"Bankruptcy Brinkmanship":1 Employers' Threats of Bankruptcy in the Context of Collective Bargaining and the National Labor Relations Act

By Froehlich, Jennifer J. | Labor Law Journal, Summer 2006 | Go to article overview

"Bankruptcy Brinkmanship":1 Employers' Threats of Bankruptcy in the Context of Collective Bargaining and the National Labor Relations Act


Froehlich, Jennifer J., Labor Law Journal


Intuitively, labor-management relations become more tenuous as the economy worsens.2 As the economic landscape gets worse, employers often turn to their most valuable asset to eke out economic savings in order to preserve shareholder value, and in some extreme cases, to ensure continued viability as a functioning company.1 The most valuable asset companies turn to for assistance in times of crisis is human resources, of course.4

This scenario has taken on an entirely new meaning as the option of declaring Chapter 11(5) bankruptcy has become a more viable option for companies on the brink of dissolution, and even for some just looking for a way out of an economic rut. As bankruptcy has become more of an economic opportunity rather than a last ditch effort at viability, some industries have followed the airline industry in resorting to the contemplation of a Chapter 1 1 filing to "right the ship." With increasing foreign competition and shrinking market share and profit margins, the auto industry has joined the fray in looking at bankruptcy as an option to "get back on track." The reasons for the attractiveness of the Chapter 11 "solution" are clear:

[T]he simple elegance of the [bankruptcy] solution is obvious. A bankrupt automaker theoretically could use Chapter 11 to consolidate operations, reduce excess plant capacity, restructure debt and perhaps eliminate unprofitable car brands. The company also could use bankruptcy to either renegotiate or abrogate its labor contracts, leveling the competitive landscape with non-union rivals.6

The scenario seems to play itself out something like this-management declares the company is not performing well. In order to improve the business, management unilaterally makes changes to employee wages, benefits and work rules in the case of a non-unionized work force. In the case of a unionized work force, management tells the union if it does not "assist" the company by granting wage, benefits and work rules concessions, the company will be in grave financial trouble. If the union does not grant the concessions, management begins to threaten that it will declare bankruptcy unless concessions are granted. The union refutes that concessions are the panacea for the company's ills. The stalemate results in a showdown where either the union gives in and negotiates concessions, or the company may or may not declare bankruptcy.7

The threat creates a showdown between unions and management when the economy goes sour, product lines do not perform to expectations, and foreign competition eats market share.8 The question is-does this showdown of bankruptcy without concessions translate into an encroachment on the bargaining rights of the union and its members? More specifically, is this "threat" of bankruptcy a threat as defined by the National Labor Relations Board (NLRB) in its interpretation of the National Labor Relations Act (NLRA)? If it is, what should be done about it, if anything?

Part IIA of this Comment takes a look at the intertwining of United States labor law and bankruptcy law and what the overlap means for collective bargaining agreements in the face of Chapter 11 bankruptcy. Part IIB covers the NLRB's view of companies' threats in the context of collective bargaining relationships. Parts IIC and IID illustrate what has happened in specific scenarios with two automotive companies communicating bankruptcy threats to its unions. Part III uses these company case studies to show how these scenarios are indeed unfair labor practices within the NLRA. Finally, Part IV provides recommendations to companies, labor unions and Congress to ease the pressure of the situation in the face of worsening economic conditions.

II. BACKGROUND

The effect of U.S. bankruptcy law on collective bargaining agreements is highly germane to the negotiating dynamic between a company that is dangling a Chapter 11 filing in front of a union. There is a path of change that is charted regarding a labor contract's fate in the face of bankruptcy proceedings.

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