Even in Bankruptcy, Employers Must Maintain the Status Quo
One of the consequences of bankruptcy can be “termination” or “rejection” of an operative collective bargaining agreement (“Agreement”). It is important for employee benefit trust funds to make themselves aware of the current status of their bargaining agreement when a signatory employer files for bankruptcy. A bankrupt employer in Chapter 11 has the ability to move to reject the Agreement under Section 1113 of the bankruptcy code. In Chapter 7, the Agreement can be deemed rejected by operation of law.
Although this may sound final to someone who is unaccustomed to the practice of bargaining, rejection or termination does not mean that the Agreement is no longer in place. To the contrary, the National Labor Relations Act (“NLRA”) requires employers to maintain the “status quo” with respect to most terms and conditions of employment, including wages and benefit contributions, until a new agreement has been reached or until the parties have bargained to impasse. The NLRA contains specific conditions which must be met in order for impasse to be reached, and an employer cannot claim that it has reached impasse with the Union unless those conditions are met. For these reasons, the status quo at the time of rejection or termination must continue and both ERISA and the NLRA must be observed even if an employer is in bankruptcy.
The NLRA also requires employers, including those in bankruptcy, to bargain with the Union in good faith because the Union remains the exclusive bargaining representative of the employer’s workforce. This good faith obligation goes both ways, also extending to the Union. Because bankruptcy courts tend to resolve disputes in favor of bankrupt debtors, in accordance with the overarching policy of the bankruptcy code, a bankruptcy court may be more inclined to ignore the protections of ERISA or the NLRA if it appears that the Union is not acting in good faith. Moreover, it is not uncommon for bankruptcy judges to be completely unaware of labor law.
Therefore, if a signatory employer has declared bankruptcy and the applicable Agreement has either been terminated by its own terms or rejected in bankruptcy, the employer must still maintain the status quo and make benefit contributions unless and until a new Agreement is reached or the parties have bargained to impasse. Do not assume that a bankrupt employer whose Agreement is not in effect is a lost cause. To the contrary, this may be an opportunity to bargain over a new Agreement, in an effort to restore affordable and timely payment of benefit contributions.
For more information, please contact your Trust Fund counsel.
Author: Jolene Kramer
