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AMERICAN WORKERS IN CRISIS: DOES THE CHAPTER 11 BUSINESS BANKRUPTCY LAW TREAT 

EMPLOYEES AND RETIREES FAIRLY? 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

COMMERCIAL AND ADMINISTRATIVE LAW 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

FIRST SESSION 

SEPTEMBER 6, 2007 

Serial No. 110–139 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 

(II) 

COMMITTEE ON THE JUDICIARY 

JOHN CONYERS, JR., Michigan, Chairman 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

LINDA T. SA ́ NCHEZ, California 

STEVE COHEN, Tennessee 

HANK JOHNSON, Georgia 

BETTY SUTTON, Ohio 

LUIS V. GUTIERREZ, Illinois 

BRAD SHERMAN, California 

TAMMY BALDWIN, Wisconsin 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

ARTUR DAVIS, Alabama 

DEBBIE WASSERMAN SCHULTZ, Florida 

KEITH ELLISON, Minnesota 

LAMAR SMITH, Texas 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

STEVE CHABOT, Ohio 

DANIEL E. LUNGREN, California 

CHRIS CANNON, Utah 

RIC KELLER, Florida 

DARRELL ISSA, California 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TOM FEENEY, Florida 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

PERRY APELBAUM, Staff Director and Chief Counsel 

JOSEPH GIBSON, Minority Chief Counsel 

SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

LINDA T. SA ́ NCHEZ, California, Chairwoman 

JOHN CONYERS, JR., Michigan 

HANK JOHNSON, Georgia 

ZOE LOFGREN, California 

WILLIAM D. DELAHUNT, Massachusetts 

MELVIN L. WATT, North Carolina 

STEVE COHEN, Tennessee 

CHRIS CANNON, Utah 

JIM JORDAN, Ohio 

RIC KELLER, Florida 

TOM FEENEY, Florida 

TRENT FRANKS, Arizona 

MICHONE JOHNSON, Chief Counsel 

DANIEL FLORES, Minority Counsel 

(III) 

C O N T E N T S 

SEPTEMBER 6, 2007 

Page 

OPENING STATEMENT 

The Honorable Linda T. Sa ́nchez, a Representative in Congress from the 

State of California, and Chairwoman, Subcommittee on Commercial and 

Administrative Law ............................................................................................. 1 

The Honorable Chris Cannon, a Representative in Congress from the State 

of Utah, and Ranking Member, Subcommittee on Commercial and Administrative Law ........................................................................................................... 2 

The Honorable John Conyers, Jr., a Representative in Congress from the 

State of Michigan, Chairman, Committee on the Judiciary, and Member, 

Subcommittee on Commercial and Administrative Law .................................. 4 

The Honorable Melvin L. Watt, a Representative in Congress from the State 

of North Carolina, and Member, Subcommittee on Commercial and Administrative Law ........................................................................................................ 8 

WITNESSES 

Ms. Kim Townsend, Chief Steward, Local 138, United Automobile, Aerospace 

and Agricultural Implement Workers of America (UAW), Hastings, MI 

Oral Testimony ..................................................................................................... 10 

Prepared Statement ............................................................................................. 11 

Mr. Michael Bernstein, Arnold & Porter LLP, Washington, DC 

Oral Testimony ..................................................................................................... 13 

Prepared Statement ............................................................................................. 15 

Mr. Fred Redmond, International Vice President, Human Affairs, United 

Steelworkers (USW), Pittsburgh, PA 

Oral Testimony ..................................................................................................... 20 

Prepared Statement ............................................................................................. 22 

Captain John Prater, President, Air Line Pilots Association, International, 

Washington, DC 

Oral Testimony ..................................................................................................... 24 

Prepared Statement ............................................................................................. 26 

Mr. Greg E. Davidowitch, Master Executive Council President at United 

Airlines, Association of Flight Attendants, CWA, AFL-CIO, Washington, 

DC 

Oral Testimony ..................................................................................................... 31 

Prepared Statement ............................................................................................. 32 

Mr. Richard Trumka, Secretary-Treasurer, AFL-CIO, Washington, DC 

Oral Testimony ..................................................................................................... 37 

Prepared Statement ............................................................................................. 40 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Prepared Statement of the Honorable John Conyers, Jr., a Representative 

in Congress from the State of Michigan, Chairman, Committee on the 

Judiciary, and Member, Subcommittee on Commercial and Administrative 

Law ........................................................................................................................ 7 

(1) 

AMERICAN WORKERS IN CRISIS: DOES THE 

CHAPTER 11 BUSINESS BANKRUPTCY LAW 

TREAT EMPLOYEES AND RETIREES FAIRLY? 

THURSDAY, SEPTEMBER 6, 2007 

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON COMMERCIAL

AND ADMINISTRATIVE LAW, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 10:15 a.m., in 

room 2141, Rayburn House Office Building, the Honorable Linda 

Sa ́nchez (Chairwoman of the Subcommittee) presiding. 

Present: Representatives Sa ́nchez, Watt, and Cannon. 

Also present: John Conyers, Jr.. 

Staff present: Susan Jensen-Lachmann, Majority Counsel; 

Zachary Somers, Minority Counsel; and Adam Russell, Majority 

Professional Staff Member. 

Ms. SA ́ NCHEZ. Good morning. This hearing on the Committee of 

the Judiciary, Subcommittee on Commercial and Administrative 

Law will now come to order. And I apologize for starting this hearing late. 

I will now recognize myself for a short statement. 

Earlier this week, the Nation celebrated Labor Day, a special day 

dedicated to the social and economic achievements of American 

workers. Unlike most other national holidays that typically commemorate a particular person or historic event, Labor Day is a tribute to the American worker. As Samuel Gompers, founder and 

longtime president of the American Federation of Labor, observed 

in 1898, ‘‘It is a day when workers can look forward to when their 

rights and their wrongs would be discussed.’’ 

Today’s hearing hopefully will provide that long-overdue opportunity. As many of you know, in April of this year, our Subcommittee conducted a hearing on a recent phenomenon in which 

chief executive officers of businesses going through Chapter 11 

bankruptcy proceedings receive outrageously large salaries and bonuses, while they simultaneously slash the wages, benefits and 

even jobs of workers who are the backbones of those businesses. As 

one union representative observed, ‘‘Chapter 11 is where the rich 

are getting richer while the poor are getting poorer.’’ 

Unfortunately, it appears that this is just one of many inequities 

that Chapter 11 presents to workers and retirees. The GAO just released a new study today finding that nearly one-half of the ChapVerDate Aug 31 2005 10:22 Dec 05, 2008 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6601 H:\WORK\COMM\090607\37601.000 HJUD1 PsN: 37601
2 

ter 11 employers who were reviewed in the study terminated their 

employer-funded benefit plans while they were in bankruptcy. 

About 28 percent of Chapter 11 employers sought to modify nonpension retiree obligations, such as health insurance plans. And 

about 29 percent of Chapter 11 employers sought to reject collective 

bargaining agreements. These statistics I find very disturbing. 

Chapter 11 of the Bankruptcy Code was originally enacted to 

give all participants an equal say in how a business that is struggling to overcome financial difficulties should reorganize. Unfortunately, this laudable goal does not reflect reality, especially for 

American workers. As the head of the American Bankruptcy Institute has observed, ‘‘In case after case, bankruptcy courts have applied congressional intent favoring long-term rehabilitation to 

sweep aside wage and benefit concessions won at the bargaining 

table.’’ 

Bankruptcy is a last resort, a sort of timeout to give business 

debtors the breathing room to reorganize their finances. It is not 

intended to be and should not be used as a pretext to negate contracts negotiated in good faith with employees. If Chapter 11 is 

being used that way, we have a responsibility to re-level the playing field for American workers whose employers seek Chapter 11 

bankruptcy protection. 

To help us learn more about these issues, we have six witnesses 

with us this afternoon. We are pleased to have Kim Townsend, 

chief steward and member of UAW Local 138; Michael Bernstein, 

partner at the Arnold & Porter law firm; Fred Redmond, international vice president for human affairs of the United Steelworkers; Captain John Prater, president of the Air Line Pilots Association International; Greg Davidowitch, united master executive 

council president of the Association of Flight Attendants; and Richard Trumka, secretary-treasurer of the AFL-CIO. 

Accordingly, I look forward to the testimony of today’s witnesses 

at our hearing. I would now at this time like to recognize my distinguished colleague, Mr. Cannon, the Ranking Member of the Subcommittee, for his opening remarks. 

Mr. CANNON. Thank you, Madam Chair. 

Today’s hearing raises an issue of common interest to the Members of this Subcommittee: Does Chapter 11 treat employees and 

retirees fairly when a business in financial trouble seeks protection 

under the bankruptcy laws? 

While there is a shared common interest in the issues to be examined today, there is another shared common interest at stake. 

That interest is ensuring that businesses can recover and return to 

viability through a Chapter 11 reorganization. 

Today we will hear from a panel of witnesses, the vast majority 

of which represent organized labor. We must be cognizant of the 

fact there are additional interests at stake when a business is faced 

with financial trouble. Unfortunately, many of those interests are 

not represented here today at the witness table. 

A primary purpose of the Nation’s bankruptcy laws is to permit 

a failing company, under court supervision, to rehabilitate and reorganize its business, by allowing it to relieve itself of the burden 

of oppressive debt and begin with a fresh start. This is a primary 

3 

purpose, because returning a company to financial health is preferred to forcing a company to liquidate. 

This Nation’s big businesses, the employers of the unions represented here today, employ tens of millions of workers, pay tens 

of billions of dollars in taxes, and keep this Nation competitive in 

the global economy. 

Corporate bankruptcy is not a financial scam, nor is it a gimmick 

perpetuated by heartless big businesses seeking to avoid paying 

their bills. The reorganization process as encompassed in Chapter 

11 allows troubled companies to keep their doors open, preserving 

jobs and continuing to give consumers access to their products. 

If companies are forced to liquidate, all stakeholders suffer. Employees will lose their jobs; retirees will lose their retirement benefits; and creditors and shareholders will have any potential recovery diminished or eliminated. Liquidation hurts suppliers, customers, taxing authorities, and local communities. 

Essential to the reorganization process is the ability of a troubled 

company to discharge its existing obligations. In some cases, part 

of those existing obligations are going to be labor legacy costs, including collective bargaining agreements, retiree medical benefits, 

and defined benefit pension plans. 

Section 1113 of the Bankruptcy Code allows a company in Chapter 11 to reject, as a last resort, a collective bargaining agreement. 

The company can reject a collective bargaining agreement under 

section 1113 only if good-faith bargaining between the troubled 

company and the union does not produce an agreement, the statutory prerequisites have been satisfied and the bankruptcy court 

finds that the ‘‘balance of the equities’’ favors rejection. 

Section 1114 of the Bankruptcy Code makes similar provisions 

for the rejection of retiree medical benefits and pension plans. Rejection of a collective bargaining agreement, retiree medical benefits, or pension plans is not something to be taken lightly. But in 

many cases, such rejection is the only avenue a failing company 

has to return to viability and maintain jobs. 

Chapter 11 seeks to reconcile equitably many interdependent interests, just like other chapters of the Bankruptcy Code. But the 

paramount aim of Chapter 11 is to save companies that can still 

be saved. To reach that aim, we will have to strike the right balance between competing interests. 

In the Bankruptcy Abuse Prevention and Consumer Protection 

Act, we largely, although not completely, left many of the issues to 

be discussed today alone. Chief among those reasons is that some 

believe that placing any further restrictions, especially an all-out 

prohibition, on the termination of collective bargaining agreements 

or retiree benefits might actually put parties in a far worse position 

than we currently have under the Bankruptcy Code. 

Another concern of further bankruptcy reform in these areas is 

that labor legacy costs are not really a bankruptcy problem. That 

is to say that the problems with labor legacy costs that come to the 

front at the bankruptcy stage were created well before the company 

was faced with bankruptcy and only arise when a company faces 

financial problems. We don’t want to use the bankruptcy law to fix 

problems that are really the result of gaps in other areas of the 

law. 

4 

Critics of the bankruptcy laws often complain that the bankruptcy laws are too easy on financially troubled companies. In some 

areas, this criticism may have some merit and we on this Subcommittee are committed to make sure that the bankruptcy system 

is not exploited. But it is important that we not overreact. 

Many of this country’s major corporations, including some of 

those whose union representatives are before us today, are still in 

business because the bankruptcy laws—including sections 1113 

and 1114—allowed them to reorganize. Moreover, many companies 

have moved away from the employee benefit practices that are at 

the heart of today’s hearing. 

So while we in the minority come to this hearing with open 

minds and want to work to provide for fair treatment of the American worker and retiree, we also believe that it is important that 

troubled businesses be able to reorganize even if it means rejecting 

certain labor legacy costs. 

Let me just say, I look forward to hearing from today’s witnesses. 

And the fact that we have some amazing people—I don’t know, Mr. 

Trumka, you may not be aware, but I am a big fan of yours. I 

worked in the coal industry during the time that you led the union 

there and made some amazing progress, largely because of your 

concern and the concern of the union was about mine safety and 

not necessarily numbers of jobs and optimizing that. 

And we just recently had, as you are aware, of course, a tragedy 

in the area that I used to represent in Utah. This was an awful, 

awful tragedy. But on the other hand, during the period of time we 

were trying to save those workers, we had 168 Chinese workers 

who were drowned because the Chinese don’t build dykes that are 

sufficient to protect their workers. And you are a huge reason why 

we have such a safe industry today. And we are going to take another look at that, mine safety, as a result of this disaster, which 

I think is largely a function of local geological factors that we didn’t 

understand at the time that we did the mine plan. 

But I appreciate your being here today. Others, you might be interested that I actually worked my way through school by being a 

Teamster. I am a registered—was a registered Teamster. That 

said, the bankruptcy laws are complex and they are amazingly robust and bipartisan. And so if we are going to do something with 

those laws to help on the issues that are before us today, we have 

to be very clear and very specific about what the opportunities are 

to improve the law. And I think you will find that there is an openness to do that, although it was so difficult to get the bankruptcy 

reform bill passed last Congress that I am not sure anybody really 

wants to open it up, unless we have some great clarity about how 

and why to do that. 

Thank you, Madam Chair. I yield back the balance of the time. 

Ms. SA ́ NCHEZ. I thank the gentleman for his statement. 

I would now like to recognize Mr. Conyers, who is a Member of 

the Subcommittee and the Chairman of the Committee on the Judiciary, for an opening statement. 

Mr. CONYERS. Thank you, Madam Chairman. 

Good morning, witnesses. It is a pleasure to see you all here. 

Wow, what a crew. We could talk about a lot of subjects, and sometimes they are all related. I am always happy to have Chris CanVerDate Aug 31 2005 10:22 Dec 05, 2008 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6601 H:\WORK\COMM\090607\37601.000 HJUD1 PsN: 37601
5 

non with us on whatever our subject matter is in the Committee, 

because he is one of my best hopes for bipartisanship in the entire 

110th Congress, not just on Judiciary Committee. Now, I find out 

he has a labor background, which no one ever suspected before. 

[Laughter.] 

And so—— 

Mr. CANNON. If the gentleman would yield, there are a lot of reasons for suspecting it. 

Mr. CONYERS. Yes, but we didn’t know any. So we are here today 

to examine under easily the most active Subcommittee on Judiciary 

the whole question of how bankruptcy ought to be reviewed by this 

Committee that has jurisdiction over it. 

I introduced last year—and Alan Reuther was at the news conference with Senator Bayh and myself—when we introduced a bill 

that was entitled the Fairness and Accountability in Reorganizations Act, which simply required disclosures of what is really going 

on in some of the bankruptcy provisions, procedures that occur. 

You know, I am reminded that 40 percent to half of all the bankruptcies are due to health-care indebtedness and other problems. 

And frequently, companies in other cases tell, when they are negotiating, and maybe some of you can confirm this, that if you don’t 

agree with us, we are going into bankruptcy. Bankruptcy is now 

used as a tool of negotiation to force you into agreements. And it 

is like, ‘‘you know what will happen to you there when you go in 

a bankruptcy,’’ because a lot of this reorganization business is all 

corporate-oriented. 

And so you never get to an honest collective bargaining negotiation situation because you have the threat of bankruptcy hanging 

over your head. And this is something that finally in this 110th 

Congress we are going to be examining very carefully. 

I hope somewhere during or after this important hearing we get 

to discuss a crisis that I have always wanted to raise with those 

of the brothers and sisters of organized labor who are here this 

morning. How did we get to this circumstance in American economic policy where two groups can bargain in good faith, sometimes very strenuous bargainings, and then their lawyers battle, 

their labor leaders and presidents of companies battle, finally there 

is an agreement signed, and a year-and-a-half later, one party 

comes back and says, ‘‘Oh, by the way, things have gone really into 

the tank. Things are very bad now. It wasn’t what we anticipated. 

And we want to change the terms of negotiations before.’’ 

I don’t know what kind of law practice exists where one party 

can come back to the other and say, ‘‘Things are different than we 

expected, so guess what? We want to cut labor forces. We want to 

reopen the contract we just signed with great celebration. We are 

going to have to revisit the pension agreement, the health care. All 

the legacy costs are now open. And, by the way, we are thinking 

about, under some so-called free trade laws, we are also thinking 

about moving out of the place. We may have to close down, even.’’ 

And this has never happened before, in my experience that I 

know about. And I am trying to figure out how this is permissible. 

The collective bargaining movement is under threat, its very existence. And, of course, there have been no bones about it in this Administration. Let’s bust the labor unions. I mean, what do we need 

6 

collective bargaining for? Not to mention that the number of people 

in organized labor is getting smaller and smaller every year. So 

that is the attitude that I bring to this hearing, and I think it is 

an extremely important one. 

I would just close with this one observation about my friend, Bob 

Nardelli, who, by his own admission, knows nothing about automobiles. He left Home Depot—well, I won’t say they were in the 

tank, but they lost several billion dollars’ worth of value immediately after he left—he got $210 million as a payout, a reward for 

what he did or a compensation to get him the heck out of Home 

Depot. And now he is at Chrysler. 

Now, here is my suspicion. I have to put it on the record. He is 

a slash-and-burn guy, if I have ever seen one, and the reason 

Chrysler has him is because that is what he is good at and that 

is what they want him to do. The fact that he knows nothing about 

automobiles is beside the point. What difference? He has an old car 

in his garage that he likes to pull out to say, ‘‘I am with cars. I 

have been with cars much longer than any of you guys know 

about.’’ 

But this is the nature of the economy, that we have bankruptcy 

hearings with labor people before this Committee. And I thank the 

Chairwoman for her indulgence. 

Mr. CANNON. Would the gentleman yield? 

Mr. CONYERS. Of course. 

Mr. CANNON. I want to thank the gentleman, first of all, for his 

very kind words and his point that the collective bargaining system, its very existence is under threat, is a point that I think is 

well-taken. 

I would just like to establish, since we have my bona fides on the 

record, I would actually like to take another step. I was part of the 

group that bought Geneva Steel in Utah, the only integrated steel 

mill west of the Mississippi River. And as part of that discussion, 

there was a lot of talk with the financing folks about getting rid 

of the union, and I was the guy who spiked that idea. 

The fact is, there is a place in America for unions. There is a 

very important place. I try to come down on the side of being 

thoughtful about what the role of unions would be, but as we go 

into this hearing, I just want the gentleman to know that, in fact, 

I am not sure we would call it a bipartisan agreement, but what 

we want here is an agreement that actually makes sense for America. And America is not just big corporate presidents who make 

huge salaries. It is also the guys who actually make America work 

by coming to the job everyday and turning the bolts and doing the 

other things that are necessary to be done. 

For mining the coal, we want to thank the miners of America for 

the fact that we have lights on right now. And so I just wanted to 

thank the gentleman again and let him know that I actually care 

enormously about this issue. And the question is, what do we do 

to actually create the appropriate balance here? 

Thank you. 

Mr. CONYERS. Absolutely. And I expected the gentleman to make 

that kind of statement. I will look forward to working with him, as 

we do on health care and many other matters. 

[The prepared statement of Mr. Conyers follows:] 

7 

PREPARED STATEMENT OF THE HONORABLE JOHN CONYERS, JR., A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF MICHIGAN, CHAIRMAN, COMMITTEE ON THE JUDI- CIARY, AND MEMBER, SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

Today’s hearing addresses an area that I believe Congress has long neglected, 

namely, how American workers and retirees are treated in Chapter 11 bankruptcy 

cases. I think it is quite clear that the rights of workers and retirees have greatly eroded 

over the past two decades, particularly in the context of Chapter 11. Let me just 

cite three reasons. 

First, it is no secret that certain districts in our Nation interpret the law to favor 

the reorganization of a business over all other priorities, including job preservation, 

salary protections, and other benefits. Part of the problem is that the law is simply 

not clear, leading to a split of authority among the circuits. 

This is particularly true with respect to the standards by which collective bargaining agreements can be rejected and retiree benefits can be modified in Chapter 

11. Businesses, as a result, take advantage of these venue options and file their 

Chapter 11 cases in employer-friendly districts. According to the American Bankruptcy Institute, this is among the reasons that Delphi, a Michigan company, filed 

for bankruptcy in New York. 

Second, some in the labor community believe Chapter 11 is being used to bust 

unions or to at least give companies unfair leverage in its negotiations with unions. 

Well, it’s not just a perception, but a reality. According to a just-released GAO 

study that I requested nearly two years ago, 30 percent of companies reviewed 

sought to reject their collective bargaining agreements pursuant to section 1113. 

Likewise, nearly as many companies sought to take advantage of section 1114, 

which allows employers to modify retiree benefits. Let me be specific here. What we 

are talking about is terminating retiree health care benefits, medical benefits, prescription drug benefits, disability benefits, and death benefits, among other protections. Remember that these benefits were bargained for by Americans who gave 

their all to their employers and now are in retirement. This is a travesty. 

