A Bankrupt Decision

A FEW WEEKS ago the Supreme Court handed down a decision which gives serious cause for alarm. In two cases involving labor disputes, the high court gave a powerful new weapon to management which will ultimately undermine the bargaining position of unions throughout the country.

The decision came in rulings last month on National Labor Relations Board v Bildisco and Bildisco, and Local 408, International Brotherhood of Teamsters v. NLRB.

The rulings give employers the right to repudiate union contracts once they have filed for bankruptcy. Although most of the circuit courts have reached similar conclusions over the past decade, this final confirmation comes as both unwelcome and unfair. In the words of Harvard Law School Professor Charles R. Nesson, "(The ruling) makes bankruptcies an affirmative weapon" against unions.

In its decision, the court sustained the Third Circuit appeals court's interpretation of section 365 (a) of the Bankruptcy Code, which states that businesses facing bankruptcy may repudiate "executory contracts" with its creditors subject to the approval of the Bankruptcy Court.

Most of the judicial debate on this issue has centered on whether labor contracts were executory, i.e. just like contracts with shareholders or with other businesses. To this question the court unanimously returned a qualified "yes", in Justice Rehnquist's opinion holding that "the language executory contract' includes within it collective bargaining agreements subject to the National Labor Relations Act (NLRA) and that the Bankruptcy Court may approve rejections of such contracts by the debtor-in possession upon an appropriate showing."

A large majority of the justices doubled their error by going even further, deciding 5-4 that "a debtor-in-possession does not commit an unfair labor practice when, after the filing of a bankruptcy petition but before court-approved rejection of the collective-bargaining agreement, it unilaterally modifies or terminates one or more provisions of the agreement."

The entire court hedged its anti-labor executory definition by adding, "Because of the special nature of a collective-bargaining agreement.... a some what stricter standard than the business judgement' standard applied to authorize rejection of an ordinary executory contract should govern the Bankruptcy Court's decision to allow rejection of a collective-bargaining agreement."

BUT THIS HEDGE is more of an indication of the manner in which businesses will use this vague ruling to barter with labor rather than a legitimate restraining caution. "If there was some way of making sure the businesses were really bankrupt, then I'd be much happier," Nesson concludes. There isn't, however, especially since businesses now won't have to wait for court approval before rejecting union contracts.

The court hedged further, but still in sufficiently, by stating that the business will still be liable for damages if the Bankruptcy Court decides by the "somewhat stricter standard" that the company acted correctly in repudiating the contract. Thus the option for suit remains open to unions at every point of the process.

In effect, though, the company's position will still be strong. The inevitable new management labor conflict has now been taken out of the bankruptcy courts and into the civil courts, where the superior resources of the firms may be more effectively brought to bear. Filing for bankruptcy now becomes even more of a gamble, and the new opportunity to threaten labor-contract rejection is a fresh chip for management whenever it deals with the unions.

Under the decisions, businesses now have the freedom to deal with unions as they would with any other creditor. Big Labor is not Big Business, however, and the negotiating processes for a company and its employees on the one hand and two companies on another are completely dissimilar.

Justice Brennan, in his partial dissenting opinion, writes for the minority . "The Court's concentration on the Bankruptcy Code and its refusal to accommodate that stature with the NLRA is particularly incongruous since the analysis (of the unanimous portion of the decision) rests almost exclusively on the recognition that the two statutes must be accommodated." The Bankruptcy Code, of course, makes no distinction between labor and other creditors. The court followed the Code when it contradicted the labor laws on unfair practices, and made no special accommodation for labor.

"I do not think that there is any question that the threat to labor peace stemming from a unilateral modification of a collective bargaining agreement is as great one day after a bankruptcy petition has been filed as it was one day before the petition was filed," continues Brennan. "We cannot ignore these realities when construing the reach of the NLRA." Allowing the business to reject its labor agreement before obtaining bankruptcy court approval demonstrates the narrow-mindedness of the court in impinging on labor rights, and Brennan objects strenuously to this.

"The major danger," he writes, "to the reorganisation that stems from premature rejection of collective-bargaining agreements is that the debtor-in possession will reject an agreement he would not have rejected upon further deliberation." Brennan sees that too much power has been given to businesses eager to cut back on labor costs. Unfortunately, he spoke with the minority here. Still more unfortunately, no one spoke at all (in the court, at any rate) against the violations of labor rights in the first part of the decision.