Thursday, April 2, 2009

Using Bankruptcy to Reject CBAs

Br If GM and Chrysler are headed for bankruptcy, it's primarily so that they can further slash labor costs.  Section 1113 of the bankruptcy code permits a bankruptcy court to reject or modify a collective bargaining agreement if rejection or modification is "necessary to permit the reorganization of the debtor." The federal circuits are split on the meaning of "necessary." The Third Circuit has held that a cba can be rejected or modified only if the alternative is the company's immediate liquidation.  The Second Circuit imposes a standard that's much easier for a company to meet: the cba can be rejected or modified if rejection or modification serves the long-term goal of a successful reorganization.  The Sixth Circuit, which covers Michigan, has not definitively ruled on the issue.  For that reason, if GM or Chrysler file for bankruptcy, I expect expect the filing to be in New York.

For more, see Smith & Bales, Reconciling Labor & Bankruptcy Law: The Application of 11 U.S.C. Section 1113, 2001 MSU L. Rev. 1146.


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