Third, as a result of Chapter 11’s inequitable playing field, employers are able to 

extract major concessions from workers and retirees. As we learned at a hearing 

held earlier this year by this Subcommittee, executives of Chapter 11 debtors receive extravagant multi-million dollar bonuses and stock options, while regular 

workers are forced to accept drastic pay cuts or even job losses and while retirees 

lose hard-won pensions and health benefits. Even though we tried to stop excessive 

executive compensation in Chapter 11 by amending the Bankruptcy Code in 2005, 

creative practitioners have already found loopholes to exploit and the problem still 

continues. 

As many of you know, the Ford Motor Company reported a record $12.7 billion 

loss for last year. But what many of you may not know is that Ford paid $28 million 

to its new CEO, Alan Mulally, in his first four months on the job. This disclosure 

comes as companies like Ford, General Motors, and DaimlerChrysler prepare to 

start negotiations with the unions to obtain concessions and labor cost savings when 

their current contracts end in this month. A factor that will likely be present at the 

bargaining table is the threat of a potential Chapter 11 filing. 

In recognition of the current law’s shortcomings, last year I introduced H.R. 5113, 

the ‘‘Fairness and Accountability in Reorganizations Act of 2006,’’ to guarantee that 

workers are treated more fairly by requiring greater oversight and approval of all 

forms of excessive executive compensation. 

Specifically, this simple and effective legislation would have required any executive bonus package to be approved by the bankruptcy court for any corporation undergoing reorganization under Chapter 11. 

It also would have required the bankruptcy court to take into account the company’s foreign assets before allowing the debtor to break its collective bargaining 

agreements with its American workers or to modify its retirees’health benefits. 

Although this long-overdue measure was unfortunately not considered in the last 

Congress, I intend to pursue similar, and possibly expanded, legislation in this Congress in the very near future. 

We need to restore the level playing field that the drafters of Chapter 11 originally envisioned and to ensure that workers and retirees receive the fair treatment 

they have earned when their company is in bankruptcy. 

In the last nine years, Congress went to great lengths to grant advantages to 

creditors and big business interests over ordinary Americans. It is time that we include the interests of working families in the bankruptcy law and consider how we 

can add a measure of fairness to a playing field that is overwhelmingly tilted 

against workers. 

8 

Ms. SA ́ NCHEZ. The gentleman yields back? Thank you. 

I would now like to recognize Mr. Watt for an opening statement. 

Mr. WATT. Thank you, Madam Chair. And I make an opening 

statement advisedly, because I know it is the Committee’s and the 

Subcommittee’s policy generally not to do it. But since there are 

not many of us here, perhaps the gentlelady is waiving the rule to 

my favor. So I will try to be brief. But since I am sitting behind 

Hank Johnson’s nametag, and feel like I can be a little more controversial, and maybe hide behind and blame it on Hank, let me 

do that. 

But under my own name, let me first praise the Chair of this 

Subcommittee for her outstanding work that she has done since becoming Chair of the Subcommittee. As many of you know, I was 

the Ranking Member of this Subcommittee over the last several 

terms under the leadership of my good friend, Chris Cannon. And 

over all those years, I didn’t find out that he was a labor person, 

either, Mr. Conyers. So my opinion of him was already pretty high, 

and it has escalated even further. 

And my opinion of the Chairperson of this Subcommittee, Ms. 

Sa ́nchez, was already high before she became Chair and has escalated even further during her tenure. So let me say that as kind 

of the opening shot. 

The point I want to make, though, that one of the many deleterious things that we did during a Republican majority was the substantial amendments, reforms that were made to bankruptcy and 

the bankruptcy law. There are a number of changes that need to 

be made to the reform bill that was passed several years ago or a 

couple of years ago, and this is one of them. This is one of the areas 

we need to pay some attention to. 

And to show you kind of the disparity of the way this plays itself 

out, this is one of those areas where the judge has the authority 

to reject basically any contract negotiated, reopen it, rewrite it. At 

the same time, some of you know I sit on the Financial Services 

Committee, and there is an amazing crisis going on in the mortgage market. And the same judge who can rewrite the labor contracts has no authority to do anything related to mortgages, even 

if he finds that the terms were entered into outrageously—I mean, 

there is just nothing he can do. 

So basically, we have made a public policy judgment that the 

mortgage on a house is a sacrosanct contract, the labor agreement 

that may allow or may not allow a worker to pay that mortgage 

is not protected at all in the bankruptcy workout. And that is simply public policy decisions that we have made about what we value, 

and what we don’t value, in a bankruptcy setting. 

And those same kind of public policy decisions, unfortunately, 

have been made throughout the system. And we need to go back, 

having made those bad choices over and over and over again in a 

number of contexts, and having seen how they play out in people’s 

lives adversely, we need to revisit those things. And this hearing, 

I think, will be one of the steps. 

The gentlelady has already convened a hearing about this bankruptcy—the mortgage issue that we need to deal with. But there 

are a number of issues like that in the bankruptcy reform bill that 

was passed and that need to be revisited. And, the quicker we can 

9 

get our arms around all of those things and put them into one 

package and get them revisited, I think the Nation would be much, 

much better served. 

So we thank you all for being here to make that record. And I 

know I talked longer than I should have, Madam Chair, and I 

apologize. But at least part of it was some good things about you 

and the Ranking Member. So those things I don’t apologize for, but 

the other things I took too long to say. 

And I yield back. 

Ms. SA ́ NCHEZ. Thank you. 

I thank the gentleman for his statement. And without objection, 

other Members’ opening statements will be included in the record. 

Without objection, the Chair will be authorized to declare a recess of the hearing. 

I am now pleased to introduce the witnesses on the panel for today’s hearing. Our first witness is Kim Townsend. For the past 20 

years, Ms. Townsend has been employed as a machine operator at 

Hastings Manufacturing, LLC. She is the chief steward and member of the three-person bargaining committee for UAW Local 138, 

which represents the hourly workers at Hastings. She was present 

of the UAW Local 138 from May 2004 to June 2007, before, during 

and after the bankruptcy and asset sale. She currently resides in 

Hastings, Michigan. 

Our second witness is Michael Bernstein. Mr. Bernstein is a 

partner in Arnold & Porter’s bankruptcy and corporate reorganization practice and has been involved in numerous bankruptcy cases, 

including U.S. Airways, TWA, Delphi, and Continental Airlines. 

Mr. Bernstein has coauthored two books and has published many 

articles on bankruptcy and related topics. 

Our third witness is Fred Redmond. In 1973, Mr. Redmond 

joined the Steelworkers Union and became an active member of 

Local 3911, serving as shop steward, grievance committee member 

and chairman, vice president, and three terms as president of his 

local union. Mr. Redmond was elected international vice president, 

human affairs, of the United Steelworkers on March 1 of 2006. In 

addition to his regular union duties, Mr. Redmond serves as chairman of the USW container industry conference and coordinates 

bargaining for the USW health care, pharmaceuticals and public 

employees sector. 

Our fourth witness on this panel is Captain John Prater. Captain 

Prater is the eighth president of the Air Line Pilots Association, 

International, elected on October 18 of 2006. As the ALPA’s chief 

executive and administrative officer, Captain Prater oversees daily 

operations of the association, presides over the meetings of ALPA’s 

governing body, and serves as chief spokesman for the union. Captain Prater currently serves as a B767 captain. 

Our fifth witness is Gregory Davidowitch. Mr. Davidowitch is the 

united master executive council president and serves as the union 

chief spokesperson and leader for more than 25,000 flight attendants employed by United Airlines. Mr. Davidowitch began his flight 

attendant career on April 17, 1988, and is devoted to the best interests of the flight attendant profession as it continues to evolve. 

Our final witness is Richard Trumka. In 1989, Mr. Trumka was 

elected to the AFL-CIO executive council. He also served as presiVerDate Aug 31 2005 10:22 Dec 05, 2008 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6601 H:\WORK\COMM\090607\37601.000 HJUD1 PsN: 37601
10 

dent of the mineworkers for three terms. And in 1994, President 

Clinton named him to the bipartisan Commission on Entitlement 

and Tax Reform to represent the interests of working families. Mr. 

Trumka became the youngest secretary-treasurer in AFL-CIO history when he was elected to the post in October 1995. 

I want to thank you all for your willingness to participate in today’s hearings. Without objection, your written statements will be 

placed in their entirety into the record, and we would ask that you 

limit your oral remarks to 5 minutes. 

You will note that we have a lighting system that starts with a 

green light. At 4 minutes, it will turn yellow to warn you that you 

have a minute left in your testimony. And then it will turn red at 

5 minutes. If you observe the lights turn red while you are midsentence, please finish your thought. We will allow you to do that. 

And we want to make sure that we have time for everybody’s testimony. After each witness has presented his or her testimony, Subcommittee Members will be permitted to ask questions subject to 

the 5-minute limit. 

With the ground rules now having been stated, I would invite 

Ms. Townsend to begin her testimony. 

TESTIMONY OF KIM TOWNSEND, CHIEF STEWARD, LOCAL 138, 

UNITED AUTOMOBILE, AEROSPACE AND AGRICULTURAL IMPLEMENT WORKERS OF AMERICA (UAW), HASTINGS, MI 

Ms. TOWNSEND. Good morning, Chairwoman Sa ́nchez and Members of the Subcommittee. My name is Kim Townsend. I am chief 

steward and a member of the bargaining committee of UAW Local 

138. Local 138 represents 175 hourly workers at Hastings Manufacturing in Hastings, Michigan. Hastings makes piston rings for 

Harley-Davidson, General Motors, Ford and Chrysler. 

Hastings Manufacturing was founded in 1915 and has been in 

continuous operation since then. I have worked for Hastings Manufacturing for 20 years. My job is to operate a machine that makes 

piston rings, and they are the oil rings that go in your engine. 

On September 14, 2005, Hastings filed for protection under 

Chapter 11. On December 5, it was sold in an asset sale auction. 

I was president of Local 138 in the period leading up to and 

through the bankruptcy and sale. The Anderson Group, a private 

equity firm, was the successful bidder in the asset sale auction. It 

has operated the company under the name Hastings Manufacturing Company, LLC, since December 14, 2005. We make the 

same products, in the same building, with the same equipment, for 

the same customers as we did before the asset sale. 

Just before the bankruptcy, Hastings employed about 375 people, 

about 250 of whom were in the UAW bargaining unit. There were 

about 300 Hastings retirees. The union was doing all we could to 

help the company out of its financial situation. Management said 

they needed a million dollars in concessions; we gave them a million dollars in concessions. But it still wasn’t enough to save the 

company. 

Shortly after the company filed for bankruptcy, the union found 

itself having to try to bargain a new contract with three potential 

buyers. The union had absolutely no clout going into these negotiations. There was very limited good faith, back-and-forth bargaining. 

11 

The buyer dictated the terms. Not surprisingly, with no clout, we 

couldn’t negotiate much. If we didn’t accept their terms, the plant 

doors would close, and no one wanted that. 

The Anderson Group agreed to maintain seniority and to honor 

accrued vacation. We had agreed to even more concessions, including paying most of our health-care costs. Of course, it was much 

worse for the retirees. The new owners wanted no part of the socalled legacy costs. 

Due to the bankruptcy, our retirees lost a part of their pensions 

and all of their health-care coverage. The PBGC took over the pension plan, but the PBGC only guarantees the base pension and not 

the contractual supplements. The way our contract worked, the 

monthly-base pension was not very high, but there was a supplement of $750 a month until you were 62, if you retired with 20 

years or more seniority. But because the PBGC doesn’t recognize 

contractual supplements, our retirees under the age of 62 lost as 

much as $500 a month, more than half their pensions for some people. 

On top of that financial loss, retirees had to start paying for the 

health-care insurance for themselves, their spouse, and their dependents, or go without health-care coverage. It was really a financial disaster for these folks who had given their entire work lives 

to Hastings, and it was hard for all of us because so many of the 

retirees were the parents, or the aunts, or uncles, or the in-laws 

of the active workers. 

In closing, I would just like to say that the current bankruptcy 

law seems unfair. The asset sale allowed the new owners to purchase the company ‘‘free and clear,’’ with no obligations. The net 

effect of the bankruptcy proceedings was that the business didn’t 

change at all. The new owners just got rid of the union contract 

and the obligations to the company’s retirees. 

We knew the new owners would start making money right off the 

bat, because the bankruptcy law allowed them to do away with the 

legacy costs of retirees. But with the way the asset sale works, the 

union was really powerless to negotiate anything of benefit for retirees or for active workers. I think the law needs to be changed 

so that the workers and retirees have some bargaining clout when 

we are negotiating in bankruptcy. And it needs to be changed to 

provide greater protection for wages, pensions, and health-care 

benefits. 

Thank you for inviting me to testify before you today. 

[The prepared statement of Ms. Townsend follows:] 

PREPARED STATEMENT OF KIM TOWNSEND

Good morning, Chairwoman Sanchez and Members of the subcommittee. My 

name is Kim Townsend. I am chief steward and a member of the bargaining committee of Local 138, United Automobile, Aerospace & Agricultural Implement Workers of America (UAW). Local 138 represents 175 hourly workers at Hastings Manufacturing in Hasting, Michigan, which is located about 30 miles south of Grand Rapids. Hastings makes piston rings that are supplied as original equipment to HarleyDavidson, General Motors, Ford and Chrysler, as well as to the aftermarket, especially outside the United States. 

Hastings Manufacturing was founded by a local family in 1915 and has been in 

continuous operation since then. I have worked there for 20 years. For the last 14 

years, my job has been to operate a machine that makes oil rings. 

In 2004, the company came under financial pressure from the banks, who took 

over day-to-day management of the plant around June of that year. On September 

12 

14, 2005, the company filed for protection under Chapter 11. On December 5, it was 

sold at an asset sale auction overseen by the bankruptcy court. I was president of 

Local 138 from May 2004 to June 2007, before and during the bankruptcy proceedings and the asset sale. 

The Anderson Group, a private equity firm, was the successful bidder in the asset 

sale auction. It has operated the company under the name Hastings Manufacturing, 

LLC since December 14, 2005. We make the same products, in the same building, 

with the same equipment, for the same customers as we did before the asset sale. 

Before the bankruptcy, Hastings employed about 375 people, about 250 of whom 

were in the UAW bargaining unit. There were about 300 Hastings retirees. 

The contract was up in February 2004 and the union negotiated a new one with 

the company at that time. That was the first of four contracts the union negotiated 

and had ratified between February 2004 and the asset sale in December 2005. 

We were doing all we could to help the company out of its financial situation. 

Management said they needed a million dollars in concessions, and we gave them 

a million dollars in concessions. We gave up the raises we’d just negotiated in February, agreeing to take no increases in 2005, 2006, or 2007. We agreed to pay part 

of the cost of health care and that if your spouse was eligible for health care at their 

place of employment that they had to go on that plan; we also agreed to the birthday rule for dependents. We gave up one holiday. And we gave up the attendance 

incentive program under which you could earn five paid days off a year if you had 

perfect attendance. But it still wasn’t enough to save the company. 

Shortly after the company filed for bankruptcy, the union found itself having to 

try to bargain a new contract with each of the potential buyers. There were three 

bidders, including The Anderson Group. We had never met any of these people before. The union had absolutely no clout going into the negotiations. There was very 

limited good faith, back and forth bargaining. The buyer dictated the terms. 

Not surprisingly, with no clout, we couldn’t negotiate much. If we didn’t accept 

their terms, the plant’s doors would close and no one wanted that. The Anderson 

Group agreed to maintain seniority and to keep accrued vacation for the higher seniority workers who were hired by the new owners. We had to agree to pay most 

of our health care costs. For example, it now costs us $300 a week to get family 

coverage. 

We also had to agree to cut our sickness and accident benefits in half, from 26 

weeks to 13 weeks, and to reduce the amount of time you were covered by health 

care while out on sick and accident from six months to 30 days. We had to agree 

to continue the two-tier wage system, with a top rate of $13.49 an hour. Finally, 

we gave up having department stewards and had to lower the number of bargaining 

committee members from five to three. We now have only two hours a month during 

which we can do union business on company time. 

Of course, it was much worse for the retirees. The new owners wanted no part 

of the so-called ‘‘legacy costs.’’ Due to the bankruptcy, our retirees lost a lot of their 

pensions and all of their health care coverage. 

The PBGC took over the pension plan, but the PBGC only guarantees the base 

pension and not contractual supplements. The way our contract had been negotiated 

a long time ago, the amount of the monthly base pension was calculated using a 

multiplier of the top hourly wage rate—$14—times the number of pension credit 

years you had when you retired. But there was a supplement of $750 a month until 

you were 62 if you retired with 20 years or more seniority. But because the PBGC 

doesn’t guarantee contractual supplements, retirees under the age of 62 lost as 

much as $500 a month—more than half their pension for some people. 

On top of that financial loss, the retirees had to start paying for the entire cost 

of health insurance for themselves, their spouses, and their dependents—or go without health care coverage. When their health care was terminated in November 2005, 

every retiree who had coverage under the company’s health care plan got a check 

for $150. I don’t need to tell you, that didn’t go far. 

It was a really a financial disaster for these folks who had given their entire work 

lives to Hastings. And it was hard for all of us because so many of the retirees were 

the parents, or the aunts or uncles, or the in-laws of the active workers. And now, 

to make matters even worse, the PBGC is saying that some of the retirees were 

overpaid and they may have to pay money back to the PBGC. 

In closing, I would just like to emphasize that the current bankruptcy law seems 

unfair. The asset sale allowed the new owners to purchase the company ‘‘free and 

clear,’’ with no obligations. The net effect of the bankruptcy proceedings is that the 

business didn’t change at all—the new owners just got rid of the union contract and 

the obligations to the company’s retirees. 

The Hastings retirees don’t exist for the owners of Hastings LLC; they severed 

all ties. The new owners started making money right off the bat because the bankVerDate Aug 31 2005 10:22 Dec 05, 2008 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6621 H:\WORK\COMM\090607\37601.000 HJUD1 PsN: 37601
13 

ruptcy law allowed them to do away with the legacy costs of retirees. But it is these 

same retirees and workers who helped build this now-profitable company. 

And, with the way the asset sale works, the union is really powerless to negotiate 

anything of benefit for retirees or for active workers. I think the law needs to be 

changed so that workers and retirees have some bargaining clout when we are negotiating in bankruptcy. And it needs to be changed to provide greater protection for 

wages, pension and health care benefits. 

Thank you for inviting me to testify before you today. 

Ms. SA ́ NCHEZ. Thank you for your testimony, Ms. Townsend. 

The bells that you have been hearing have notified us that we 

have two votes across the street. We are going to stand the Subcommittee in recess until we have a chance to vote, and we will 

come back and reconvene the hearing. Thank you. 

[Recess.] 

Ms. SA ́ NCHEZ. The Committee on the Judiciary, Subcommittee on 

Commercial and Administrative Law will come to order. I want to 

thank you for your patience in waiting for us to vote. 

I believe that we were at Mr. Bernstein. Mr. Bernstein, at this 

time, I would invite you to present your testimony. 

TESTIMONY OF MICHAEL BERNSTEIN, 

ARNOLD & PORTER LLP, WASHINGTON, DC 

Mr. BERNSTEIN. Good morning, Madam Chair, Congressman 

Cannon, and Members of the Subcommittee. Thank you for inviting 

me to appear before your Subcommittee to testify about important 

issues concerning collective bargaining agreements and retiree benefits in Chapter 11. 

I am a partner in Arnold & Porter LLP, here in Washington, DC, 

and I am chair of the firm’s national reorganization and bankruptcy practice group. However, I am appearing today here at the 

invitation of the Committee in my individual capacity and not on 

behalf of my law firm or any of its clients. I am also not here to 

advocate any position today but, instead, simply to provide the 

Subcommittee with some insights into how the issues surrounding 

the modification of collective bargaining agreements and retiree 

benefits are dealt with by the parties and by the courts in Chapter 

11 proceedings. 

Ordinarily, a Chapter 11 debtor who wants to reject a contract 

that it entered into before bankruptcy has the right to do so. It 

does require court approval, but the standard is a fairly deferential 

one, the business judgment test. However, as a result of the enactment of Section 1113, the rejection standard is much more rigorous 

with respect to collective bargaining agreements. 

Section 1113 was intended to do several things. First, it was intended to prevent a company from unilaterally modifying or ceasing performance under a collective bargaining agreement. Second, 

it was intended to establish a heightened standard for modification 

or rejection of a CBA. That is something substantially harder to 

achieve than the business judgment test. And, third, it was intended to promote negotiated solutions to these issues wherever 

possible. 

Section 1114, which was enacted several years later and deals 

with retiree benefits, was intended to serve similar purposes. The 

requirements for rejection or modification of a collective bargaining 

agreement under Section 1113 are outlined in detail in my written 

14 

statement. It is a difficult standard to satisfy, much higher than for 

any other sort of contract, and there are numerous cases in which 

Section 1113 relief has been denied by the courts. 

These provisions were not, however, intended to make it impossible for a debtor to modify the terms of a collective bargaining 

agreement. Congress and the courts have recognized that some 

debtors are so burdened by above-market labor and retiree costs 

that, without reducing those costs to a market level, they will be 

unable to reorganize and unable to emerge from bankruptcy as viable and competitive enterprises. 

In these situations, it is in the interest of all constituencies, including the employees, to reduce the labor and retiree costs to a 

market-competitive level. If it were impossible to obtain relief from 

above-market labor costs, the result for at least some companies, 

particularly those that operate in the most competitive industries, 

would be liquidation. They simply could not survive when their 

competitors’ labor costs were materially lower than their own costs. 

In those situations, employees would lose their jobs, creditors’ 

and shareholder’s recoveries would be diminished, if not eliminated, and other important constituencies, including customers and 

suppliers and trade vendors and taxing authorities and local communities, would suffer. 

Thus, while the courts should not grant Section 1113 relief lightly—and, in fact, do not do so—it is important that the courts retain 

sufficient flexibility to grant relief where doing so is necessary to 

preserve the business. 

History shows that, while the negotiation of labor and retiree 

modifications in bankruptcy is often quite difficult and quite painful, the purposes of Section 1113, which I outlined a minute or two 

ago, have been achieved. 

