The time of the gentleman--the gentleman
yields back his time.
Mr. Conyers is recognized for 5 minutes of questions.
Mr. Conyers. We want to stay in contact with everybody
here, and I think this discussion has to continue. And I will
look forward to it.
Ms. Townsend, what would you like to leave the Subcommittee
with, as we close down on this second round of questions?
Ms. Townsend. What I would like to leave the Committee with
is to look into the bankruptcy court system and give us more
rights when we are sitting at that table negotiating, because
when we sit there and we have no clout and no power, and you
have to take what they are shoving at you, you have no
recourse, other than to keep the doors open and you have a job.
Mr. Conyers. Sure.
Ms. Townsend. But that is all you have.
Mr. Conyers. Counsel Bernstein, what would you leave us
with?
Mr. Bernstein. Two points, Congressman. One, Section 1113
at the Bankruptcy Code is working as Congress intended it to
work. And although the issues, as you have heard today, are
very difficult and sometimes quite painful, the bankruptcy
courts are rigorously applying the statutes.
Second, that in whatever modifications the Committee may
consider to the bankruptcy laws, I would urge the Committee not
to make Chapter 11 reorganizations more difficult than they
are. They are very difficult already. Most Chapter 11 cases
fail, and that doesn't work well for employees, and it doesn't
work well for creditors, and it doesn't work well for anybody
else.
So the objective of Chapter 11 when it was enacted was to
facilitate successful Chapter 11 reorganizations, and no
modification to the code should be made which materially
detracts from that objective.
Mr. Conyers. Yes, the name Delphi comes to mind when you
mention Chapter 11. And that is a very interesting situation
that we will need to go into as this subject matter goes on.
Mr. Redmond, what are your parting comments?
Mr. Redmond. Well, I would, first of all, like to leave the
Committee with the four recommendations that are in our written
testimony for you to give some consideration to. But I would
also like to just go back to a question that Representative
Cannon made in regards to collective action versus individual
action.
And I just want to respond by saying you mentioned Delphi.
And what this is about is leveling the playing field when it
comes to collective bargaining and making collective bargaining
a priority as far as the steelworkers are concerned.
In Delphi, where the steelworkers represent between 850 and
900 members, the day that Delphi walked into bankruptcy court
and filed for liquidation, they also walked into the courts and
filed for liquidation of the current collective bargaining
agreement on the same day. Dana Corporation, we had a similar
situation, whereas Dana Corporation filed for liquidation, they
also filed to liquidate the collective bargaining agreement.
So the thing that we would like to leave with the Committee
is this: The collective bargaining agreement, in our opinion,
should have some priority, in terms of having discussions with
corporations when they encompass financial difficulties. And in
light of their right to file for Chapter 11, we think that they
also have an obligation to promote the integrity of the labor
agreement and to sit down with the union and try to negotiate
alternatives.
And when we speak about defined plans of defined
contributions as opposed to defined benefit plans, then these
are the sort of things that take place through the collective
bargaining process and we think is very, very important to
maintain the integrity of the process as a first beginning, as
opposed to a last resort.
So I just want to thank you, Mr. Chairman.
Mr. Conyers. I am going to ask--well, I will put my
statement in the record. But part of the problem is that the
law is simply not clear, leading to a split of authority among
the circuits. It is no secret that certain districts in our
Nation interpret the law to favor the reorganization of
businesses over other priorities, including job preservation,
salary protections, and other benefits.
This is particularly true with respect to the standards by
which collective bargaining agreements can be rejected and
retiree benefits modified in Chapter 11. Businesses as a result
take advantage of these venue options and file their Chapter 11
cases in employer-friendly districts. According to the American
Bankruptcy Institute, this is among the reasons that Delphi, a
Michigan-headquartered company, filed for bankruptcy in New
York.
Now, I don't know what is so great about a law that allows
these companies to forum shop. Boy, when they hear a trial
lawyer trying to do that, this Congress collectively hits the
roof. ``How dare they do that!'' As a matter of fact, we
changed the whole law and started creating legal restrictions
on forum shopping, and yet here it is, laying here for the
advantage of corporations.
I ask unanimous consent to take a minute to go down to the
rest of the folks----
Ms. Sanchez. Without objection, it will be granted. I am
just going to make the Members of the Subcommittee aware that
we have one more person who has 5 minutes of questioning, and
there is another hearing scheduled in this very room at 1
o'clock. So we are going to need to wrap up testimony very
quickly.
I will allow the witnesses to answer.
Mr. Conyers. Mr. Prater?
Mr. Prater. I will be as succinct as you like our members
to be when they are on the P.A. and you are trying to get a
little sleep on the way home. Quite simply, I disagree
completely with Mr. Bernstein. The 1113 section has not worked
in the Bankruptcy Code.
