Liquidating 1113 collective bargaining
1988), the Sixth Circuit ruled that, by failing to pay retiree health benefits owed under a labor agreement, the debtor had unilaterally modified the agreement in violation of Section 1113.Given the potential significance of continued pension funding, whether or not to fund thus may be a matter of "location, location, location." Most courts outside the Sixth Circuit have followed the Ionosphere line of reasoning.In order to enforce its collective bargaining agreement (and stave off a decision by PBGC to seek involuntary termination), the union may seek to compel continued contribution payments. Enacted in 1984, Section 1113 protects collective bargaining agreements in two ways.In doing so, the union can take advantage of special rules under bankruptcy law that apply to obligations under a collective bargaining agreement. First, unlike other contracts of the debtor, collective bargaining agreements may only be rejected if the debtor follows procedures and meets a heightened standard detailed in the statute.What kind of replacement plan will fairly compensate workers for a terminated plan and attract new employees to a competitive business?Carol Connor Flowe's companion article reviews single employer pension-plan funding as well as termination considerations from the employer's perspective.For the courts that have followed Ionosphere, a failure to pay is not the same as a unilateral change in the agreement because the obligation simply becomes a claim in the bankruptcy and does not disappear altogether.
Among the most alarming concerns may be the question: What will happen to my pension?However, the courts are divided on this issue, which has come up most often in the context of assigning priorities to bankruptcy claims.In one of the leading cases on the issue, In re Ionosphere Clubs Inc. 1994), the court ruled that collectively bargained vacation pay based on pre-bankruptcy employment should be treated like other pre-bankruptcy obligations of the debtor and not given special payment priority as an obligation under the labor agreement.While the collective bargaining goals of Section 1113 may not be directly at issue in the allowance of claims in a liquidating Chapter 11 case like Ionosphere, honoring a collective bargaining agreement and the attendant benefits for employee morale are important considerations in a continuing reorganization.An early contest over funding obligations that pits active employees, through their union, against the debtor and forces general unsecured creditors (who may prefer that the debtor conserve cash), retirees, the Pension Benefit Guarantee Corp.