First, it is clear that a debtor may not unilaterally modify a 

CBA; so that objective has unquestionably been achieved. Second, 

the heightened standard established by Section 1113 has been applied rigorously by the courts. I can tell you, as somebody who has 

participated in the litigation of Section 1113 issues, that the courts 

do not grant the relief lightly, and that a considerable burden is 

placed upon a debtor who seeks a rejection order. 

Finally, Congress’s objective of promoting negotiated solutions 

has been achieved. In the overwhelming majority of cases in which 

labor cost reductions are sought, the negotiations that are mandated by Sections 1113 and 1114 have resulted in consensual 

agreements. 

The fact that these issues—which are often highly charged—are 

usually resolved by agreement is, at least in part, because the company and its employees have an essential common interest: preserving the business as a going concern. Negotiated resolutions also 

occur because both the debtor and their employees each face substantial risks absent an agreement, so each has an incentive to try 

to reach consensus. Finally, consistent with the articulated objective of the statute, the courts tend strongly to encourage negotiated 

resolutions. 

In conclusion, I would say this. The issues concerning the modification of collective bargaining agreements and retiree benefits are 

very difficult ones. Nobody is happy about the idea of reducing 

15 

1The views expressed herein are solely those of the author, and do not necessarily represent 

the views of my firm or any of its clients. 2The balancing is more complex than simply a desire on the part of labor for more pay and 

benefits and a desire by management to reduce costs. Labor also has an interest in the company 

having a cost structure that enables it to remain viable, because otherwise it will likely be 

forced to liquidate and employees will lose their jobs. Similarly, management has an interest 

in providing wages, benefits and work rules that are at least at a market level, so that the company will be able to retain its employees and attract new employees. 3See In Wheeling-Pittsburgh Steel Corp. v. United Steelworkers of Am., AFL-CIO-CLC, 791 

F.2d 1074, 1082 (3d Cir. 1986). 4Pub. L. No. 98–353 (1984). 

wages or benefits. However, there are some cases in which labor 

cost modifications are necessary in order for the debtor to reorganize and to emerge as a viable and competitive business. And in 

those cases, it is better for the necessary modifications to be made 

rather than to see the reorganization fail and the company to go 

out of business. 

[The prepared statement of Mr. Bernstein follows:] 

PREPARED STATEMENT OF MICHAEL L. BERNSTEIN

Madam Chairman Sμnchez, Congressman Cannon, and members of the Subcommittee, thank you for inviting me to testify at your hearing on ‘‘American Workers in Crisis: Does the Chapter 11 Business Bankruptcy Law Treat Employees and 

Retirees Fairly?’’ My name is Michael Bernstein. I am a partner in the law firm 

of Arnold & Porter LLP and the chair of the firm’s national bankruptcy and corporate reorganization practice.1 We represent debtors, creditors, committees, investors and other parties in a wide variety of bankruptcy and corporate restructuring 

matters. I have advised and represented debtors and other parties in connection 

with matters at the intersection of bankruptcy and labor law, and I have lectured 

on this subject, as well as on numerous other bankruptcy-related subjects. I have 

also written various books and articles. For example, I am co-author of ‘‘Bankruptcy 

in Practice,’’ a comprehensive treatise on bankruptcy law and practice published by 

the American Bankruptcy Institute. 

Section 1113 of the Bankruptcy Code addresses particularly difficult issues. It attempts to balance the interest of employees in preserving the wages, benefits and 

work rules for which their unions negotiated against the need of a chapter 11 debtor 

to achieve a cost structure that enables it to reorganize and emerge as a viable business that is able to compete in the marketplace. Section 1114 presents similar 

issues involving retiree benefits. The interests of employees, retirees, companies 

seeking to reorganize and their creditors and other stakeholders are all legitimate, 

and often compelling, but they are frequently difficult to reconcile.2 Sections 1113 

and 1114 of the Bankruptcy Code are the mechanism that Congress established to 

address these competing interests. While the process of negotiating labor agreement 

modifications in bankruptcy is a difficult one, these provisions have proven to be effective mechanisms to balance the competing interests and to promote negotiated 

resolutions. 

An important tool available to debtors seeking to reorganize in chapter 11 cases 

is the ability to reject contracts. Rejection (essentially, a court-approved breach or 

abrogation) is often necessary to enable a debtor to restructure its business and to 

emerge from bankruptcy as a viable going concern. For example, a debtor may be 

burdened by an expensive long-term lease for space it no longer needs or an agreement to purchase some product at what has turned out to be an above-market price. 

Section 365 of the Bankruptcy Code permits a debtor to reject such contracts with 

court permission. Under § 365, the court uses a ‘‘business judgment’’ standard to determine whether to approve a rejection of a contract. This is a relatively deferential 

standard. 

Section 1113 was enacted in response to the Supreme Court’s decision in NLRB 

v. Bildisco & Bildisco, 465 U.S. 513 (1984), which held that a debtor could unilaterally alter the terms of its collective bargaining agreements under § 365 of the Bankruptcy Code without having thereby committed an unfair labor practice. When the 

decision in Bildisco was announced on February 22, 1984, ‘‘labor groups mounted 

an immediate and intense lobbying effort in Congress to change the law.’’ 3 Several 

months later, § 1113 was enacted as part of the Bankruptcy Amendments and Federal Judgeship Act of 1984.4 Section 1113 was enacted to ensure that debtors could 

16 

5See Comair, Inc. v. Air Line Pilots Ass’n, Int’l (In re Delta Air Lines, Inc.), 359 B.R. 491, 

498 (Bankr.S.D.N.Y.2007) (‘‘Congress enacted Section 1113 not to eliminate but to govern a 

debtor’s power to reject executory collective bargaining agreements, and to substitute the elaborate set of subjective requirements in Section 1113(b) and (c) in place of the business judgment 

rule as the standard for adjudicating an objection to a debtor’s motion to reject a collective bargaining agreement.’’). 6See 11 U.S.C. § 1113(f), which reverses the portion of the Bildisco opinion holding that a 

debtor could unilaterally modify or terminate provisions of a collective bargaining agreement. 7Where a debtor requires interim relief from a collective bargaining agreement, it may apply 

for such relief under § 1113(e), but such interim relief is available only when it is ‘‘essential to 

the continuation of the debtor’s business, or in order to avoid irreparable damage to the estate.’’ 8The test was initially articulated by the court in In re Am. Provision Co., 44 B.R. 907, 908 

(Bankr. D. Minn. 1984), and has subsequently been adopted by many other courts. See, e.g., In 

re Family Snacks, Inc., 257 B.R. 884 (B.A.P. 8th Cir. 2001); In re Appletree Mkts., Inc., 155 B.R. 

431 (S.D. Tex. 1993); In re Elec. Contracting Servs. Co., 305 B.R. 22 (Bankr. D. Colo. 2003); In 

re Nat’l Forge Co., 289 B.R. 803 (Bankr. W.D. Pa. 2003); In re Blue Diamond Coal Co., 131 B.R. 

633 (Bankr. E.D. Tenn. 1991); In re Ind. Grocery Co., 138 B.R. 40 (Bankr. S.D. Ind. 1990); In 

re Big Sky Transp. Co., 104 B.R. 333 (Bankr. D. Mont. 1989); In re Amherst Sparkle Mkt., Inc., 

75 B.R. 847 (Bankr. N.D. Ohio 1987); In re Salt Creek Freightways, 47 B.R. 835 (Bankr. D. Wyo. 

1985). Other courts have combined factors one, two, and five from the American Provision analysis, resulting in a seven-part analysis. See, e.g., In re Carey Transp., Inc., 50 B.R. 203, 207 

(Bankr. S.D.N.Y. 1985), aff’d sub nom Truck Drivers Local 807 v. Carey Transp., Inc., 816 F.2d 

82 (2d Cir. 1987). 9See, e.g., In re Century Brass Prods., Inc., 795 F.2d 265, 273 (2nd Cir. 1986) (‘‘The purpose 

[of § 1113(b)(1)(A)] is to spread the burdens of saving the company to every constituency while 

ensuring that all sacrifice to a similar degree.’’); see also In re Maxwell Newspapers, Inc., 981 

F.2d 85, 89 (2nd Cir. 1992) (‘‘This statute [§ 1113] requires unions to face those changed circumstances that occur when a company becomes insolvent, and it requires all affected parties 

to compromise in the face of financial hardship. At the same time, § 1113 also imposes requirements on the debtor to prevent it from using bankruptcy as a judicial hammer to break the 

union.’’). 10Most often when courts deny § 1113 relief to a debtor it is on the grounds of failure to negotiate or bargain in good faith, failure to show that the debtor’s proposal was ‘‘fair and equitable,’’ 

and/or failure to meet the ‘‘necessary’’ or ‘‘essential’’ standard. See In re Delta Air Lines 

(Comair), 342 B.R. 685 (Bankr. S.D.N.Y. 2006) (debtor failed to confer in good faith); In re Nat’l 

Forge Co., 279 B.R. 493 (Bankr. W.D. Pa. 2002)(debtor did not meet its burden of proving that 

not unilaterally alter the terms of a collective bargaining agreement, but instead 

could do so only after satisfying a heightened standard and obtaining bankruptcy 

court approval. 

The standard for modification or rejection of a collective bargaining agreement 

under § 1113 is far more difficult to satisfy than the business judgment standard.5

Further, § 1113 provides that unilateral termination or alteration of any provision 

of a collective bargaining agreement is prohibited.6 Instead, a debtor is required, 

under the Bankruptcy Code, to adhere to the terms of a collective bargaining agreement until it has complied with all the procedural and substantive requirements of 

§ 1113 and obtained court approval for rejection, or negotiated consensual modifications with its employees.7

Based on the text of § 1113, courts have established a stringent nine-part test to 

determine whether a collective bargaining agreement may be rejected.8 The test is: 

2. The debtor in possession must make a proposal to the union to modify the 

collective bargaining agreement. 

2. The proposal must be based on the most complete and reliable information 

available at the time of the proposal. 

3. The proposed modifications must be necessary to permit the reorganization 

of the debtor. 

4. The proposed modifications must assure that all creditors, the debtor and all 

of the affected parties are treated fairly and equitably.9

5. The debtor must provide to the union such relevant information as is necessary to evaluate the proposal. 

6. Between the time of the making of the proposal and the time of the hearing 

on approval of the rejection of the existing collective bargaining agreement, 

the debtor must meet at reasonable times with the union. 

7. At the meetings the debtor must confer in good faith in attempting to reach 

mutually satisfactory modifications of the collective bargaining agreement. 

8. The union must have refused to accept the proposal without good cause. 

9. The balance of the equities must clearly favor rejection of the collective bargaining agreement. 

The debtor must satisfy all nine of these standards in order to obtain relief. Failure to satisfy any of the factors will result in denial of the debtor’s motion to modify 

or reject the collective bargaining agreement.10

17 

the proposed modifications were fair and equitable); In re U.S. Truck Co., 165 L.R.R.M. (BNA) 

2521 (Bankr. E.D. Mich. 2000) (debtor failed to meet its burdens of proving the proposal to be 

necessary, fair and equitable); In re Jefley, Inc., 219 B.R. 88 (Bankr. E.D. Pa. 1998) (court concluded ‘‘that the proposal, as presented, is not ‘necessary’ to the Debtor’s reorganization; [and] 

does not treat the union workers ‘fairly and equitably’ ’’); In re Liberty Cab & Limousine Co., 

194 B.R. 770 (Bankr. E.D. Pa. 1996) (debtor’s proposal was not fair and equitable); In re Lady 

H Coal Co., 193 B.R. 233 (Bankr. S.D. W. Va. 1996) (debtor failed to treat all parties fairly and 

equitably and did not bargain in good faith); In re Schauer Mfg. Corp., 145 B.R. 32 (Bankr. S.D. 

Ohio 1992) (debtor ‘‘has failed to show that the Proposal which it made to the Union makes 

‘necessary modifications . . . that are necessary to permit the reorganization of the debtor. . . .’’); In re Sun Glo Coal Co., 144 B.R. 58 (Bankr. E.D. Ky. 1992) (‘‘the debtors have failed 

to sufficiently quantify the results of such proposed changes to allow this Court to find that they 

are ‘necessary’ to the reorganization of the debtors.’’); In re GCI, Inc., 131 B.R. 685 (Bankr. N.D. 

Ind. 1991) (debtor failed to negotiate in good faith); In re George Cindrich Gen. Contracting, Inc., 

130 B.R. 20 (Bankr. W.D. Pa. 1991) (debtor ‘‘did not provide sufficient information to enable 

union to determine whether the specific concessions sought by debtor were reasonable or necessary’’); In re Pierce Terminal Warehouse, Inc., 133 B.R. 639 (Bankr. N.D. Iowa 1991) (debtor 

failed to prove that the proposed collective bargaining agreement modifications were ‘‘necessary’’ 

to permit reorganization and failed to ensure that all affected parties were treated fairly and 

equitably); In re Express Freight Lines, Inc., 119 B.R. 1006 (Bankr. E.D. Wis. 1990) (debtor’s 

proposal contained modifications that were not necessary to reorganization and the proposal was 

not fair and equitable to all concerned); In re Ind. Grocery Co., 136 B.R. 182 (Bankr. S.D. Ind. 

1990) (debtor ‘‘has not borne its burden of proof that it is fair and equitable to ask for wage 

cuts. . . .’’); In re William P. Brogna and Co., 64 B.R. 390 (Bankr. E.D. Pa. 1986) (proposal was 

not fair and equitable); Wheeling-Pittsburgh Steel Corp. v. United Steelworkers of Am., AFL-CIOCLC, 791 F.2d 1074 (3d Cir. 1986) (reversing decision authorizing rejection because the bankruptcy court failed to consider and determine whether the proposed modifications both were necessary and treated all parties fairly and equitably); In re Cook United, Inc., 50 B.R. 561 (Bankr. 

N.D. Ohio 1985) (debtor failed to show that its proposed collective bargaining agreement modifications were necessary to permit reorganization and that its proposal was fair and equitable); 

In re Valley Kitchens, Inc., 52 B.R. 493 (Bankr. S.D. Ohio 1985) (debtor failed to satisfy the requirement that the proposal deal only with modifications necessary to permit reorganization); 

In re Fiber Glass Indus., Inc., 49 B.R. 202 (Bankr. N.D.N.Y. 1985) (debtor had failed to show 

how its proposed reductions were necessary to reorganization); In re K & B Mounting, Inc., 50 

B.R. 460 (Bankr. N.D. Ind. 1985) (debtor failed to show the proposed changes were fair and equitable); In re Am. Provision Co., 44 B.R. 907 (Bankr. D. Minn. 1984) (debtor failed to show that 

the proposed collective bargaining agreement modifications were necessary). 

Some courts, in deciding whether to allow rejection of the collective bargaining 

agreements, have focused on the term ‘‘necessary’’ in § 1113(b). In Wheeling-Pittsburgh Steel Corp. v. United Steelworkers of Am., AFL-CIO-CLC, 791 F.2d 1074, 1088 

(3d Cir. 1986), the court focused on the word ‘‘necessary’’ and concluded that Congress intended the word ‘‘necessary’’ to be construed strictly. The court commented 

that ‘‘[t]he ‘necessary’ standard cannot be satisfied by a mere showing that it would 

be desirable for the trustee to reject a prevailing labor contract so that the debtor 

can lower its costs.’’ Id. The court suggested that the use of the word ‘‘necessary’’ 

equated to ‘‘essential’’ and that rejection under § 1113 was to be used only when necessary to prevent liquidation. In 1987, the Second Circuit rejected the Third Circuit’s approach. In Truck Drivers Local 807 v. Carey Transp. Inc., 816 F.2d 82, 89– 

90 (2d Cir. 1987), the court concluded that ‘‘’necessary’ should not be equated with 

‘essential’ or bare minimum. . . . [rather] the necessity requirement places on the 

debtor the burden of proving that its proposal is made in good faith, and that it 

contains necessary, but not absolutely minimal, changes that will enable the debtor 

to complete the reorganization process successfully.’’ While the ‘‘necessary’’ standard 

outlined by the Third Circuit in Wheeling is more stringent than the standard articulated by the Second Circuit (and other courts), in practice, even outside of the 

Third Circuit, courts impose a heavy burden upon a debtor that is seeking to modify 

its collective bargaining agreements, and if the changes go beyond what is needed 

in order to reorganize and emerge as a viable and competitive business, then—regardless of precisely how the term ‘‘necessary’’ has been defined—the changes are 

unlikely to be authorized by the courts. 

Section 1113 was designed to encourage negotiated resolutions. It requires the 

company to engage in good faith negotiation before it seeks relief under § 1113 and 

to continue such negotiations even after filing a § 1113 motion. In practice, courts 

have been vigilant to assure that a debtor seeking § 1113 relief is not just ‘‘going 

through the motions’’ of negotiation, but is in fact engaging in good faith negotiation. At § 1113 hearings, the courts typically hear extensive testimony about the 

course of negotiations, the details of each proposal and counterproposal, the number 

and length of meetings, and the information exchanged. If a court is left with the 

impression that the company did not negotiate in good faith—making every reasonable effort to reach agreement—it will ordinarily deny relief. If the court believes 

that further negotiations might yield an agreement, it may defer ruling on a rejecVerDate Aug 31 2005 10:22 Dec 05, 2008 Jkt 000000 PO 00000 Frm 00021 Fmt 6633 Sfmt 6621 H:\WORK\COMM\090607\37601.000 HJUD1 PsN: 37601
18 

11For example, in discussing the legislation, Senator Hatch stated ‘‘I feel that the conference 

version is a practical, workable mechanism. This provision will require negotiations to attempt 

to save both the labor contract and the business prior to court adjudication to reject the contract. . . . Only if these good faith negotiations fail does the court get involved in granting an 

application to reject the contract.’’ See 130 Cong. Rec. H7489 (June 29, 1984), reprinted in 1984 

U.S.C.C.A.N. 576, 591. Congressman Rodino, Chairman of the House Committee on the Judiciary, also commented that the provision would work to ensure ‘‘that a process of negotiation will 

take place between the employer and the union in a reorganization case. . . .’’ Id. at 577. 12 In some recent airline bankruptcy cases, courts have enjoined threatened strikes following 

§ 1113 decisions, where a strike would have been likely to have put the airline out of business. 

See Northwest Airlines Corp. v. Assn. of Flight Attendants—CWA, AFL—CIO (In re Northwest 

Airlines Corp.), 349 B.R. 338 (S.D.N.Y. 2006), aff’d, 483 F.3d 160 (2d Cir. 2007); Comair, Inc. 

v. Air Line Pilots Ass’n, Int’l (In re Delta Air Lines, Inc.), 359 B.R. 491(Bankr. S.D.N.Y. 2007); 

In re Mesaba Aviation Inc., 350 B.R. 112 (Bankr. D. Minn. 2006). Because they involved airlines, 

these cases were governed by the Railway Labor Act (‘‘RLA’’) rather than the National Relations 

Labor Act (‘‘NRLA’’). It is less clear that the federal courts could enjoin a strike against a company whose labor relations are governed by the NRLA rather than the RLA. See Northwest Airlines Corp. 483 F.3d at 173 (Commenting that ‘‘[i]n cases governed by the NLRA, we have also 

hinted that a union is free to strike, even following contract rejection under § 1113.’’). 

tion motion and order the parties back to the negotiating table. The strong emphasis 

that the bankruptcy courts place on negotiated resolution of labor issues appears 

to be consistent with the goal of Congress in enacting § 1113. While no Senate or 

House Report was submitted with the legislation, statements made at the time of 

enactment suggest that Congress intended the provision to encourage negotiated 

resolutions.11

In practice, the goal of encouraging negotiated resolutions has been achieved. In 

the overwhelming majority of situations where a debtor sought to modify a collective 

bargaining agreement, the issues have been resolved by agreement of the company 

and the union. This is true, in large part, because both the debtor and its employees 

face substantial risks absent a consensual resolution. 

The company’s risks include the following: 

First, absent an agreement, the company’s request for § 1113 relief may be denied 

by the bankruptcy court, with the result that the company cannot obtain any relief 

from the terms of its collective bargaining agreement. Even if the court is convinced 

that the changes proposed by the debtor are necessary, relief may be denied if the 

court believes that the debtor has failed to negotiate in good faith, to provide the 

union with sufficient information, to spread the sacrifice among labor and other constituencies in a fair and equitable manner, or to satisfy any of the other requirements for relief. Companies reviewing the case law will observe that denial by the 

courts of § 1113 relief is not uncommon. If a company cannot modify its collective 

bargaining agreements, its reorganization effort may be doomed to failure. Thus, if 

the company can achieve adequate (even if not ideal) cost savings through negotiation, it has every incentive to do so. 

Another risk to the company is that, even if it prevails in court, the company 

could face a break-down in employee relations, which may imperil the company’s future. It is difficult for a company—particularly one trying to rebound from bankruptcy—to prosper with an unhappy and resentful workforce. Any time there are 

modifications to a collective bargaining agreement, there is likely to be some unhappiness among the labor group that was called upon to make a sacrifice, but the extent of acrimony is likely to be much greater where the modifications were imposed 

by a court, after litigation, as opposed to having been agreed upon by the parties, 

as a result of open and good-faith negotiations. 

Finally, there may be a risk that the union will strike after a collective bargaining 

agreement is rejected. Unions often threaten to strike if § 1113 relief is granted. 

Particularly, in the case of a company that is already suffering financial distress, 

a strike may destroy the company. Of course, destroying the company is not in labor’s interest any more than it is in the interests of any other constituency, but the 

company nonetheless faces a risk that an employee group, perhaps acting out of 

anger or resentment or with any eye toward influencing the outcome in future cases, 

will strike even if doing so would destroy the business.12 Avoiding a strike is another incentive for a company to seek an agreement rather than litigate against its 

unions. 

The unions, and the employees they represent, also face risks if no agreement is 

reached. First, they run the risk that the company may prevail in rejection litigation, leaving the employees without any collective bargaining agreement or potentially with more substantial pay and benefits reductions and work rule modifications 

than could have been achieved through negotiation. 