My family has had five airline bankruptcies, two for me,
three for my wife. It has not worked: 1113 came into being in
1984 when Congress recognized that management should not have
the unilateral right to abrogate a labor contract. Yet it
passed that to a judge, and what we are living with now is the
fact that management is getting their way in bankruptcy court.
So it has not worked, and we would like to work with Congress
to help modify that.
Thank you.
Mr. Conyers. Thank you.
Mr. Davidowitch. Here is the irony in the current corporate
bankruptcy law. The executives who are largely responsible for
putting the company into bankruptcy in the first place are
rewarded lavishly with bonuses and enhanced compensation
packages during the course of the bankruptcy and rewarded
lavishly upon exit from bankruptcy, while the workers see their
rights destroyed under Section 1113 and Section 1114, having
their health care cut and their pensions taken away from them.
What I would suggest to this Committee, at a minimum, is to
restore the balance that Congress intended when the Bankruptcy
Code was last reformed to level the playing field. At a
minimum, employees should have the right to strike, to withhold
their service when their terms of their collective bargaining
agreement has been changed. The unfairness that exists under
the current application of the law and how it has been
interpreted over the years has really created a lopsided scale
of justice for the flight attendants and for other workers.
Mr. Conyers. Thank you.
Mr. Trumka?
Mr. Trumka. Thank you.
First thing I would like to do is respond to Representative
Cannon and say that, in fact, there is class warfare going on
in this country, and we have been attacked continuously for the
last 30 years, the workers of this country. And the notion that
you can empower individuals to do better than they will
collectively I think is nearly laughable.
I came out of a coal mine, and I can tell you something:
That coal mine was owned by a large steel company. And I could
have stood up and yelled at the top of my lungs, I could have
done everything there, and I can promise you that they would
given not two hoots about me. It was the fact that we were able
to come together, individually, and have a greater voice, and
to sit down at the table as equals with the management.
And I can tell you this, that in a labor-management
relationship, when you come together as equals, you make much
better decisions for everybody. And I will give you a classic
example. My son, who is 3 years old, came to me one day and
said, ``I want something.'' And I flippantly said, ``No.'' I
didn't have to give him a reason. I didn't have to explain to
him. It was no. It was no because I had the power and he
didn't.
Then my wife came to me, made a request--not necessarily a
request. She said she was going to do something. I can
guarantee you that it wasn't a flippant no, because the balance
of power was a whole lot different there. That is what happens
when workers join together and they can have a collective
voice. We all make better decisions.
The other thing----
Mr. Cannon. Would the gentleman yield just a moment?
Ms. Sanchez. Mr. Cannon and Mr. Trumka both, I respect you
mightily. We have another hearing scheduled here in 10 minutes.
Mr. Watt has not gotten an opportunity to ask his final round
of questions.
Mr. Watt. Madam Chair, this sounds like a good discussion.
Ms. Sanchez. Wait, wait, wait. If I can get a promise from
Mr. Watt that he is willing to yield, his 5 minutes to allow
this exchange----
Mr. Watt. I will yield to the gentleman----
Mr. Cannon. And I won't take much time, except to say that
we are not in very much of disagreement. There was a time when
you needed collective bargaining. That time has transformed
itself as labor has become more scarce. My goal in life is to
be labor scarce and well-paid, and that means--and I think
that--and I have been preaching this for years and years to the
unions.
And of all people, Mr. Trumka, you are one of the leaders
in having actually accomplished this--that is, that if you guys
empower your employees to work in many places, and the demand
for workers goes up, that is when the employee is no longer a
3-year-old child. That is when he is an adult and an American
and has all the respect that America affords to individuals.
So we are not very much in disagreement there.
Ms. Sanchez. I will allow Mr. Trumka a minute and a half to
respond, and then we will conclude this hearing. Mr. Trumka,
you get the final word.
Mr. Trumka. I just say that that is good to hear that we
are not that far apart, because there is a whole lot different
than treating your workers, and giving them skills, and telling
them to empower them as individuals. Those skills help them
empower them collectively so that we all do a lot better, and
that is what we do.
Just to come back quickly to the bankruptcy bill and leave
you with this parting word, currently all incentives that exist
in the bankruptcy bill as interpreted give them to management
to take on labor first and foremost. They should be changed so
that the incentive is that if you take on and create pain for
workers, the pain will be shared equally with you.
Ms. Sanchez. The time of the gentleman has expired. We are
going to conclude our hearing, and I want to thank all the
witnesses, again, for their time in coming today to give their
testimony. Without objection, Members will have 5 legislative
days to submit any additional written questions, which we will
forward to the witnesses, and ask that you answer as promptly
as you can to be made part of the record.
Without objection, the record will remain open for 5
legislative days for the submission of any additional material.
Again, I thank everybody for their time and their patience, and
this hearing of the Subcommittee on Commercial and
Administrative Law is adjourned.
[Whereupon, at 12:55 p.m., the Subcommittee was adjourned.]