Another risk to the union is that in litigation the court is forced to make ‘‘up or 

down’’ decisions, while in negotiations the union has more flexibility to construct an 

19 

13 In negotiations, it is not uncommon for a debtor to try to establish a level of cost savings 

that it needs to achieve in order to be viable, but then to give the union considerable flexibility 

in how to achieve that level of cost savings so that the union can prioritize those items that 

are of greatest concern to its membership. The union is obviously better able to do this than 

a court would be. 14See 11 U.S.C. § 1114(e). 15Prior to attempting to modify the benefits, the debtor must ‘‘make a proposal to an authorized representative of the retirees,’’ the proposal can only provide for ‘‘those necessary modifications in retiree benefits that are necessary to permit reorganization of the debtor,’’ and the debtor must assure ‘‘all of the affected parties are treated fairly and equitably.’’ See 11 U.S.C. 

§ 1114(f)(1)(A). 16 Compare § 1113(b) to § 1114(f), setting forth the conditions precedent to requesting modification of retiree benefits. Also, compare § 1113(c) to § 1114(g), establishing the standards for modification of retiree benefits. 17See In re Horsehead Indus., Inc., 300 B.R. 573, 583 (Bankr. S.D.N.Y. 2003) (‘‘The statutory 

requirements under both sections [1113 and 1114] are the same. Accordingly, the discussion relating to requirements under 1113 also applies to 1114.’’); In re Ionosphere Clubs, Inc., 134 B.R. 

515, 519–20 (Bankr. S.D.N.Y. 1991) (‘‘[C]ompliance with 1114 is substantially and procedurally 

the same as compliance with 1113.’’). The Senate Report (Judiciary Committee) No. 100–119, 

provides the following comment about the intent of § 1114: ‘‘These standards are intended to be 

identical to those contained in Section 1113. In adopting this standard the Committee believes 

Continued 

agreement that is responsive to the particular concerns of its membership, 

prioritizing those issues that are most important to the employees it represents.13

The union also faces the risk that, even if it wins the litigation, it may destroy 

the company in the process. Many companies that seek § 1113 relief do in fact need 

that relief in order to remain viable and competitive. Typically, these companies are 

paying wages and benefits and offering work rules that are more generous than 

their competitors, and they need to adjust their wages, benefits and work rules to 

a market level in order to reorganize and remain in business. If the union refuses 

to make concessions and succeeds in defeating the company’s § 1113 motion, the result may be a liquidation of the company and loss of all jobs. Thus, the union faces 

not only the risk of losing the § 1113 litigation, but often the equally great risk of 

winning. 

These risks, faced by the company and its employees, create bargaining leverage 

for both sides. As a result, § 1113 cases are settled much more often than they are 

litigated. In the best of circumstances, they are treated by the parties as ‘‘business 

problems’’ rather than ‘‘us versus you’’ disputes, with the company and the union 

sharing information and analysis and collaborating to arrive at a solution that will 

result in a workable, fair and market-competitive labor cost structure. Even in those 

cases with more hostility, though, the parties eventually tend to come to the conclusion that a negotiated solution is preferable to the alternatives. The fact that the 

unions, as well as companies, tend to be advised by experienced counsel, financial 

advisors, and other professionals, who recognize the risks to each side, promotes 

consensual resolutions. Finally, the courts tend to push all the parties for consensual resolution. Most judges seem to prefer a solution crafted by the parties to one 

imposed by the court. The courts recognize that encouraging consensual resolutions 

is consistent with the intent of Congress in enacting § 1113 and also that an arrangement worked out between the parties is likely to be more responsive to each 

of their concerns, and more workable in practice, than one imposed by the court. 

In the relatively few cases where the parties are not able to reach agreement, and 

the court must therefore rule on a § 1113 motion, the debtors sometimes prevail and 

the unions sometimes prevail. Each case that is litigated will, of course, be decided 

based on its own particular facts. However, as a general matter it would be fair to 

say that the burden imposed on a debtor seeking to reject a collective bargaining 

agreement over a union’s objection has been a heavy one, and the courts have rigorously imposed the requirements set forth in the statute. 

Many of the same concerns and competing issues are raised by § 1114. Section 

1114 provides that the debtor ‘‘shall timely pay and shall not modify any retiree 

benefits,’’ unless the parties all agree to the modifications or the debtor follows the 

procedures in the statute and receives court approval to modify such benefits.14 The 

requirements for obtaining court approval to modify retiree benefits are similar to 

the requirements set forth in § 1113, including the need to first attempt to negotiate 

before seeking court approval, the requirement that any modifications be ‘‘necessary’’, and the fair and equitable requirement.15 In fact, § 1114, which was enacted 

approximately four years after § 1113, tracks the language of § 1113 in important 

respects.16 Judicial interpretation of § 1114, as well as legislative statements made 

at the time of enactment, suggest that the standards are intended to be very similar 

or identical.17

20 

that it is important to use a standard with which the courts are already familiar. The Committee believes that the Section 1113 standards strike a fair and reasonable balance between 

the need to protect the rights of retirees and the rights of other creditors.’’ See S. Rep.100–119 

(July 17, 1987), reprinted in 1988 U.S.C.C.A.N. 683, 687–88. 

In practice, § 1114 issues are treated much like § 1113 issues. The retirees are represented either by a labor union or by a retiree committee. The union or committee 

engage counsel and other professionals to represents its interests. Most often, the 

company and the retirees’ representatives reach agreement on modifications that 

are necessary to give the company a workable cost structure and that ‘‘spread the 

pain’’ among present workers, retirees, creditors and other constituencies. 

In conclusion, issues involving modification of collective bargaining agreements or 

retiree benefits are among the most difficult issues faced by the parties, and the 

courts, in chapter 11 cases. The prospect of reducing employees’ wages and benefits, 

or retirees’ benefits, is not something the courts take lightly. A debtor proposing to 

do this faces a heavy procedural and substantive burden. At the same time, courts 

recognize, as they must, that some debtors are so hamstrung by above-market or 

otherwise unaffordable labor and retiree costs that, without relief from such costs, 

they will not be able to emerge from bankruptcy as viable and competitive enterprises. If these companies are forced to liquidate because they cannot reduce these 

costs, all constituencies will suffer, including workers who will lose their jobs, retirees who will lose their benefits, creditors and shareholders whose recoveries will be 

diminished or eliminated, suppliers and customers, taxing authorities, and local 

communities. Sections 1113 and 1114 provide a framework for the parties, and 

when necessary the courts, to balance these competing concerns and interests. 

While in any given case, one party or the other may be more or less satisfied with 

the outcome, as a general matter §§ 1113 and 1114 have worked well in achieving 

a balance between the objectives of preserving bargained-for wages, benefits and 

work rules to the maximum extent possible and achieving a cost structure that will 

enable chapter 11 debtors to reorganize. Congress’ goal of placing a heightened burden on debtors seeking to modify labor agreements, providing all parties with bargaining leverage, and encouraging negotiated resolutions has been largely achieved. 

Ms. SA ́ NCHEZ. Thank you for your testimony. 

At this time, I would invite Mr. Redmond to begin his testimony. 

TESTIMONY OF FRED REDMOND, INTERNATIONAL VICE 

PRESIDENT, HUMAN AFFAIRS, UNITED STEELWORKERS 

(USW), PITTSBURGH, PA 

Mr. REDMOND. Thank you. Good morning, Madam Chair and 

Members of the Committee. 

I would first like to bring you greetings on behalf of the 1.2 million active and retired members of the United Steelworkers. Our 

members are found in nearly every manufacturing industry, as well 

as health care, service and public employment. On behalf of the 

steelworkers union, I am filling in this morning for International 

President Leo Gerard, who is unable to appear today. But Leo has 

a very, very strong passion toward this issue that we are discussing, so I thank the Subcommittee for the invitation to appear. 

Unfortunately, Madam Chair, our union is all too familiar with 

the Chapter 11 process. And for me, one corporate bankruptcy hit 

especially close to home. The aluminum plant that I worked in, in 

a small town right outside of Chicago, Illinois, called McCook, went 

through bankruptcy in the McCook Metals case. 

The company ultimately liquidated, and that meant the termination of a defined pension benefits and retiree health insurance 

program for men and women that I have known my entire adult 

life, including family members. So I cannot forget their losses, nor 

those suffered by all the steelworkers in other cases. And that is, 

in part, why I appear before you today. 

21 

If we look at the steel cases alone, more than 40 steel companies 

earlier in the decade filed bankruptcy cases. And that was the result of great overcapacity in the world steel industry, followed by 

unfair imports from America’s trading partners. During that period 

of time, more than 55,000 steelworkers were laid off. The Pension 

Benefit Guaranty Corporation terminated pension plans covering 

240,000 steelworkers and retirees, and nearly 200,000 retirees and 

surviving spouses lost retiree health insurance coverage during 

that period of time. 

Now, beyond steel, in the aluminum, iron ore, glass, paper, and 

automotive parts industry, steelworkers have also faced devastating corporate bankruptcies. Our folks at the bargaining table 

have had to wrestle with enormous challenges within a system that 

is stacked against the interests of workers and retirees. In light of 

our experience, I am here today to ask the Subcommittee to lead 

a reform of the Bankruptcy Code aimed at treating the American 

worker and retirees more fairly. 

The last major reform to the Bankruptcy Code that focused on 

worker and retiree interests were enacted in the 1980’s, and the 

steelworkers union was central in those deliberations. Insofar as 

the ability of a reorganizing company to reject a negotiated labor 

agreement is concerned, legislation in the 1980’s sought to balance 

collective bargaining rights against the need of an employer with 

proven distress to obtain necessary and limited relief. We believe 

Congress have always intended that this balance to allow a reorganizing company to reject a labor agreement was only as a last resort; that is, only after full and earnest bargaining had failed, and 

only when it became necessary to avoid liquidation. 

But the experience of the last 20 years illustrates that this balance has been upset. Employers have pushed aggressively for 

changes to labor and pension and retiree insurance agreements, 

often as the first shot rather than as a last resort. 

So in light of the strict time limit, let me simply touch upon four 

specific areas in which I would urge the Subcommittee to adopt reforms. First, we suggest to Congress that we should seek to recapture the balance that I was referring to, giving stronger recognition 

to the important role of collective bargaining, and limiting the right 

of employers to violate labor agreements. 

Second, reform should assign higher priority to the payment of 

employee and retiree obligations, allowing them to be paid before 

other creditors who are more able to absorb losses than is a worker 

and a worker’s family. These other creditors with deeper financial 

resources include highly compensated lawyers and investment 

bankers. 

And, third, reform should enshrine the principle of shared sacrifice and do it with specificity, meaning that executives should not 

be allowed to improve their own salaries and benefits while workers and retirees see their quality of life devastated. 

Speaking of that last subject, controlling executive compensation 

in bankruptcy, Congress in 2005 limited the ability of companies 

to ask for retention bonuses to be paid to executives of bankrupt 

companies simply for remaining with the company. In fact, it was 

a steelworker leader from Ohio, David McCall, who first pointed 

22 

out the abuses of executive retention schemes in testimony before 

the Senate Judiciary Committee in early 2005. 

Employers, however, have found loopholes in the current law, 

Madam Chairman, and now simply recast and rename these retention schemes as so-called incentive programs. This is semantics. As 

one judge in a recent steelworker case said, in considering one of 

these so-called incentive programs, ‘‘If it walks like a duck, quacks 

like a duck, then it is a duck.’’ And Congress must close this loophole. 

And, fourth, bankruptcy reform also must take into account the 

impact of sales and liquidations upon workers and retirees. For example, Congress should clarify that a bankruptcy judge may, in supervising the sale or auction of assets, give preferential weight to 

the buyer who intends to retain jobs and benefits in the community 

as opposed to a buyer who simply wishes to liquidate assets. Congress should also, in our opinion, take special steps to protect their 

health insurance benefits of retirees in the sale process to ensure 

that retirees are not left at the side of the road while a proper 

buyer moves on. 

So, Madam Chairman, we recognize that reforming the U.S. 

Bankruptcy Code will not, by itself, solve all of the problems of 

American industry, American manufacturing, and at least not to 

exacerbate the problems being faced by so many American workers 

and retirees. 

So I want to thank you very much for your attention toward this 

issue that we take very seriously. Thank you, Madam Chairman. 

[The prepared statement of Mr. Redmond follows:] 

PREPARED STATEMENT OF FRED REMOND

I am Fred Redmond, International Vice President (Human Affairs) of the United 

Steelworkers (USW). The USW has 850,000 members in the United States and Canada. Our members are found in nearly every manufacturing industry, not only steel, 

but paper, forestry, rubber, energy, mining, automotive parts, and chemicals, as well 

as health care, service and public employment. On behalf of the USW, and filling 

in for International President Leo Gerard, who is unable to appear today, I thank 

the Sub-Committee for the invitation to appear today. 

Our union is all too familiar with the Chapter 11 process. And for me, one corporate bankruptcy hit especially close to home. The aluminum plant I worked in for 

25 years in McCook Illinois, near Chicago, went through bankruptcy in the McCook 

Metals case. The company ultimately liquidated, and that meant the termination of 

a defined benefit pension and a retiree insurance program. Men and women with 

whom I had worked for years, including family members, lost almost everything in 

the McCook bankruptcy. I cannot forget their losses, nor those suffered by Steelworkers in other cases, and that’s one reason why I appear before you today. 

Looking at steel cases alone for just a minute, more than 40 steelmakers earlier 

this decade filed bankruptcy cases, and that was the result of great overcapacity in 

the world steel industry followed by unfair imports from America’s trading partners. 

The human dimensions were vast. Many of our largest steel industry employers 

were affected—Bethlehem Steel, LTV Steel, National Steel, Wheeling-Pittsburgh 

Steel, WCI Steel, and Republic Technologies. More than 55,000 Steelworkers were 

laid off in that period. The Pension Benefit Guaranty Corporation terminated pension plans covered nearly 240,000 steelworkers and retirees. And, nearly 200,000 retirees and surviving spouses lost retiree health insurance coverage. 

The steel industry recovered substantially, as a result of both the tariffs imposed 

in March 2002 and the sacrifices made by our members to restructure the industry. 

Over these years our union has also led an effort for steel industry consolidation, 

which did not come without a price, but which has helped to create a stronger industry that even now faces still more real and threatened increases in foreign imports. 

23 

Beyond steel, in such industries as aluminum, iron ore, glass, paper, and automotive parts, USW members and retirees have also faced devastating corporate 

bankruptcies. Our bargainers have had to wrestle with enormous challenges and do 

so within a system that is stacked against the interests of workers and retirees. In 

light of our experience, I ask the Sub-Committee today to lead a reform of the Bankruptcy Code aimed at treating American workers and retirees more fairly. 

The last major reforms to the Bankruptcy Code that focused on worker and retiree interests were enacted in the 1980s, and the United Steelworkers was central 

in those deliberations. Insofar as the ability of a reorganizing company to reject a 

negotiated labor agreement is concerned, legislation in the 1980’s sought to balance 

collective bargaining rights against the need of an employer with proven distress to 

obtain necessary and limited relief. We believe Congress always intended this balance to allow a reorganizing company to reject a labor agreement only as a last resort, that is, only after full and earnest bargaining had failed and, even then, only 

when necessary to avoid liquidation. 

But the experience of the last 20 years illustrates that this balance has been 

upset. The courts have interpreted the bankruptcy law in such a way as to regularly 

grant employer requests for relief under a more lax standard than we believe Congress had intended. Employers now push aggressively for changes to labor and pension and retiree insurance agreements, often as a first shot rather than a last resort. In light of this experience, there are numerous ways in which Congress can 

and should reform the bankruptcy laws to treat worker and retiree interests more 

fairly. 

First, Congress should seek to recapture the balance I referred to, giving stronger 

recognition to the important role of collective bargaining and limiting the right of 

employers to violate labor agreements, which is after all what rejection really 

amounts to. This would include defining more narrowly the meaning of the term 

‘‘necessary to reorganization’’ so as to force employers to clear a higher bar and placing meaningful limits on the length of proposed concessions. Honoring the collective 

bargaining process also would protect the fundamental right to strike, which has 

been a particular concern to our brothers and sisters in the airline industry. 

Second, reform should assign higher priority to the payment of employee and retiree obligations, allowing them to be paid before the claims of other creditors who 

are typically more able to absorb losses than is an individual worker and his or her 

family. Among the other creditors with greater financial reserves are highly-compensated lawyers and investment bankers. 

Third, reform should enshrine the principle of shared sacrifice and do it with specificity, meaning that executives should not be allowed to improve their own salaries 

and benefits while workers and retirees are forced to sacrifice their quality of life. 

Before exposing workers and retirees to cuts, the courts should simply ask whether 

executives and managers have first made sacrifices themselves. 

On this subject—controlling executive compensation in bankruptcy—Congress in 

2005 limited the ability of companies to ask for retention bonuses to be paid to executives of bankrupt companies simply for remaining with the company. In fact, it 

was a Steelworkers leader from Ohio who first pointed out the abuses of executive 

retention schemes in testimony to the Senate Judiciary Committee in early 2005. 

Employers, however, have found loopholes in the current law and now simply recast 

and re-name these retention schemes as so-called ‘‘incentive programs.’’ This is semantics. As one judge in a recent USW case said in considering one of these socalled ‘‘incentive’’ programs: ‘‘if it walks like a duck, and quacks like a duck, it’s a 

duck.’’ Congress must close this loophole. 

Fourth, bankruptcy reform also must take into account the impact of sales and 

liquidations upon workers and retirees. For example, Congress should clarify that 

a bankruptcy judge may, in supervising the sale or auction of a company’s assets, 

give preferential consideration to a purchaser who plans to retain jobs and benefits 

in the community as compared to the buyer who would simply liquidate assets. Congress also should take steps to extend protection to retiree health benefits in sale 

situations. Even where a seller in bankruptcy meets an exacting standard for modifying retiree benefits, Congress should require the buyer as well to set aside monies 

to restore some of the devastating, and oftentimes, life-threatening losses of health 

care benefits suffered by retirees. That will ensure that retirees are not left by the 

side of the road as a profitable buyer moves forward. 

We at the USW know that a different bankruptcy process is possible. We represent approximately 280,000 members in Canada. Our Canadian employers have 

not been immune from many of the same problems that have afflicted our U.S. employers, though Canadian employers have not been hamstrung by the gross inefficiencies of the U.S. health care system. In the Canadian insolvency process, we are 

not aware of any judge who has used the legal process to void a collective barVerDate Aug 31 2005 10:22 Dec 05, 2008 Jkt 000000 PO 00000 Frm 00027 Fmt 6633 Sfmt 6621 H:\WORK\COMM\090607\37601.000 HJUD1 PsN: 37601
24 

gaining agreement, and our union was instrumental in 2005 in leading the Canadian House of Commons to pass legislation that confirmed that collective bargaining 

agreements are beyond the authority of the courts (though that law is now under 

attack by the current government). Our experience in Canada proves that worker 

interests need not be subordinated in the bankruptcy process. 

Madame Chairperson, we recognize that reforming the U.S. Bankruptcy Code will 

not, by itself, solve all of the problems of American industry. We do not confuse prevention with cure. And on the prevention side are vital questions about our trade 

and tax policies, our lack of international health care competitiveness, the need for 

a pro-manufacturing agenda, and other policies that stop the hemorrhaging of jobs 

in American industry. At the same time, the bankruptcy laws should work in tandem with manufacturing-friendly measures and, at the very least, not exacerbate 

the problems being faced by so many American workers and retirees. The lives of 

far too many American workers and retirees have been crushed by corporate reorganizations. Congress can begin to set things right by reforming the bankruptcy laws. 

Thank you very much Madame Chairperson. 

Ms. SA ́ NCHEZ. Thank you, Mr. Redmond, for your testimony and 

your recommendations. 

I would invite Mr. Prater to begin his testimony. 

TESTIMONY OF CAPTAIN JOHN PRATER, PRESIDENT, AIR LINE 

PILOTS ASSOCIATION, INTERNATIONAL, WASHINGTON, DC 

Mr. PRATER. Good morning, Madam Chairwoman, and Members 

of the Subcommittee. On behalf of the 60,000 ALPA members who 

fly for 41 airlines in the United States and Canada, I want to 

thank you for this opportunity to describe how airline management 

has exploited this Nation’s bankruptcy laws following the tragic 

events of 9/11, and how you can act to level a playing field that 

kept workers on the sidelines. 

Unfortunately, I am no stranger to airline bankruptcies. Having 

flown for Continental Airlines for 29 years, I know first hand the 

effect that the deregulation act of 1978 and the bankruptcies that 

followed had upon our industry and our pilots. During the 1980’s, 

we fought this battle to prevent management’s unilateral abrogation of labor contracts and advocated for bankruptcy legislation to 

protect American workers. Nearly 24 years later, we are back fighting once again to restore balance to the Bankruptcy Code. 

The events of 9/11 presented a narrow window of opportunity for 

airline managements to crush workers, and they took advantage of 

that window of opportunity with complete abandon. While pilots 

and other workers rallied to save our airlines after that dark day 

in September, management and the law we discussed today forced 

us to give too much. Now that the emergency is over, it is time to 

fix the Bankruptcy Code. Since 2001, pilots have given more than $30 billion in concessions to save our airlines and our jobs. As one example, pilots at 

United Airlines endured two rounds of concessions that included 

pay cuts of 30 percent, followed by another 12 percent, harsher 

work rules, less job security, and a terminated pension plan. After 

United returned to profitability, those pilots have so far been rewarded with only a 1.5 percent pay raises and forms of profit sharing worth about 0.5 percent of their annual W-2 earnings. 

In contrast, United’s CEO received a compensation package last year worth over $40 million, a 3,500-plus percent increase over the 

prior year. I ask you: Who saved United Airlines? The CEO who 

made business decisions that led to bankruptcy, or the pilots and 

the workers who did their jobs flawlessly, gave up salary and penVerDate Aug 31 2005 10:22 Dec 05, 2008 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6601 H:\WORK\COMM\090607\37601.000 HJUD1 PsN: 37601
25 

sions, and flew more hours? I challenge any person in this room or 

in this industry to tell me the pilots and their fellow United employees did not save that airline. 

Pilots at Hawaiian Airlines faced a Section 1113 motion by a 

profitable company as a lever to wrest employee concessions to either facilitate a sale or to improve the carrier’s competitive position. After having already made pre-petition concessions demanded 

by management to avoid a Chapter 11 filing, pilots were then 

stunned when management approved a self-tender of the airline’s 

stock at well below market rate following September 11th and before the bankruptcy filing. You can’t make this up. No one would 

believe us. 

Delta’s management used bankruptcy at two airlines. First, they 

exacted deep concessions from mainline pilots while in bankruptcy; 

then, they had the gall to claim that wholly owned subsidiary 

Comair was simply not profitable enough and also needed to enter 

bankruptcy. The bankruptcy judge there did not dispute our claims 

and argument that Comair’s Section 1113 motion for a 22 percent 

pay cut would qualify some full-time pilots for Federal welfare assistance. He simply ignored that fact. 

In the end, we reached a concessionary agreement, but it wasn’t 

pretty, and it isn’t pretty today. Not long after that, Delta was 

boasting that it had plenty of cash on hand to fight a hostile takeover attempt by U.S. Airways, and the only reason U.S. Airways 

could try to buy another airline was because it had used the bankruptcy process twice to cut the wages and the work rules and terminate all the pension plans of its workers. 

Wait, it gets worse. The most egregious case of bankruptcy abuse 

involved Mesaba Aviation, which flies as Northwest Airlines, which 

was also in bankruptcy. Not only did Mesaba refuse to bargain in 

good faith, but its management argued in court against the pilots’ 

rights to withhold their services if their contract was rejected, a 

right that every other party to a rejected contract has under the 

Bankruptcy Code. Two bankruptcy courts, a Federal district court 

and the 2nd Circuit Court of Appeals, affirmed that airline employees can be forced to accept the utter destruction of their contract, 

but may not strike in response. Again, we can’t make this up; we 

are living it. 

The willingness of the courts to enjoin any strike in response to 

the imposition of unilateral terms has taken away any incentive for 

airlines to negotiate. Why bother, when you can dictate terms in 

bankruptcy court? 

Clearly, Congress must once again overhaul the Bankruptcy 

Code. Managements have found the loopholes in the law, and the 

judges have only been too willing to let them exploit those advantages. The current Bankruptcy Code must be overhauled so that 

the breach of a collective bargaining agreement can be sanctioned 

only and when truly necessary and only to provide the employer 

with what it truly needs: to ensure the company’s survival. 

I would like to sum up by saying that we thank you and the Subcommittee for the opportunity to testify today. I sincerely believe 

that Congress must restore the balance to the bankruptcy process 

so that, when our next crisis hits, our air transportation system 

will serve the public’s and the Nation’s best interest. 

26 

I would be happy to entertain any questions. Thank you. 

[The prepared statement of Mr. Prater follows:] 

PREPARED STATEMENT OF JOHN PRATER

Good morning Madame Chairwoman and members of the Subcommittee. I am 

Captain John Prater, President of the Air Line Pilots Association, International. 

ALPA represents 60,000 professional pilots who fly for 41 airlines in the United 

States and Canada. On behalf of our members, I want to thank you for the opportunity to testify today about the urgent need for legislation to restore balance and 

basic fairness to the Section 1113 process under Chapter 11 of the Bankruptcy Code. 

In the aftermath of the events of Sept. 11, 2001, ALPA and other labor unions 

faced continuous efforts by airlines to use the bankruptcy process as a razor-sharp 

tool to strip away working conditions and living standards that were built over decades of collective bargaining. Airline workers have borne far more than their fair 

share of the pain to save their airlines, as massive pay cuts, lost pensions and other 

deep concessions clearly attest. Section 1113 of the code has been applied by the 

bankruptcy courts, at management’s instigation, in a manner far removed from the 

original intent of these provisions. Instead of protecting employees, the 1113 process 

has been used by employers to unfairly gut the wages and working conditions of airline and other employees. These same employers also used the bankruptcy law to 

rubber stamp multimillion dollar rewards for the corporate executives who perpetrate these abuses on workers. 

After 9/11, many airline managements used the 1113 procedures to not only gut 

employee wages and working conditions, they also exploited the bankruptcy process 

to cut staff to the bone. Both of these factors have combined to make piloting a far 

less desirable job than it used to be, contributing to increased pilot frustration, attrition and turnover at a number of airlines. Added to the understandable employee 

frustration and anger, these additional, related problems make the implications of 

failing to restore balance to the bankruptcy process more serious than just ending 

the immorality of this unfairness. The current imbalance has created a poisoned environment that has greatly undermined labor relations and employee good will in 

the airline industry, which are critical to the efficient operation of our essential national air transportation system. 

Indeed, ALPA has seen that airline managements’ successful efforts through Section 1113 to turn back the clock decades on workers’ pay, rights and benefits have 

far exceeded any legitimate shared economic sacrifices that might have been necessary for the economic survival of the airlines. For example, a typical pilot at 

United Airlines endured two rounds of concessions that included a 30 percent pay 

cut, a second pay cut of 12 percent, harsher work rules, less job security, and a terminated pension plan. In 2007, that pilot has so far received only a 1.5 percent pay 

raise and forms of profit-sharing worth only about 0.5 percent of his W-2 earnings. 

As harsh a reality as that is, imagine that pilot’s disbelief and anger upon learning 

that the airline’s CEO received a compensation package last year worth over $40 

million dollars. The contrast of many unionized airline employees losing more than 

a third of their pay, work rules, and decades-old pension benefits, while outrageous 

executive compensation and benefits programs are approved for top airline managers, is enough to show that the current Section 1113 process is unbalanced and 

grossly abused. 

Similar horror stories exist among the thousands of pilots flying in the US Airways family of airlines, as managers there departed the scene with golden parachutes, leaving behind employees who now struggle mightily to take care of their 

families while delivering millions of their passengers safely day after day. Distressing tales of employee suffering wrought by the 1113 process are also told by 

pilots and other workers at Northwest, Delta, Comair and Mesaba. 

As the Subcommittee knows, the Section 1113 procedures are the mechanism by 

which employers can seek judicial permission to reject and thereby breach collectively-bargained obligations to their employees, and impose in their place dictated 

pay and working conditions. This Section 1113 process was originally intended to 

prevent employers from using the Chapter 11 process as an ‘‘escape hatch’’ to simply 

wipe away with a bankruptcy filing the binding, long and hard-fought pay and 

working condition achievements of workers secured by their collective bargaining 

agreements. 

Prior to its enactment, in 1984 the Supreme Court ruled in the Bildisco case that 

an employer could walk away from binding collective bargaining agreements after 

a bankruptcy filing without first making any showing of necessity as to the need 

to reject the terms of the agreement. In response, the Congress, at the urging of 

ALPA and other unions, acted swiftly to establish procedures that sought to protect 

27 

the rights of employees in bankruptcy to prevent such results. The so-called 1113 

process was inserted into the bankruptcy code to require a showing of justification 

and good-faith bargaining between labor and management in order to obtain needed 

concessions. Failing such a consensual agreement, a company could impose dictated 

terms and conditions on its employees after court process only if those concessions 

were determined by the court to be truly necessary to its survival. 

Since that time, the employee protective purpose of Section 1113 has been turned 

on its head by the bankruptcy courts and subverted by employers to achieve precisely the contract-destroying, worker-bashing results that Congress originally 

sought to prevent. ALPA has seen the requirements of Section 1113 repeatedly ignored or misapplied, without due regard for the financial security interests of airline 

employees and their families. The most extreme examples of the one-sided nature 

of the current process are in recent court decisions which allow management to reject binding collective bargaining agreements and impose working conditions, while 

prohibiting employees from withdrawing their services under those agreements, as 

other parties facing such rejection are routinely allowed to do under bankruptcy 

law. Corrective legislation is urgently needed to restore the original intent and purpose of these Section 1113 provisions, and to restore balance and basic fairness to 

the bankruptcy process as it impacts honest workers called upon to sacrifice to help 

save their employers. 

ALPA believes that Congress must act to overhaul the Section 1113 process by: 

(1) tightening the standards governing when management can reject their contractual obligations to workers, so that a breach of a collective bargaining agreement 

can be permitted only when truly necessary, and only to provide the employer with 

no more than is truly necessary to ensure the competitive survival of the business; 

(2) ensuring fair treatment and equitable sacrifices from both executives and workers in the bankruptcy process so as to prevent further outrageous abuse by corporate officers lining their own pockets while their employees disproportionally sacrifice to help save the company; and (3) making it clear that employees have the 

right to strike in response to a breach of their collective bargaining agreements if 

a consensual agreement between the parties cannot be reached. This clarification is 

desperately needed to restore balance to the 1113 process and to help foster superior, mutually acceptable labor-management solutions to bankruptcy crises through 

collective bargaining. 

All of these changes are urgently needed to restore some semblance of a level 

playing field in collective bargaining between workers and management, and to 

deter employers from ever again using the bankruptcy process as the vehicle for 

widespread and unjustified abuse of workers. I will now describe a number of additional examples which show what has gone wrong with the current administration 

of the 1113 process, both in the corporate boardrooms and in the courts, and illustrate why such legislation is so urgently needed to correct the employer abuse which 

has flourished unchecked in the current environment. 

I. THE BANKRUPTCY COURTS HAVE ALLOWED EMPLOYERS TO USE THE SECTION 1113

PROCESS AS LEVERAGE TO GUT LABOR CONTRACTS WITHOUT REQUIRING EMPLOYERS

TO SHOW THAT THE CONCESSIONS ARE NECESSARY OR FAIR. 

The courts, egged on by opportunistic employers, have progressively undermined 

the ‘‘necessity’’ standard for granting employer relief in Section 1113. As I have alluded to, this standard is supposed to allow only those changes in working conditions that are truly ‘‘necessary to permit the reorganization’’ of the employer. In 

practice, these limits have all but been ignored by both employers and the bankruptcy courts, which in many cases have used the bankruptcy process as leverage 

to simply jam draconian wage and benefit cuts down employees’ throats. These 

scorched-earth tactics of using the 1113 procedures to force extraction of concessions 

that are not truly necessary or otherwise achievable in consensual bargaining have 

led to widespread tension and resentment among employees, creating lasting damage to labor relations. 

ALPA’s experience has shown that circumstances where consensual solutions have 

been reached by the parties have led to far superior outcomes for airlines, their pilots and the flying public. Congress needs to take steps to restore support for consensual negotiations in such circumstances. Both employers and the bankruptcy 

courts need to be reined in to ensure that the numerous recent abuses of the 1113 

process are never repeated. 

It gets worse: we have seen profitable airlines use Section 1113 as a bargaining 

lever to wrest employee concessions to either facilitate a sale or other transaction 

or just to improve the competitive position or profitability of the carrier. In the case 

of the bankruptcy of Hawaiian Airlines, pilots faced a Section 1113 motion by a profVerDate Aug 31 2005 10:22 Dec 05, 2008 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6621 H:\WORK\COMM\090607\37601.000 HJUD1 PsN: 37601
28 

itable company after having made pre-petition concessions demanded to avoid a 

Chapter 11 filing. All this after management approved a self-tender of the airline’s 

stock at a substantial premium to market value following September 11 and before 

the bankruptcy filing. This scheme by Hawaiian was an outrageous abuse of the 

process. 

In the case of Delta Airlines, even after many months of litigation before the 

bankruptcy court, management continued to demand extreme concessions. Only 

after the establishment of a special neutral arbitration tribunal, which took the 

matter out of the hands of the bankruptcy court, did management finally reduce its 

demands and, in response to ALPA’s demands, offer the pilots a bankruptcy claim 

in exchange for substantial concessions. After a consensual agreement was reached 

on this basis, the Company completed its successful reorganization and returned to 

profitability. I would note legislative reforms should build off this success and allow 

consensual use of such expert arbitration panels versed in the industry as an alternative to court proceedings in 1113. 

In the Comair bankruptcy, pilots were forced into Section 1113 litigation because 

the operation was simply deemed not profitable enough to its corporate parent, 

Delta, while at the same time Delta proclaimed that it had plenty of money on hand 

as a justification to creditors for fighting a hostile takeover attempt by America 

West/US Airways. 

Additionally, testimony at the hearings on Comair’s Section 1113 motion established that the Company’s demands for a 22% pay cut would qualify some full-time 

pilots for federal welfare assistance. In response to testimony from a pilot whose 

family would qualify for federal food stamps were he to work full-time under the 

Company’s demands, the bankruptcy judge indicated that he would not be persuaded by these facts of employee hardship and suffering, because he viewed the 

issue purely in economic terms. In fact, in his decision granting Comair’s Section 

1113 motion, the judge failed to take into consideration the impact the Company’s 

1113 proposal would have on the pilot group and its families. A concessionary agreement was only reached after the airline effectively moderated its demands by offering the pilots meaningful ‘‘upside’’ benefits. This case alone cries out for legislative 

remedy. 

In the case of Mesaba Aviation, the bankruptcy court approved as ‘‘necessary’’ a 

wage cut of almost 20% that would have lasted for 6 years, within a structure that 

did not envision any reversal or mitigation of the cuts during that lengthy period. 

After the district court agreed with ALPA that such overreaching amounted to badfaith conduct and an abuse of the bargaining process, and subsequent consensual 

negotiations, the Company finally agreed to a contract that, while definitely concessionary, provided a significantly smaller pay cut but did not prevent the Company from successfully reorganizing under a plan that is expected to provide close 

to a 100% recovery for all creditors. 

All of these circumstances, taken together, show beyond doubt that the current 

1113 process, which does not impose effective limits on the ‘‘necessity’’ of employer 

concession demands, is open to employer abuse and grants inappropriate leverage 

for employers to wrest unwarranted concessions from employees. These examples 

also show that consensual solutions to financial crises are always superior to the 

imposed alternatives. The current 1113 process undermines consensual, legitimate 

solutions to financial crises. Necessary modifications to that process must correct 

these imbalances and support superior consensual solutions. 

Reforms are also needed to ensure that an employer would not be permitted to 

commence the 1113 process seeking court permission to reject a collective bargaining agreement unless there has been good-faith bargaining over proposed modifications to the agreement for a reasonable period of time and the parties reach impasse. Reforms should also include setting specific limits on the scope of labor cost 

relief that can be sought by an employer, including requiring clearly expressed financial contributions that would be asked of employees to help the carrier exit 

bankruptcy, which would not be permitted to extend more than a short time period 

following successful exit of the employer from bankruptcy. Such a provision would 

help prevent the abuse of employers ‘‘locking in’’ long-term drastic concessions which 

continue long after the exit of bankruptcy, as has been the case at United, Northwest, US Airways, Delta, Comair and Mesaba. Reforms should also require the court 

to consider whether alternative proposals for relief from the union would be sufficient to permit successful reorganization. Additionally, the bankruptcy court should 

be required to consider the effect of the proposed cuts on the workforce, the employer’s ability to retain a qualified workforce and the effect of a strike in the event the 

collective bargaining agreement is allowed to be rejected. All of these changes are 

necessary to ensure that the sacrifices that are extracted from employees are truly 

29 

fair, reasonable and necessary, and to stem employer abuse of the current administration of the 1113 process. 

II. THE CURRENT DOUBLE STANDARD UNDER CHAPTER 11: DEEP SACRIFICE FOR

WORKERS, HUGE PAYOUTS FOR THOSE AT THE TOP. 

Modifications should require that the economic relief sought from employees not 

be disproportionate to the treatment of executives and other groups. These changes 

are urgently needed to restore basic fairness and credibility to the 1113 process. The 

current system has led to outrageous unfairness, with workers absorbing huge, longterm cuts in pay, work rules, and retirement benefits while management executives 

have enjoyed huge payouts which appear to be nothing more than rewards that are 

directly tied to the level of pain they have inflicted on the employees. For example: 

• Pilots at United Airlines, who took concessions of 40% or more in pay, lost 

numerous important work rules, had their defined benefit pension plan terminated in multiple rounds of Section 1113 litigation, and were locked into a 

nearly seven-year deeply concessionary agreement, saw the injustice of the 

United Board raising the pay of Chief Executive Glenn Tilton 40% just 

months later. This staggering increase is on top of stock grants to Mr. Tilton 

and other United executives worth in excess of $20 million, as well as stock 

options worth millions more, made as part of United’s plan of reorganization. 

• Northwest Airlines’ pilots were also forced to accept huge wage cuts of nearly 

40%, as well as accept numerous rollbacks to their quality of life by losing 

key protective working conditions. By contrast, the CEO was rewarded with 

$1.6 million in salary and bonus payments last year. The revelation that he 

will also be rewarded with more than $26 million in stock-related compensation over the next few years under a court-approved management equity plan 

further demonstrates the basic unfairness and abuse of the 1113 process. 

We urge reforms that would include a requirement that compensation to be paid 

to officers and directors be subject to oversight for reasonableness by the court as 

part of the employer’s emergence from bankruptcy. Under current law, executive 

compensation is only required to be disclosed in the reorganization plan but is not 

subject to court review. The courts should be required to ensure that executive compensation is reasonable and not disproportionate in light of the other concessions 

made by other groups during bankruptcy. 

Reforms are also needed to require the court to impose an adverse presumption 

against granting employee relief if the employer has implemented an executive compensation program either during bankruptcy or within six months prior to bankruptcy. If such a program has been implemented, a presumption should be created 

that the employer has not met the requirement that the proposed cuts not overly 

burden the affected employee group. These changes are urgently needed to stop any 

future court-assisted looting of employees by greedy executives of the type that has 

already occurred. 

III. MORE UNFAIRNESS: DEEP CONCESSIONS ARE EXTRACTED FROM EMPLOYEES, WHILE

OTHER STAKEHOLDERS SUFFER FEW OR NO ADVERSE CONSEQUENCES. 

Legislative reforms are also needed because employees have also suffered extreme 

unfairness at the hands of the 1113 process compared to other stakeholders and 

participants in the bankruptcy process. For example: 

• Pilots at Hawaiian Airlines faced demands for concessions despite a plan of 

reorganization that paid unsecured creditors in full. 

• Professional advisors, banks, economic experts, financial managers and executives who participate in the Section 1113 process on behalf of airlines do not 

share in the sacrifices. Instead they earn lucrative fees and even ‘‘success’’ bonuses with the approval of the bankruptcy court, while the workers’ pay, 

work rules and pensions are allowed to be gutted. 

Reforms should require the bankruptcy court to conclude, before it can allow an 

employer to reject a collective bargaining agreement, that the economic relief sought 

from employees is not disproportionate to the treatment of other stakeholder groups. 

This is not the case today, and it is a basic flaw of the current system that needs 

urgent correction. 

30 

IV. EVEN MORE UNFAIRNESS: AIRLINES USE SECTION 1113 TO AVOID BINDING OBLIGATIONS TO EMPLOYEES, BUT HAVE CONVINCED SOME COURTS THAT THE BANKRUPTCY

LAWS IMMUNIZE THEM FROM FACING ANY EMPLOYEE SELF-HELP IN RESPONSE. 

The last item that I wish to bring to the Subcommittee’s attention is what I perceive to be the most egregious of the many aspects of unfairness that exists in the 

current administration of the Section 1113 system that I have highlighted today. As 

I have explained, airlines have used the Section 1113 process as leverage to obtain 

what they could never obtain in consensual bargaining—deep, lasting and unfair 

changes to avoid the binding commitments that they made to their employees in collective bargaining agreements, but that has not been enough for them. They have 

gone to the bankruptcy and federal courts and asked them to declare that airline 

employees do not have the right to respond to these unilateral, fundamental 

breaches of their collective bargaining agreements by withholding services, as common sense, fairness and the basic tenets of labor law would seem to dictate. In fact, 

two bankruptcy courts, a federal district court, and the Second Circuit Court of Appeals have ruled that airline employees can be forced to accept the utter destruction 

of their fundamental rates of pay and working conditions in collective bargaining 

agreements, but may not strike in response. This approach, of course, leaves employees chained to the railroad tracks as the 1113 Express bears down on them. Airline employees are being singled out unfairly by being denied the right to withhold 

services under a labor contract after it is rejected, which is a right that every other 

party to a rejected contract has under the current bankruptcy code. In fact, a split 

panel of the Second Circuit could only justify this highly inequitable result with the 

fiction that management is not actually breaching a collective bargaining agreement 

when it obtains judicial permission to reject a labor contract through the Section 

1113 process, a notion wholly at odds with settled bankruptcy doctrine. 

The willingness of the courts to enjoin a strike in response to management imposition of unilateral terms under Section 1113 has taken away any incentive for airlines to negotiate rather than dictate terms in bankruptcy. Airline employees have 

a right under the Railway Labor Act to strike after a bankruptcy court grants a motion to reject a collective bargaining agreement under Section 1113 and management imposes new inferior rates of pay, benefits, job security and/or working conditions. We believe that under the Norris-LaGuardia Act (which was enacted in the 

1930’s to generally preclude injunctions against strikes) bankruptcy judges and U.S. 

District Court judges do not have jurisdiction to issue injunctions against such 

strike activity when management has acted unilaterally to change the status quo 

and tear up a binding labor contract outside of the negotiations process. 

It is essential that any reform legislation explicitly preserve the right of airline 

employees to strike after a Section 1113 contract rejection, and our proposal does 

that. If the rule were otherwise, as some courts have concluded, management would 

be allowed to impose conditions without having to face the prospect of a strike. Such 

blatant inequality allows management free reign to impose conditions without any 

check on the kind of overreach and abuse that has occurred to date. Legislation is 

needed to restore the economic balance contemplated in the anti-strike injunction 

mandates of Congress in the Norris-LaGuardia Act, which the Supreme Court found 

‘‘was designed primarily to protect working men in the exercise of organized, economic power, which is vital to collective bargaining.’’ Balance will be restored and 

management will be forced to act responsibly and fairly in bankruptcy towards its 

employees only if it is faced with the real possibility of a responsive strike. 

In sum, while ALPA recognizes that substantial economic sacrifices may be necessary by employees during severe economic disturbances, and in fact has repeatedly acted in a leadership role to help many airlines survive the ravages of the post 

9-11 environment, management and the courts have moved the 1113 process far 

from its original intent to protect workers. Today, it is an extreme and one-sided 

process that is used to destroy workers’ lives. ALPA believes that corrective legislation is urgently needed to fix the misinterpretation and abuse of the 1113 process 

that has snowballed in the last five years. The Congress must act to restore the 

original intent of this legislation and protect employees from unfair, dictated sacrifices made while the corporate chieftans reap huge payoffs. 

Madame Chairwoman, I appreciate the opportunity to testify here today, and I 

would be happy to answer any questions you have. 

Ms. SA ́ NCHEZ. Thank you, Captain Prater. 

At this time, I would invite Mr. Davidowitch to present his testimony. 

31 

TESTIMONY OF GREG E. DAVIDOWITCH, MASTER EXECUTIVE 

COUNCIL PRESIDENT AT UNITED AIRLINES, ASSOCIATION 

OF FLIGHT ATTENDANTS, CWA, AFL-CIO, WASHINGTON, DC 

Mr. DAVIDOWITCH. Thank you. Good morning, and thank you, 

Chairwoman Sa ́nchez, for holding this important hearing. I am 

here today on behalf of AFA-CWA’s 55,000 members at 20 airlines 

around the country. 

The lives of too many airline workers and retirees have been devastated by the exploitation of corporate bankruptcy. As president of 

the flight attendant’s union at United Airlines, I spent 38 months 

of my life, day in, day out, battling unfettered corporate greed during the longest airline bankruptcy in history. 

Something must be done to level the playing field. Bankruptcy 

must no longer be used as a business strategy that simply transfers money to executives’ pockets and leaves hard-working Americans with nothing more than slashed pay, diminished health care, 

destroyed retirement, and the prospect of personal bankruptcy. 

Flight attendants have lost their homes because of management’s 

cuts; others have had to move back in with their parents, sell their 

car, cancel college classes, and lose custody of children. 

One hundred and forty thousand airline workers have lost their 

jobs. We have seen drastic wage cuts. For example, at Mesaba Airlines, management’s demands for cuts in wages would have reduced some flight attendants’ pay to less than $10,000 per year before taxes. This is nothing short of corporate-induced poverty, shifting responsibility for a living wage from the company to the taxpayers. 

Management has slashed our medical benefits and, with a devious twist, has also cut retiree medical benefits, a move authorized 

by the law, but until now was largely taboo. United enticed flight 

attendants to retire early in order to preserve their retiree medical 

benefits. After enticing thousands of flight attendants to agree to 

leave the company in exchange for guaranteed retiree health benefits, management then went to the court to file their Section 1114 

motion, demanding immediate individual retiree cost increases that 

were 10 times that cost of premiums with no cap on future increases. In the end, retirees were forced to shoulder $300 million 

in changes to their health-care benefits that were approved by the 

bankruptcy court. 

However, United’s maneuver prompted the bankruptcy court to 

appoint a special examiner shortly after they filed their Section 

1114 motion. While the examiner questioned the tactics of United 

management, the bottom line was that the law allowed management to do what they did. A law designed to give extra protection 

to retiree medical benefits had been turned on its head. 

While other major carriers struggle to protect their pension 

promises with help from Congress, management at United Airlines 

and U.S. Airways destroyed workers’ pensions. AFA-CWA fought to 

save those pensions using every legal avenue at our disposal, but 

the bankruptcy court approved a legal maneuver by management 

that made an end run on the pension protections in the law. 

It should be noted that the agency that was created by Congress 

to protect the interests of the workers’ pensions had a hand in destroying our retirement security for a short-sighted gain of $1.5 bilVerDate Aug 31 2005 10:22 Dec 05, 2008 Jkt 000000 PO 00000 Frm 00035 Fmt 6633 Sfmt 6601 H:\WORK\COMM\090607\37601.000 HJUD1 PsN: 37601
32 

lion. And at the same time, they put the country’s entire pension 

system billions of dollars closer to total collapse. This was neither 

fair nor did it make sense as a matter of public policy. 

We should be clear that one United employee’s pension did sur- vive. CEO Glenn Tilton was careful to shield his own $4.5 million 

pension trust from termination. If this Committee wants to enact 

a law that will be 100 percent effective at all times, let me suggest 

this: Adopt legislation mandating that pensions of corporate executives are treated exactly the same as those of other employees. If 

workers’ pensions are terminated, executive pensions must be terminated, too, no exceptions. 

I protect that, if such a law were passed, not a single additional 

worker would have to suffer the loss of a pension plan in bankruptcy or that any other provision of their collective bargaining 

agreement that is not absolutely necessary for the survival of their 

company. It is really just that simple. 

Finally, no consideration of the fairness of the current bankruptcy process would be complete without the mention of executive 

bonuses and executive compensation in the bankruptcy process. It 

is simply out of control. Although flight attendants are obligated to 

work under concessions for an additional 4 years following the exit 

from bankruptcy, there is no evidence that United’s top executives 

had to make any sacrifices at all. 

In the end, how could any of this be considered fair? I implore 

the Committee to fix the bankruptcy law before there is any more 

devastation. Put an end to management abuses in the use of bankruptcy laws as just another business tactic to cut costs and line 

their own pockets. Level the playing field for the workers we represent and enact a law that provides protection of restructuring a 

company for the good of the long-term, dedicated workers who are 

committed to the success of their companies. 

Thank you. 

[The prepared statement of Mr. Davidowitch follows:] 

PREPARED STATEMENT OF GREG E. DAVIDOWITCH

Good morning, and thank you Chairwoman Sanchez for holding this important 

hearing. We are truly fortunate to have someone like yourself and Chairman Conyers in the position to help shape a reform of corporate bankruptcy laws so that 

what I and many other workers around this country have faced the past several 

years does not happen again. My name is Greg Davidowitch and I am the Master 

Executive Council President of the Association of Flight Attendants-CWA, AFL-CIO 

at United Airlines. I am here today on behalf of AFA-CWA’s 55,000 members at 20 

airlines around the country. 

In a way, it is unfortunate that as a flight attendant and airline worker in the 

U.S. aviation industry, I am qualified to testify on the subject of today’s hearing. 

The lives of so many airline workers and retirees have been devastated by the exploitation of corporate bankruptcy. I spent 38 months of my life, day in and day out, 

battling unfettered corporate greed as management used the bankruptcy laws like 

a weapon to obliterate pay, pensions, healthcare and the jobs of hard-working Americans. The depth of my experience and the devastation experience by the workers 

I represent will only be summarized in this testimony; there is simply too much to 

tell. Something must be done to help level the playing field so that bankruptcy is 

no longer a ‘‘business strategy’’ that simply transfers money to executives’ pockets 

and leaves the rank-and-file employees with nothing more than slashed pay, diminished health care, destroyed retirement security, bitterness, mounting debts and the 

prospect of personal bankruptcy. 

Before I address the impact the bankruptcy process has had on AFA-CWA flight 

attendants, let me take the Committee back to the fall of 2002. This Committee 

needs to understand how my airline wound up in bankruptcy in the first place. 

33 

United Airlines was driven into bankruptcy by the Bush Administration. The decision of the Air Transportation Stabilization Board (ATSB) to reject United Airlines’ 

request for $1.8 billion in loan guarantees was the opening salvo by the White 

House in an unprecedented attack on not just United Airlines employees, but also 

on the jobs, wages and working conditions of workers throughout the airline industry. 

The ATSB was established by Congress to provide assistance to the airline industry as it attempted to recover from the economic impact of the historic terrorist attacks of September 11th. As one of the two airlines whose planes were hijacked for 

use in that devastating attack—attacks that included the horrible murder of flight 

attendants, pilots and passengers—United Airlines was in a unique position to need 

the assistance that the ATSB was created to provide. In fact, United’s situation was 

a clear example of what Congress intended when it voted to create the ATSB with 

strong bipartisan support. 

When it met to give final consideration to United’s application for this vital economic assistance to recover from the attacks of 9/11, the three-member ATSB, with 

representatives appointed by the White House from the Federal Reserve, the Treasury Department and the Department of Transportation, rejected the application as 

inadequate. This was despite the fact that the employee groups at United had already agreed to concessions to keep the airline out of bankruptcy. These agreements 

with AFA-CWA and the other unions at the airline would have generated $5.8 billion in labor cost savings over 5 and a half years—part of a package of cost cuts 

that United management believed were sufficient to save the airline and return it 

to profitability. But the ATSB demanded even greater cuts, and decided that bankruptcy was the preferred option despite agreement by all of United’s decisions makers—at that time—that deeper cuts were not necessary. 

The White House realized that it could use the ATSB as a tool for re-engineering 

the airline industry, particularly airline labor costs. As one of the only industries 

remaining with a majority of union jobs, the Bush Administration seized the opportunity to exploit bankruptcy as a business strategy for social engineering. It was an 

opportunity to destroy the voice of the hard-working people of the middle class by 

cutting union jobs and obliterating the protections and benefits negotiated and 

earned by union members. The ATSB was created by Congress to administer loan 

guarantees designed to save the airlines from liquidation in the aftermath of September 11. But the White House decided to use the denial of the loan guarantees 

to force an economic reshaping of the airline industry. As far back as the Reagan 

Administration, Republican-appointed Secretaries of Transportation had complained 

that the only thing wrong with the airline industry was that airline workers are 

paid too much. Forcing United into bankruptcy was the Administration’s way of 

pushing costs far lower than would have been possible or necessary in any other 

scenario. They knew the economics of this competitive industry would do the rest— 

forcing similar cost cutting at all the major airlines. Their strategy—unfortunately 

for airline workers—was devastatingly effective. United’s bankruptcy and drastic 

slashing of employee wages and benefits created a cascade of similar actions 

throughout the industry. Airline employee wages, benefits and work rules across the 

industry were soon slashed to levels not seen in decades. 

The story that unfolded at United and other airlines in bankruptcy would have 

been difficult to imagine only five to ten years ago. Like most major carriers, United 

racked up record profits during the late 1990s, having expanded domestically and 

internationally. It grew its fleet by more than one-third, to a total of over 600 aircraft. Flight attendant ranks swelled from 15,000 in 1990 to nearly 27,000 by 2000. 

However, with the collapse of the US airline industry in late 2001, United Airlines 

found itself losing more than $9 million a day; not simply because of September 11, 

but also because of the reckless spending, poor planning and other failures of airline 

management. For example, one failed management business maneuver included an 

ill-conceived merger with U.S. Airways that cost the airline hundreds of millions of 

dollars and yielded a personal profit of $50 million for just one executive even 

though the merger was never approved. 

By mid-2002, United was headed toward a record annual loss of over $3 billion, 

and management began hurried negotiations with the unions that represented the 

various employee groups. Labor groups ratified a concession package valued at $5.8 

billion over five years, including a $412 million cut by United Flight Attendants to 

help the airline avoid filing for bankruptcy protection. Apparently it was not 

enough; at least not enough for the White House. 

As this Committee looks into whether the current bankruptcy system is fair to 

workers, I think you will agree that there was nothing fair about this process from 

the perspective of the workers. The White House apparently had no concern with 

fairness. 

34 

The devastation we see today for airline workers is the aftermath of the decision 

by the White House not to help stabilize United Airlines. It only took the destabilization of one major carrier to trigger a domino effect of labor cuts throughout 

the industry. One hundred forty thousand airline workers have lost their jobs. 

Workers who were not forced out have lost our pensions. We have seen our wages 

cut by as much as 20 to 40 percent. Management has forced changes in work rules 

that cause us to work many more hours at reduced pay, and to be away from our 

homes and our families for more days every month. Management has slashed our 

medical benefits, even cutting retiree medical benefits—a move authorized by the 

law but until now was largely taboo. 

Many of our flight attendants—and many other airline workers—have had their 

lives destroyed by these bankruptcies, and by management’s use of the law to force 

devastating cuts on the employees. There have been over 150 airline bankruptcies 

since the industry was deregulated in 1978, with at least twenty-one in just the six 

years since September 11. 

These most recent rounds of bankruptcy have been especially devastating. One 

needs to look no further than the numbers. At several of the airlines represented 

by AFA-CWA, which have gone through bankruptcy, the slashing of union jobs has 

been dramatic. At ATA Airlines when the company entered bankruptcy on October 

26th, 2004 the company had 1,946 active flight attendants and as of April 16, 2007 

there were 877 actively employed flight attendants. When Mesaba Airlines entered 

bankruptcy on October 13, 2005 there were 611 flight attendants on the Mesaba 

payroll. On April 16, the total number of flight attendants on the payroll had been 

reduced to just 336. Aloha Airlines had 440 employed flight attendants on December 

1, 2004. As of April 16, 2007 there were 386 flight attendants employed by Aloha. 

USAirways had 7,790 active flight attendants when they entered bankruptcy and 

almost five years later, their number of active flight attendants was down to 4,770. 

The nearly 12,000 flight attendant jobs cut at United Airlines is another chilling 

example. At the same time, there are more passengers traveling today than there 

were in the year 2001 prior to these cuts, resulting in an unprecedented productivity 

increase—an increase which, to date, has largely only gone to enrich executives and 

shareholders. 

The total annual flight attendant cost cuts have been dramatic at carriers 

throughout the industry. Over a five year period between 2002 and 2006, annual 

flight attendant costs at ATA were reduced from $62 million a year to $38 million. 

At Northwest the costs went from $631 million to $533 million. US Airways went 

from $623 million to $267 million. At United the annual costs went from $1.4 billion 

to $945 million, and prior to the cuts the 27,000 flight attendants only comprised 

7.1% of the total labor cost at our airline. 

The painful cuts absorbed by the employees were repeated, numerous and 

stretched out over several devastating years of uncertainty. US Airways, where AFA 

has represented the flight attendants for decades, went through bankruptcy twice, 

with multiple rounds of concessionary bargaining each time. At my carrier, United, 

management dragged the employees through two rounds of full-blown Section 1113 

negotiations, while holding bankruptcy court rejection of our entire collective bargaining agreement like a gun to our head each time. 

In between rounds of Section 1113 negotiations in 2003 and 2005 United management launched an attack on our retiree medical benefits under Section 1114 of the 

Bankruptcy Code in January of 2004. Once again they used the law and the threat 

that all benefits would be cut off as a hammer to beat drastic cuts out of the workers who had invested their entire working lives in the airline. United management 

added an especially devious twist to this attack on their employees. For months before they actually filed their Section 1114 motion they pretended that they had no 

intention of filing such a motion. They even enticed workers to retire early before 

July of 2003 in order to ‘‘preserve’’ their retiree medical benefits. After getting thousands of United flight attendants to agree to leave the company in exchange for 

‘‘guaranteed’’ retiree health benefits, they then went to the court to file their Section 

1114 motion, demanding immediate increases of costs for individual retirees that 

were 10 times the cost of premiums with no cap on future healthcare costs. A coalition of unions and retiree representatives negotiated a lower premium increase with 

a cap on future costs for retirees, but sadly, retirees were forced to shoulder $300 

million in health program cuts that were approved by the court in June of 2004. 

Tens of thousands of retirees were devastated that their health benefits had been 

slashed through the rarely used section of the bankruptcy code. 

The twist in this bankruptcy approved process came just shortly after thousands 

of United employees, most with many decades of commitment to United Airlines, 

fell victim to management’s deceit. Just after they voluntarily left their careers and 

income in the hopes of preserving their medical benefits, United management filed 

35 

its Section 1114 motion seeking permission to slash those promised benefits. This 

bankruptcy court-approved move is one of the most outrageous examples of unfairness for the workers. 

That maneuver prompted the bankruptcy court to appoint a special examiner 

shortly after the section 1114 motion was filed. While the examiner questioned the 

tactics of United management, the bottom line was that the law allowed management to do what they did. The bankruptcy court gave its blessing for this bait and 

switch—which devastated thousands of flight attendants—and blessed this underhanded tactic by management. A law designed to give extra protection to retiree 

medical benefits had been turned on its head, and was now another weapon in management’s arsenal. 

As if the cuts in wages, work rules and medical benefits were not enough, United 

management also destroyed our pensions, as did other carriers in bankruptcy. Still 

other major carriers struggled to protect their pension promises with help from Congress, but management at United and US Airways walked away from their promises 

and used the bankruptcy process to destroy pensions. AFA-CWA fought to save 

those pensions, using every legal avenue at our disposal. Unfortunately, in the end, 

tens of thousands of flight attendants found themselves facing an uncertain retirement as the bankruptcy court approved a legal maneuver by management that 

made an end run on the pension protections in the law. 

In meetings with the Pension Benefit Guarantee Corporation (PBGC), in an effort 

to save the flight attendants’ pensions, we were told that the agency thought the 

United flight attendants’ pension plan could and should be saved. We worked in 

good faith with the PBGC toward that end, and negotiated with United management. Management, however, refused to reach a consensual agreement and turned 

instead to the bankruptcy court to terminate our pension plan. We were in the 

courtroom on April 22, 2005 with AFA-CWA and PBGC attorneys ready to oppose 

United’s motion, when principals from United and the PBGC entered the courtroom 

and announced that a deal had been struck: the PBGC was to receive one and a 

half billion dollars in consideration of its bankruptcy claim and the pension plans 

of over one hundred thousand United employees and retirees would be terminated. 

Flight attendants never had the opportunity to defend our pension plan according 

to the provisions within the Employee Retirement Income Security Act (ERISA) and 

the Bankruptcy Code. They dressed up this sell-out in legal sheep’s clothing, sufficient to withstand the scrutiny of the courts under the current law. But no one was 

fooled—the PBGC reversed course and set off on the path of terminating our pensions precisely because United management agreed to pay the agency over a billion 

dollars. So, the agency that was created by Congress to protect the interests of 

workers’ pensions instead had a hand in destroying our retirement security for a 

short-sited gain of 1.5 billion dollars while putting the country’s entire pension system billions of dollars closer to total collapse. Instead of saving airline employee 

pensions, it made a deal with United management that dumped billions of dollars 

of liability for our pensions onto the taxpayers. Is that fair? Does that even make 

sense as a matter of public policy? Despite what management, the PBGC and the 

courts might have said, Congress could never have envisioned that the law would 

be twisted into results like this. 

The claims of United management, like the executives at other airlines, that the 

impact of the pension termination may be mitigated assumes that United flight attendants will now have to work an extra nine years to recover the benefit levels 

they had in their defined benefit plan. Their analysis disregards the present value 

of money and also makes a number of highly unlikely financial assumptions. Especially ridiculous is their formula assumption that flight attendants would receive a 

four percent annual wage increase every year between the date of termination and 

the date of retirement, at the same time that wages were being cut an additional 

9.5% in a second round of Section 1113 labor contract cuts. That simple statement, 

obviously misleading, is designed to confuse and mislead flight attendants and others as to the impact on our Members. Nevertheless, the self-serving statement is 

typical of the assertions United management makes on this specific issue as well 

as numerous others. 

Is there any fairness in the current law regarding termination of pension plans 

in bankruptcy? One other event at United should answer that question for this 

Committee. One pension plan survived the United bankruptcy. Or, more accurately, 

one person’s pension plan survived. CEO, Glenn Tilton, was careful to shield his 

own pension from termination. Prior to the bankruptcy he executed a legal maneuver, putting his $4.5 million pension into a trust that successfully insulated it from 

the bankruptcy. Is it fair that the law allows this drastic disparity of treatment between employees of a bankruptcy company? Obviously not. 

36 

It is difficult to describe the sheer scope and the magnitude of the devastation. 

Billions of dollars have been extracted from the compensation of airline workers. 

When our good friend Representative George Miller of California conducted the first 

ever E-hearing during the United bankruptcy, the testimony submitted by our members was nothing short of heart-wrenching. United flight attendants told of losing 

their homes because of management’s cuts. Others have told us they have had to 

move back in with their parents, sell their car, cancel college classes, or lose custody 

of a child. Personal bankruptcies have become commonplace among airline workers 

and with good reason—how could anyone be expected to survive when their earnings are slashed 20, 30 even 40 percent? At Mesaba Airlines, management’s demands for cuts in wages would have reduced some flight attendant’s pay to less 

than $10,000 per year before taxes. That is nothing short of corporate-induced poverty, shifting responsibility for a living wage from the company to the taxpayers. 

Finally, no consideration of the fairness of the current bankruptcy process would 

be complete without mention of the issue of management bonuses and compensation. If the current system had any element of fairness it would not allow massive 

bonuses and incredible compensation packages for the very executives who took 

these companies into bankruptcy in the first place, and who then inflicted massive 

pay cuts on the workers under color of law. 

But, that is exactly what happens. A huge bonus for executives of a bankrupt corporation is simply wrong in light of the enormous sacrifices made by the workers 

during the course of the bankruptcy. They often give lip service to the concept of 

pay for performance, but the reality is much different: huge bonuses while workers 

take cuts. Management typically demands that the workers’ concessions be locked 

in for four, five or even six years. But for management employees they steadfastly 

refuse to make any long-term commitment to such cuts, while making very modest 

upfront cuts to give the appearance of fairness. 

Mesaba President and COO John Spanjers was asked under oath in a Section 

1113 hearing in bankruptcy court to provide some assurance that management cuts 

would stay in place for the same length of time as those of the employees. Spanjers 

flatly refused to agree that he and his management team would live under the sacrifice he was asking the employees to make. He is not alone. His colleagues at other 

airlines have taken bonuses and quickly renegotiated contracts or shifted titles to 

increase pay during bankruptcy and in the months immediately following bankruptcy while workers continue to suffer the effects years after Chapter 11 is closed. 

While airline employees have shouldered the heavy financial burden of the bankruptcy process, airline management has suffered incredibly little—if any at all—sacrifice. While the front line employees have seen their numbers slashed, pay drastically reduced, benefits eliminated and work rules destroyed, the management level 

employees reap unearned rewards. 

Our experience with management compensation at United illustrates that management compensation in the bankruptcy process is simply out of control. Although 

every other United employee is obligated to work under four additional years of concessions following the date of exit from bankruptcy, there is no evidence that 

United’s top executives have agreed to make any sacrifices during the next four 

years. To the contrary, 400 members of management stand to cash in on an excess 

of $400 million. After destroying our contract and career, United’s CEO alone 

reaped over $40 million in 2006, 2000 times the pay of a first year flight attendant. 

The bonuses were awarded regardless of their past or future performance. When the 

judge ruled on this cash reward for management following objection by the unions 

he acknowledged our concern, but essentially said there was nothing he could do 

about it because the law did not give him the authority to second guess management compensation, or a standard by which to determine ‘‘how much is too much.’’ 

The same judge had already approved millions of dollars in Key Employee Retention 

Program (KERP) bonuses, several times over, during the course of the bankruptcy. 

In a report prepared to defend their additional bonuses, United management argued that the Management Equity Incentive Plan (MEIP) was intended to align the 

interests of management and other stakeholders. If one were to accept this premise, 

then the executives of this company do not deserve one penny more than what they 

are currently compensated. If the executives interests were to be aligned with those 

of the workers they too would need to experience the grief associated with losing 

their home, losing their jobs, or not being able to make ends meet. At some point, 

the greed exhibited by corporate executives must be stopped. That time is now. 

Such equity bonuses clearly do not reflect either sound business judgment or good 

faith, much less respect for the enormous sacrifices of flight attendants and other 

workers. If there is so much equity available to enrich management, that equity 

rightfully belongs to those who have sacrificed the most to ensure our company’s 

survival. 

37 

All too often management focuses its efforts not on the success of the corporation, 

but on their own personal gain. This profiteering comes predictably at the expense 

of the dedicated workers who strive daily to ensure our airlines’ viability and success. The prospect of a select group of executives rewarding themselves at the expense of flight attendants and other employees adds fuel to a simmering fury and 

to a relationship void of trust. Companies with overly-generous salaries, KERPs and 

very lucrative management profit sharing programs—far above any reasonable 

measure for a company in bankruptcy—simply cannot pass the test of fairness in 

using the current law to force billions of dollars in annual concessions from employees. 

In the beginning of its bankruptcy, United claimed a successful reorganization depended upon ‘‘the fair treatment of employees.’’ Management promised to ‘‘equitably 

share the pain of United’s restructuring.’’ Unfortunately, the record reflects an entirely different reality, at United and at most of the other airlines that have been 

through bankruptcy. In every instance, employees have been forced to make lifechanging sacrifices while executives are richly rewarded. In light of the sacrifices 

made by the dedicated front-line workers whose commitment has been critical to the 

success of these airlines, these snatch-and-grab schemes by management not only 

evidence poor judgment, but also reflect downright avarice. 

To the Committee’s question of fairness I can only respond with my own question: 

how could any of this be considered ‘‘fair?’’ Any conversation about terminated pensions, reduced healthcare, slashed wages, destroyed careers and lives in shambles 

could never be measured with fairness. 

I would implore you, on behalf of thousands of AFA-CWA members, and tens of 

thousands of workers in the airline industry, and many more hundreds of thousands 

of workers in other industries: fix the bankruptcy law before there is any more devastation. Put an end to management abuses and their use of the bankruptcy laws 

as just another business tactic to cut costs and line their own pockets. Level the 

playing field for the workers we represent. Enact a law that provides the protection 

of restructuring a company for the good of the long-term dedicated workers who are 

committed to the success of their companies. 

Again, thank you Chairwoman Sanchez for the opportunity to testify today. I look 

forward to answering any questions that you or any members of this Committee 

may have. 

Ms. SA ́ NCHEZ. Thank you. 

At this time, I would invite Mr. Trumka to present his oral testimony. 

TESTIMONY OF RICHARD TRUMKA, SECRETARY-TREASURER, 

AFL-CIO, WASHINGTON, DC 

Mr. TRUMKA. Thank you, Madam Chairman and Members of the 

Committee. 

On behalf of the 10 million members of the unions of the AFLCIO, I would like to express our gratitude to you and this Subcommittee for holding this oversight hearing on the bankruptcy 

system’s treatment of America’s workers. 

Our bankruptcy laws are a critical safeguard in our economy, but 

one that has become dangerously unbalanced. For 75 years, Congress has repeatedly acted to define bankruptcy as a process of 

shared sacrifice among corporate constituencies. Congress has always recognized that employees are uniquely vulnerable in bankruptcy. But unlike other creditors, employees generally have only 

one employer, have only one retirement plan, and have only one 

health-care plan, yet today the bankruptcy system has become effectively a device for the wholesale transfer of wealth from workers 

to other creditors. 

It is become a system that exploits workers’ vulnerabilities, rather than seeking to create a balance between workers and other 

creditors. As you listen today to witnesses telling the grim stories 

of what happened to workers in airlines, steel and auto part plants, 

38 

remember that no mere lender of money gets treated this way. No 

bank president will sit across the table from their families after the 

bankruptcy court has done its work wondering how to provide 

health care to their children or what retirement will mean. No 

CEO, no matter how dismal the failure, contemplates losing their 

home or faces a court order to refrain from quitting their job after 

their pay was cut in half. 

In America in 2007, our bankruptcy system reserves that fate for 

the people who do that work, who make the planes, forge the steel, 

mold the rubber, and stamp out the part. So how did we get here? 

First, bankruptcy judges have allowed the procedural details of 

major bankruptcy cases to structurally disadvantage workers. 

Debtors have been allowed to deal with motions, to set aside labor 

contracts, and attack worker benefits separately and in advance of 

addressing the fate of other creditors. Frequently, the other creditors are left nearly whole. 

Second, bankruptcy courts have increasingly treated procedural 

protections—Section 1113 provides for workers collective bargaining agreements—not as a last resort, but as formalities, signaling a willingness to set aside contracts early in cases, which 

emboldens management to not make concessions in the bargaining 

that precedes the filing of an 1113 motion by management. 

Third, bankruptcy courts have agreed to pay packages that actually reward management that took the company into bankruptcy as 

a strategic choice rather than forcing management to share in the 

pain. 

Fourth, the PBGC has treated bankruptcy and the abandonment 

of pension obligations as a routine part of the landscape, rather 

than using every tool in their arsenal to make companies meet 

their obligations under their plan. The result? The retirement security protections Congress sought to provide all Americans working 

in the private sector through ERISA have been rendered an empty 

gesture by the bankruptcy courts. 

Fifth, while Congress recently increased the wage priority, both 

the amount of the wage priority and the status of severance and 

health benefits under the wage priority have proven to be insufficient to protect workers in major bankruptcies, like Enron and the 

following. 

And, finally, and most appalling, as President Prater noted, in 

the last 2 years, we have seen decisions holding that airline workers covered by the Railway Labor Act whose contracts were rejected by bankruptcy courts did not have the right to strike following a rejection of their contract. Our bankruptcy law says to 

workers in the airline industry, ‘‘You can have your contracts rejected, but unlike every other creditor, you cannot act to protect 

yourself.’’ 

Oil companies can withhold fuel delivery. Aircraft leasing companies can take back airplanes. Bankers can refuse to lend. But mechanics, flight attendants and pilots are not entitled to the rights 

that we give other commercial actors. 

Last month, the AFL-CIO sponsored a presidential forum in Chicago. Seventeen thousand people attended. And the most powerful 

moment of the forum came from—not from the presidential candidates, but from Steve Skvara, who was here a little earlier, a reVerDate Aug 31 2005 10:22 Dec 05, 2008 Jkt 000000 PO 00000 Frm 00042 Fmt 6633 Sfmt 6601 H:\WORK\COMM\090607\37601.000 HJUD1 PsN: 37601
39 

tired worker at bankrupt LTV Steel. See, Steve can’t afford health 

care for himself and his wife after the bankruptcy courts and the 

PBGC stripped him and his co-workers of one-third of their pensions and their retiree health care. 

Steve asked, ‘‘What is wrong with America, and what will you do 

to change it?’’ Well, I bring Steve’s question here today to this Subcommittee. What is wrong with the bankruptcy system is not a 

mystery, and Congress can act to fix it. 

The AFL-CIO and all of its affiliates look forward to working 

with you, Chairman Sa ́nchez, and the entire Subcommittee and the 

entire Congress to do just that: Fix a bill that is crying out for fixing. 

Thank you. 

[The prepared statement of Mr. Trumka follows:] 

40 

PREPARED STATEMENT OF RICHARD L. TRUMKA


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Ms. SA ́ NCHEZ. Thank you for your testimony, Mr. Trumka, and 

thank you to all our witnesses. 

We will now begin our round of questions. And I will begin by 

recognizing myself first for 5 minutes. 

My first question is for Ms. Townsend. In your written testimony, 

you state that Hastings employees currently pay for most of their 

own health-care costs and that it costs about $300 a week for family coverage. Does this mean that Hastings employees currently are 

paying $1,200 a month for family health-care insurance? 


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Ms. TOWNSEND. Some of those are, if they choose to take the top 

coverage. 

Ms. SA ́ NCHEZ. And how are those employees able to pay those 

premiums? 

Ms. TOWNSEND. They are not paying very well. They basically 

aren’t taking home a paycheck. 

Ms. SA ́ NCHEZ. Okay. Do you think that the Hastings retirees got 

a fair shake in the bankruptcy, or do you think that they bore the 

brunt of the restructuring? 

Ms. TOWNSEND. They bore the brunt of the restructuring. 

Ms. SA ́ NCHEZ. And did the business of the company change as a 

result of the bankruptcy, or do you think the bankruptcy just 

served as a mechanism for getting rid of the benefits of the workers 

and the retirees? 

Ms. TOWNSEND. It just served as a mechanism to get rid of the 

contract and the retirees’ negotiated benefits. 

Ms. SA ́ NCHEZ. And is that just your sentiment, or do you think 

the overwhelming majority of employees feel the same? 

Ms. TOWNSEND. Overwhelming majority. 

Ms. SA ́ NCHEZ. Okay, thank you. 

Mr. Redmond, in your prepared statement, you account how you 

personally experienced the impact of Chapter 11 while an employee 

at the McCook Metals company. When the company liquidated, it 

resulted in the termination of the company’s defined benefit pension plan and the retiree insurance plan, is that correct? 

Mr. REDMOND. That is correct. 

Ms. SA ́ NCHEZ. Can you explain to us what it means to have your 

defined benefit pension plan terminated, what the impact is? 

Mr. REDMOND. Well, the impact on the defined pension benefit 

plan—and this was a Taft-Hartley plan that was assumed by the 

Pension Benefit Guaranty Corporation—and that plan was negotiated for specific payments based on your years of service. And we 

have seen people in the McCook situation that, because of the funding situation with the PBGC and the rules that has been established by the PBGC, some of those people lost as much as 50 percent of their scheduled pension payments that they would have 

been entitled to had the plan not liquidated. 

Ms. SA ́ NCHEZ. And please explain for me what the retirees had 

to do after they lost their insurance coverage? 

Mr. REDMOND. Well, after they lost their insurance coverage, 

then the majority of the retirees that were young enough or able 

enough to go out and get other jobs, they had to find alternative 

means to try to assume some form of health care. There was an 

effort made by the union to try to reemploy some of these folks, 

along with the State, do retraining programs in other industries. 

But in this particular liquidation, the insurance plan was completely terminated, and most of those folks was left without insurance, except those that qualified by age for Social Security, to get 

Medicare on the Social Security. 

Ms. SA ́ NCHEZ. Thank you. 

Mr. Bernstein, Mr. Trumka and I think Mr. Redmond alluded to 

the idea of shared sacrifice. Do you think that all participants in 

a Chapter 11 case, including the CEOs and other managerial types, 

48 

should have to share the pain that line workers must endure over 

the course of a company’s financial restructuring? 

Mr. BERNSTEIN. Yes, Madam Chair, I do believe that there 

should be shared sacrifice among all constituencies in a Chapter 11 

reorganization. I think that, in determining the extent and nature 

of the shared sacrifice, however, it is important to keep in mind the 

market forces under which a Chapter 11 company operates so that 

it needs to pay its salaried employees, and its union employees, 

and its executives market-based wages so that it can be competitive. 

And in determining the way that the shared sacrifice is structured, those market forces need to be taken into account. And, indeed, in Section 1113, one of the factors that the court must find 

exists in order to grant the debtor 1113 relief is that the 1113 proposal is fair and equitable. And the way that has been interpreted 

by the courts is meaning that the pain, if you will, is spread in an 

appropriate manner among the various constituencies. 

Ms. SA ́ NCHEZ. Okay, correct me if I am wrong, but it sort of 

seems fundamentally unfair for a CEO, such as Glenn Tilton, to 

preserve a $4.5 million pension fund from termination while the 

pension plans of all other United employees are terminated. And 

I think it was Mr. Davidowitch who suggested, ‘‘Hey, if you are 

going to wipe out the pension plans of the line workers, why not 

write into existence a law that says all pensions, including managers and corporate CEOs, if one of them goes, they all go?’’ 

Don’t you think that that would be a huge step toward ensuring 

the pensions would only be wiped out in the most compelling of circumstances? 

Mr. BERNSTEIN. Well, I think that, as it is, the cases in which 

the courts allow pensions to be terminated or modified are very 

compelling circumstances and only those circumstances. 

Ms. SA ́ NCHEZ. And yet the CEOs can retain their pensions? Does 

that sound like shared sacrifice? 

Mr. BERNSTEIN. I don’t know the details of Mr. Tilton’s overall 

compensation package, but I would say—and so I can’t speak to his 

personal situation—but what I would say as a general matter is 

that there is no reason for corporations in bankruptcy to be paying 

materially above-market compensation to anybody, including the 

senior executives. 

However, in looking at the full compensation package for salaried 

people or executives or even the CEO, a Chapter 11 company needs 

to look at what the market for CEOs is and pay compensation and 

benefits and pension benefits that is at least at the market level 

so that the airline or the other company in Chapter 11 is able to 

retain its management, just as it needs to pay its represented 

workforce, its union workers, market wages, or else they will leave 

and go to a competitor. 

Ms. SA ́ NCHEZ. Well, it seems to me that, in some instances—and 

my time is expired, so I will be brief—in some instances, the line 

workers are bearing the brunt, and they are often getting slashes 

to their salaries and their benefits, which puts them, you know, 

below market. But because either they can’t strike or because there 

aren’t any other employment opportunities in the areas where 

49 

these folks live, they are not—the pain is not shared equally among 

the two classes of workers. 

And with that, I will yield. And I would recognize the Ranking 

Member of the Subcommittee, Mr. Cannon, for 5 minutes of questions. 

Mr. CANNON. I would just make the point by beginning and say 

that the disproportion between workers and executives is that 

there is—the market is likely different. And I think the goal of 

what we do here ought to be to create a more robust economy so 

that workers have the choice of leaving and going to someplace 

where they will get better compensation, as well. 

I will just tell you, an under 3 percent unemployment rate in 

Utah, workers write the ticket, and that is America. I think that 

is the good part of it. 

Let me ask you, Mr. Redmond, is the standard United Steelworkers contract, does that include a defined benefit program still 

or have you shifted to a defined contribution? 

Mr. REDMOND. In most of our contracts, we still have the defined 

benefit, but in many others we have shifted to defined contribution 

plans. 

Mr. CANNON. Are you familiar with the Geneva Steel mill and 

the history of the contracts there in Utah? 

Mr. REDMOND. Vaguely. Vaguely. Not that much, but—— 

Mr. CANNON. I think they were the very first that had a defined 

contribution contract. Are you familiar with that? 

Mr. REDMOND. I know that Geneva did, that the Geneva Steel 

contract did go from defined benefits to defined contributions, that 

is correct. 

Mr. CANNON. Right, and that happened earlier, like 1987, right? 

Mr. REDMOND. That is correct. 

Mr. CANNON. There was some attempt by the United Steelworkers to renegotiate that and make it a defined benefits program. Are you familiar with that? 

Mr. REDMOND. Yes, somewhat, yes. 

Mr. CANNON. Do you recall the worker response, that is the 

union member response to that? 

Mr. REDMOND. No, no, I am not. 

Mr. CANNON. It was like a rebellion. It was like, ‘‘We are going 

to leave the union if you try to change our defined contribution,’’ 

because they got such a—my understanding. Look, I get this—this 

is not my testimony that I stand by. I just have heard that the defined contribution contract became much more beneficial than what 

it would have been if it was defined benefits. 

Mr. REDMOND. If I may, Congressman, it is a matter of, you 

know, the situation that we are dealing with when we go to the 

bargaining table. And our recommendation, what we are asking is 

that the imposition of terminating the collective bargaining agreement be strictly used as a last resort. 

Now, we have had many situations where companies have came 

to us as a first resort, tried to negotiate as opposed to liquidating, 

and in some of those situations—in a great majority of those situations—we found it necessary, due to the financial situation of the 

company, in order to keep jobs in the community, to go from a deVerDate Aug 31 2005 10:22 Dec 05, 2008 Jkt 000000 PO 00000 Frm 00053 Fmt 6633 Sfmt 6601 H:\WORK\COMM\090607\37601.000 HJUD1 PsN: 37601
50 

fined benefit to a defined contribution. So we are not opposed to 

that particular concept. 

Mr. CANNON. But you are saying you respond to companies. Have 

you gotten to the point at United Steelworkers where you are willing to say there may be a huge benefit long term to having a defined contribution plan instead of a defined benefit plan? 

Mr. REDMOND. No, we have not taken that as a institutional position, and we have not taken that as a position clearly across the 

board portending to our collective bargaining agreements, no, sir. 

Mr. CANNON. Have you done anything with health savings accounts, which would do essentially the same thing for health care, 

give people sort of a control of their money and the opportunity to 

accumulate value in a health savings account? 

Mr. REDMOND. We have been involved in some situations where 

the health safety account approach have made some sense to some 

distressed companies that we have had, and we have sat down in 

a few of our contracts and negotiated health savings accounts. 

Mr. CANNON. But you have done that in response to ailing companies, as opposed to going into healthy companies and talking 

about health savings accounts? 

Mr. REDMOND. Well, we have done them in response to the collective bargaining process. We have been in collective bargaining 

situations where health-care savings accounts made sense. We 

have been in collective bargaining situations where we have rejected health-care savings accounts because they did not make 

sense. 

These decisions were made by the bargainers at the table, and 

they are mostly based on the financial situations of the companies 

and also the willingness amongst our membership to apply different approaches to try to deal with the health care situation. 

Mr. CANNON. Let me shoot to Ms. Townsend. You lost your pension. I suspect you lost your health-care benefits, as well; I think 

you said that. Would you have preferred to have had a defined contribution plan, where you owned whatever it was that you put in, 

and a health savings account, where you owned the value in that 

health savings account and that would have been able to keep 

those? Or do you think that the union representation was adequate 

in that regard? 

Ms. TOWNSEND. I do believe we were adequate in that regard, because our people don’t make enough money to be able to have the 

health savings account. It costs more money out of pocket to have 

those kinds of accounts and to have money up front—— 

Mr. CANNON. There is sort of a transition period where you have 

to have the money in the—— 

Ms. TOWNSEND. Yes. 

Mr. CANNON. But your union could have negotiated a relationship which would have safeguarded you and other employees 

through that period. Have you looked at that? 

Ms. TOWNSEND. Yes, we have. 

Mr. CANNON. And is that something that you would have found 

attractive? 

Ms. TOWNSEND. No, we did not find that attractive. 

51 

Mr. CANNON. But now, after having looking back to the bankruptcy and the loss of your benefits, would that have been more attractive? Would it be more attractive to you now? 

Ms. TOWNSEND. I still contend no, and so have our members. 

Mr. CANNON. Thank you. 

Ms. SA ́ NCHEZ. The time of the gentleman has expired. Thank 

you, Mr. Cannon. 

Mr. Conyers, you are recognized for 5 minutes of questions. 

Mr. CONYERS. Thank you very much. 

What an incredible picture is being painted here today. The 

whole economy is in need of reexamination, and opening up bankruptcy is only one small part of this equation. What is wrong with 

this economic picture, and how do we begin to turn this ship 

around and get it moving right? 

And so we have a lot of great lawyers that are working with us 

on shaping a new bankruptcy approach. And we are going to be 

working on that. We want to hear from some of these judges, and 

we want to have fair hearings, so that there won’t be any complaints about, you know, how we came to the conclusions. 

But I am thinking of Harry Lester, of the steelworkers in Detroit, who told me, because I was going to China—and I went before the steelworkers had a big conference in Dearborn recently— 

and he said, ‘‘Congressman, when China gets through building all 

of their steel mills, there will be no way that any steel company 

in the United States of America will be able to compete with them.’’ 

He said that is what it looks like, the prospect, to be. 

I raise the question with all of you about universal health coverage, as I have with Chris Cannon, instead of health accounts. I 

mean, more costs going out of the employees wages to protect them 

against health incidents, to me it is like we don’t know that, in 

most industrial countries in the world, they already have had universal health care and that we don’t have to copy anybody’s. We 

can and have created a system that is better than theirs, because 

we have learned from them. So the Ranking Member on the Subcommittee and I have talked about health care, and we are in constant dialogue about it. 

We don’t have a full employment policy in America. How many 

of you remember the Humphrey-Hawkins Full Employment and 

Balanced Growth Act? As we move from this industrial era to a 

digital era, we have to find out what gives all these companies the 

right to start breaking contractual agreements. You can’t do that 

in any other circumstance in America where you say, ‘‘Things have 

gone bad now, fellows. Guess what? The contract we signed in 

broad daylight, sober, doesn’t count anymore, and you have to come 

around, we have to renegotiate that.’’ The lawyer being told that 

would laugh at his colleague if that were raised. 

We have trade laws that encourage taking industries and shops 

and plants out of America, that encourage it. They aren’t neutral 

on it. It is encouraged. We all know how this is hemorrhaging our 

workforce. And it is not just people—has my time expired? Is that 

red? 

Ms. SA ́ NCHEZ. It goes quickly doesn’t it, Mr. Conyers? 

Mr. CONYERS. What color light am I? 

Ms. SA ́ NCHEZ. You have a red light. 

52 

Mr. CONYERS. I don’t have my glasses on. But let me just say 

this, because I really wanted to get a response from everybody on 

this table on the next round about where we come down on this, 

because this system—you talk about a powerful economic system 

that is now going into the waste basket. 

Here we have people that go to work everyday that are opening 

up the Detroit News and the Detroit Free Press to wonder if there 

is anything about their company thinking about going out, or an 

equity firm that knows nothing about an industry buying it out 

merely to usually rip it off, and bankruptcy, here we come, or 

whatever, or sell it to another higher bidder. Just take the profit 

out of it, and keep moving, as has been reported here. 

So it goes back to this old phrase, ‘‘Everything is everything.’’ 

This is all connected up. Fixing bankruptcy is only a small, but 

vital, sliver of the revisitation of how we set this country straight. 

And there has been too little oversight, no hard examination of 

where we are going. 

I would just close on this note, because I hear—and I can’t believe my ears—we have young people going around saying, ‘‘Why 

go to college? First of all, we can’t afford it. But second of all, it 

may not make any difference anyway, because now everybody is 

changing jobs every couple of years.’’ 

I mean, people—when my dad came to Detroit, you got one job, 

and you work in it until you retire. That was it; that was the tradition. And all of this is being changed and very little of it is being 

realistically examined. And that is why I think this may be one of 

the most important hearings that the Judiciary Committee’s Subcommittees, of which there are five, will be holding this year. 

This could be a very important beginning change that could go 

through the whole Congress. Almost every other Committee is involved in this, and that is why I praise the Chairwoman and the 

Ranking Member for putting this together today. 

Ms. SA ́ NCHEZ. Thank you. Does the gentleman yield back? The 

gentleman yields back his time. 

I would now like to recognize Mr. Watt for 5 minutes of questions. 

Mr. WATT. Thank you, Madam Chair. 

Two things. Let me just start by saying two things. Number one, 

how delighted I am that the Chairman of the full Committee followed the precedent that his father set and, once he got in one job, 

stayed in it all the way through a career. Isn’t that a wonderful 

thing? 

Now, his father might have been in—I don’t know what his father did, maybe worked for the automobile industry or he did— 

there are different careers, but in that sense we are so indebted to 

his father and to the fact that he stayed the course in one career 

and has become our leader in this Committee. 

The second point I want to make is just to apologize to the witnesses for not being able to be here and hear your testimony. My 

intent was to be here. I thought I had an hour of general debate 

on a bill that was on the floor before they would reach the amendment I had. And when we went to vote, they told me that they 

would probably take 5 minutes in general debate, and then I would 

53 

be on with my amendment. So I had to stay on the floor and do 

my amendment. 

But I did want to come back and participate in this discussion, 

because I think it is so timely and important that we try to establish the things that need to be addressed in bankruptcy reform that 

need to be changed. I have spent a good portion of my life before 

I heard the adage, ‘‘Consistency is the hobgoblin of small minds,’’ 

trying to reconcile things and kind of make them consistent. 

While we were out on the break, I taught an introductory civil 

rights class. I sat in as a guest instructor, and I started with this 

basic phrase that they start the Constitution with, ‘‘We hold these 

truths to be self-evident that all’’—and then I left a blank—‘‘are 

created equal.’’ In a sense, my whole aspiration has been to make 

sure that that blank was filled not only with White men—because 

that is what they were talking about when they wrote it—but to 

make sure that it applied to everybody. 

So if I am looking for consistency in things, you all will have to 

forgive me. I keep looking for a consistent world. 

And so, Mr. Bernstein, I am going to start with you, and then 

I hope the rest of the panel will weigh in. How can I make consistent the notion that a bankruptcy court can rewrite a labor contract in bankruptcy, but a bankruptcy court cannot rewrite a mortgage contract in bankruptcy? Is there some way that I can reconcile 

those two concepts? I am just interested. 

Mr. BERNSTEIN. Let me start with the general rule, Congressman, in section 365, which says that, as a general matter, any contract in bankruptcy can be rejected by the debtor. The debtor has 

to go to the bankruptcy court, but the standard—as I said in my 

remarks—is a deferential one. And so ordinarily the debtors’ business judgment, if it is rational, is approved, and the contract is rejected. 

For collective bargaining agreements, Congress in 1113 enacted 

a substantially higher standard so that it is much more difficult for 

a debtor to reject a collective bargaining agreement than it would 

be any other sort of contract. 

Now, with respect to home mortgages, these are not treated 

under the Bankruptcy Code as executory contracts. They are treated as secured loans. So the concept of rejection of the contract simply doesn’t apply under the code. However, there is a concept called 

cram-down, where a debtor, under some circumstances in bankruptcy, can modify the terms of the secured debt, and ordinarily 

that can be done with secured debt. That is not the same as rejecting or abrogating the contract, but it can, under some circumstances, modify the terms of the loan. 

And you are correct that, with respect to home mortgages, which 

are secured debt, not executory contracts, there is a prohibition on 

lien splitting under those circumstances. That is a particular provision in the code that prohibits lien splitting for individual debtors, 

but it has really nothing to do with the notion of rejecting contracts. 

Mr. WATT. Before anybody else responds, can I just take 15 seconds to explain to Mr. Bernstein that—— 

Ms. SA ́ NCHEZ. Without objection, the gentleman is granted 2 additional minutes. 

54 

Mr. WATT [continuing]. That I took my constitutional law from 

a gentleman named Robert Bork at Yale University. And most of 

what he said in my constitutional law class sounded about as bizarre as what you just said. Most of what he said, I never agreed 

with. It was a great way to learn the law. 

But I understand that there are distinctions that we have made. 

I guess the question I am asking is, how in the world can you rationalize that? And I mean, you probably gave as—I mean, you 

gave a lawyer’s answer. There are distinctions that we have made 

as a matter of public policy. I think the question I was asking was 

a broader question of, is there some public policy rationale to this? 

Or maybe you all will want to weigh in. 

Mr. Prater wants to weigh in. 

Ms. SA ́ NCHEZ. The time of the gentleman has expired, but we will 

allow the witnesses to answer. 

Mr. PRATER. Thank you, Madam Chairwoman. 

The problem is, is that bankruptcy has destroyed collective bargaining at the companies where we try to negotiate a contract. 

Market rates for labor are set at the bargaining table, not by a 

bankruptcy judge. Now, a bankruptcy judge can dictate to us what 

our labor is worth. It has destroyed industries. 

Anybody like the airline industry that has been created out of 21 

bankruptcies in the last 5 years knows, let us establish our value 

as working men and women by negotiating, but we can’t be forced 

to take the rate given by the bankruptcy judge. Give us the right 

to withhold our services. Don’t let the judge take away our right 

to withhold our service. Establish that. We will establish a fair 

market price for our services to our employer. 

Thank you, sir. 

Ms. SA ́ NCHEZ. There is enough interest, I think, for a second 

round of questioning, so I will recognize myself for 5 minutes. 

Captain Prater, you note in your prepared statement that, in the 

aftermath of September 11, 2001, ALPA and other unions faced 

continuous efforts by airlines to use the bankruptcy process as a 

razor-sharp tool to strip away working conditions and living standards that were built over decades of collective bargaining. Why did 

the events of September 11, 2001, cause this marked change in the 

airline industry? And how were its workers treated? 

Mr. PRATER. As workers in the industry, we recognize the devastation caused to our industry. We were willing and did meet with 

all of our managers to try to find the solutions to stay out of bankruptcy. Many places we took round after round of concessions trying to find those consensual approaches to avoid bankruptcy and 

then had the bankruptcies foisted upon us. 

At that point, the system turned. We were no longer able to negotiate. We were dictated to. Yes, the process was met; 1113 made 

the judge call both parties together. But at the end of the day, the 

hammer was hanging over our head. 

Now, there is no pilot that wants his or her airline to go out of 

business. We established those long-term relationships with our 

employer. We made those decades’ worth of pension plans by taking money out of our pocket and putting it into those pension 

plans. So to see those pension plans, 5 out of the 6 people at this 

table have looked at members in the eye, who are 58, 59, 60 years 

55 

old, and seen the faces when their pension plans have been killed. 

We have had to live with that. 

That is why we are here asking for the help of Congress to allow 

us to not see those faces again. Thank you, ma’am. 

Ms. SA ́ NCHEZ. Thank you. 

In light of the Delta Airlines case, you argue that a neutral expert arbitration panel should resolve certain labor issues in a 

Chapter 11 case rather than a bankruptcy judge. Can you please 

explain why? 

Mr. PRATER. Yes, we found that—again, we are looking for the 

consensual approaches that will work between management and 

labor. And we found specifically in that case that, by removing it 

from the bankruptcy judge, taking it off of the bench and putting 

it into negotiations with a third-party neutral and arbitrator, we 

were able to reach a consensus. 

It was very difficult. Again, those members lost their pensions. 

They lost over 40 percent of their wages. We are asking to be able 

to get that back, but would hate to see this repeated in other industries. Our entire industry has been ravaged by the use of bankruptcy over labor. 

Ms. SA ́ NCHEZ. Thank you. 

Mr. Davidowitch, you note that there have been 150 airline 

bankruptcies since the industry was deregulated in 1978, including 

21 bankruptcies just in the 6 years since September 11, 2001. I 

would like you to please explain, if you can, the role that deregulation, if any, has played in the financial well-being of the airline industry and explain why you think so many airlines have filed since 

September 11, 2001. 

Mr. DAVIDOWITCH. Well, in short, the barriers to entry into the 

aviation industry are little to none existent. So anybody with a big 

ego and a pocketful of cash can go out and buy some planes and 

start up a new service. 

The discussion relative to what has happened in the industry is, 

one, it is a vital service that we provide to our Nation’s communities, the people that we represent and the families that we support, or is it a commodity? If it is viewed as a vital service, then 

certainly there should be certain regulations put into place to protect the workers, as well as the communities in which they live and 

support. 

So when we look at what has transpired in the near term, in the 

events since September 11th, what has occurred—it is taken it one 

step further. We now see a degree of social engineering that has 

occurred, the abandonment of corporate social responsibilities, pulling the rug out from workers mid-career, late-career, creating the 

next generation of impoverished Americans with no retirement security and no health care. 

Nobody more than the long-term dedicated employees of these 

companies want to see that company be successful. Their futures 

are inextricably linked. So any premise, any belief that the employers and the unions can’t sit down at a level playing field and find 

a truly consensual agreement is without merit. 

The current process forces employees to negotiate with a gun to 

their head. It is just that simple. The notion that employees are 

facing no work, a company liquidating, is nonsensical. It is a red 

56 

herring. Employees want to see their companies be successful because their families’ future, their own future are linked to the success of that corporation. 

It is not a question of companies liquidating. What we are confronted with at the bargaining table, under the current process, is 

being put into a position of facing the rejection of our entire collective bargaining agreement that puts the gun to the heads of the 

employees. 

Ms. SA ́ NCHEZ. Thank you. 

My time has expired, but I am going to ask for some indulgence 

from the Members of the Subcommittee and ask for 1 additional 

minute. I have one last question I would like to get through. 

Any objection? Without objection, so ordered. 

Mr. Trumka, my final question was reserved for you. My question is, do you believe that Chapter 11 has effectively become a device for transferring the wealth of workers to other creditors? And 

why or why not? 

Mr. TRUMKA. Well, the answer is, unquestionably, yes. And quite 

frankly, I would like to answer, if you might, and answer part of 

what Representative Conyers asked and part of what Representative Watt’s asked. 

You see, about in the 1970’s, we began to adopt policies in this 

country that can best be described as growth based on corporate 

profit; in other words, everything that was good for corporate profit 

is the policy that we would adopt. Therefore, Mr. Watt, that is why 

you can, say, reject the union contract and not a mortgage contract, 

because both of those maximize corporate profit. 

What we should be looking at in the country is a policy that is 

based on growth based on worker prosperity, so that more prosperity to the workers actually stimulates the economy and pushes 

it up. All the policies that we have been adopting, including bankruptcy, feed into the growth based on corporate profit. That is why 

they have been interpreted the way they are; that is why they have 

hurt workers the way they are; that is why they are the way they 

are. 

Each one of those policies has roughly two things in common: 

One, they inevitably transfer power from workers to their employer; and, two, they ultimately result in fewer good jobs in this 

country. So, you see, the bankruptcy court or the bankruptcy policies that were originally put into the country to help protect workers and make sure that the pain is shared equally by all the constituents, it is skewed. 

You can look at policy after policy, Representative Conyers, that 

does precisely that very thing. So when you say that bankruptcy 

is just the tip of the iceberg, I have never heard a more correct or 

eloquent statement, because truly it is. 

Ms. SA ́ NCHEZ. Thank you, Mr. Trumka. My time is expired. 

I would turn to Mr. Cannon for 5 minutes of questions. 

Mr. CANNON. I am struck by the nature of the discussion of the 

panel, because we are talking about sort of like class warfare here, 

workers versus management, whereas I think the major difference—and, Mr. Prater, I want to particularly ask you about 

this—the major difference here is that managers could walk, because they are in a competitive environment, whereas employees 

57 

are engaged in a collective group. And so you are now talking about 

the rights of an individual to walk, a manager, and his ability to 

bid up his price, versus the ability of a group. 

And I think, Mr. Trumka, this actually comes back to your concept that—your statement transcends what I think we can do in 

this hearing, so I am not going to come back and talk about that 

so much, that is, with larger policy, whether we want to support 

workers and workers’ wealth versus corporate profits. What I want 

is a world of freedom. 

And so I want to focus—and that is why I want to come back to 

you, Mr. Prater—I want to focus on the difference here. Don’t we 

do better as a society—and this is the big picture here—don’t we 

do better as a society empowering every individual, not just the 

managers, not just the guys who have the degrees, but empowering 

every individual? They are not policies that you, as unions, can implement that would empower your people. 

In other words, if you want your people as a block to empower 

you, as unions, then you want to keep them tied in with defined 

benefits and Medicare, medical plans, and that sort of thing, and 

then you are negotiating as a group, as opposed to saying, ‘‘Let’s 

give every individual in America the opportunity for mobility.’’ 

So take a defined benefits plan that is portable to your next job, 

take a health savings account or some other kind of health plan 

that is portable so you can take to your next job, isn’t that where 

we really want to go? Don’t we want to make all Americans, like 

the big guys that were—what was the term that—that are the 

beneficiaries of the transfer of wealth from the collective—don’t we 

want to make all Americans portable, independent and in a market 

so they can raise their value, Mr. Prater? 

Mr. PRATER. Thank you, Congressman. What is the market value 

of a pilot, and should we be willing to just cross lines to other companies at a moment’s notice? 

Mr. CANNON. No, I don’t think that is the issue. The issue is, can 

we let that pilot work with a company he loves and induce the company to want to keep him because he can go, as opposed to being 

a member of a collective where he loses significantly if he changes 

employment? That diminishes the power of the union, but it empowers the individual. Now, that doesn’t mean the individual goes 

willy-nilly to whatever employer, but it means that he has the ability to negotiate himself. 

Mr. PRATER. We use a system of seniority that everyone is well 

aware of in different industries. But the value of not leaving is, I 

am expected to pass along my knowledge, as a senior captain, to 

the next generation of pilots. If I value my experience and my 

knowledge so much that I want to bargain for myself, why would 

I create a competitor? 

No, that is not the way we do it. We know, on a seniority system, 

we are entitled. We need as a profession to pass our value, our experience to that next generation. How do we just leave one employer and start over? That is a problem. Right now, with 30 years 

of flying experience, if I start over tomorrow, I will start at a new 

pilot’s salary of $17,000 a year. How transportable is that? 

Mr. CANNON. Well, that is not. But if you have been around for 

30 years, you’ve got a lot of experience. You have a lot of value. 

58 

In part, that value will be passed on wherever you go to other pilots, because they are going to look to you for your guidance and 

counsel and experience. That experience has value. 

Now, if you leave an employer because—if you have a contract 

system that demeans you by, when you leave an employer, from 

whatever your salary is to a new pilot’s salary, that is silly. Why 

do you want to support a system that would do that? 

Mr. PRATER. I think you missed part of the reason that we are 

collectively organized and try to work under a contract. It is so that 

we can stand up to our employer if pushed too far. If an employer 

says, ‘‘Yes, you have been on duty for 16 hours, but go ahead and 

take that trip, because that airplane is full of passengers,’’ that individual can’t stand up and say, ‘‘No,’’ unless he has a union to 

back him. That happens, sir. 

Mr. CANNON. If you have been working 16 hours—I know it does. 

Mr. PRATER. That happens. 

Mr. CANNON. Clearly, it is going to happen, and those things will 

happen. And there are some regulations that try to constrain that, 

but there is also some latitude. But there are also market forces 

that effect that, because if you force a pilot to fly more than he is 

capable of doing and the airplane crashes, then you lose a lot more 

than just the lives of the people involved in that plane. You lose 

your market position. 

Now, the value of lives is incalculable, frankly, but there are 

forces here at play. What you are arguing is that the collective is 

better from the individual. And in America, we sort of think that 

the individual and his rights are primary. And it seems to me that 

that is where, as unions, that is the future. 

We are not back in the 1920’s, when mine workers had no 

choices. We are in a world where, if unions adapt, there are great 

things that can be done. I am a big fan of collective bargaining. 

There is a place for you all to play. But limiting your members’ 

choices just seems to me to be the wrong way to go. 

Mr. PRATER. Well, certainly, within the collective bargaining, we 

are not trying to limit—you know, we are looking forward. You 

asked many questions about the value of a defined contribution 

plan? Our members have said, ‘‘Get our money out of that company 

now. Don’t let them hold on to one red cent into a defined benefits 

plan.’’ So that is where we will go in the future. But we have to 

think about those people who have already served 25, 30 years. 

Mr. CANNON. I see that my time has expired, but I just want to— 

are you saying that your members—may I have an additional—— 

Ms. SA ́ NCHEZ. The gentleman is recognized for an additional 

minute. 

Mr. CANNON. Are you saying that you are providing—that your 

union is providing the defined benefits plan and keeping the funds 

in the union? Or are you saying it is moving away from defined 

benefits toward defined contributions? 

Mr. PRATER. At the bargaining table, we are moving into more 

defined contribution plans, because our members have seen the 

failure of the defined benefit plans. 

Mr. CANNON. I think that is very good. Congratulations. Thank 

you. 

I yield back. 

59 

Ms. SA ́ NCHEZ. The time of the gentleman—the gentleman yields 

back his time. 

Mr. Conyers is recognized for 5 minutes of questions. 

Mr. CONYERS. We want to stay in contact with everybody here, 

and I think this discussion has to continue. And I will look forward 

to it. 

Ms. Townsend, what would you like to leave the Subcommittee 

with, as we close down on this second round of questions? 

Ms. TOWNSEND. What I would like to leave the Committee with 

is to look into the bankruptcy court system and give us more rights 

when we are sitting at that table negotiating, because when we sit 

there and we have no clout and no power, and you have to take 

what they are shoving at you, you have no recourse, other than to 

keep the doors open and you have a job. 

Mr. CONYERS. Sure. 

Ms. TOWNSEND. But that is all you have. 

Mr. CONYERS. Counsel Bernstein, what would you leave us with? 

Mr. BERNSTEIN. Two points, Congressman. One, Section 1113 at 

the Bankruptcy Code is working as Congress intended it to work. 

And although the issues, as you have heard today, are very difficult 

and sometimes quite painful, the bankruptcy courts are rigorously 

applying the statutes. 

Second, that in whatever modifications the Committee may consider to the bankruptcy laws, I would urge the Committee not to 

make Chapter 11 reorganizations more difficult than they are. 

They are very difficult already. Most Chapter 11 cases fail, and 

that doesn’t work well for employees, and it doesn’t work well for 

creditors, and it doesn’t work well for anybody else. 

So the objective of Chapter 11 when it was enacted was to facilitate successful Chapter 11 reorganizations, and no modification to 

the code should be made which materially detracts from that objective. 

Mr. CONYERS. Yes, the name Delphi comes to mind when you 

mention Chapter 11. And that is a very interesting situation that 

we will need to go into as this subject matter goes on. 

Mr. Redmond, what are your parting comments? 

Mr. REDMOND. Well, I would, first of all, like to leave the Committee with the four recommendations that are in our written testimony for you to give some consideration to. But I would also like 

to just go back to a question that Representative Cannon made in 

regards to collective action versus individual action. 

And I just want to respond by saying you mentioned Delphi. And 

what this is about is leveling the playing field when it comes to collective bargaining and making collective bargaining a priority as 

far as the steelworkers are concerned. 

In Delphi, where the steelworkers represent between 850 and 

900 members, the day that Delphi walked into bankruptcy court 

and filed for liquidation, they also walked into the courts and filed 

for liquidation of the current collective bargaining agreement on 

the same day. Dana Corporation, we had a similar situation, 

whereas Dana Corporation filed for liquidation, they also filed to 

liquidate the collective bargaining agreement. 

So the thing that we would like to leave with the Committee is 

this: The collective bargaining agreement, in our opinion, should 

60 

have some priority, in terms of having discussions with corporations when they encompass financial difficulties. And in light of 

their right to file for Chapter 11, we think that they also have an 

obligation to promote the integrity of the labor agreement and to 

sit down with the union and try to negotiate alternatives. 

And when we speak about defined plans of defined contributions 

as opposed to defined benefit plans, then these are the sort of 

things that take place through the collective bargaining process 

and we think is very, very important to maintain the integrity of 

the process as a first beginning, as opposed to a last resort. 

So I just want to thank you, Mr. Chairman. 

Mr. CONYERS. I am going to ask—well, I will put my statement 

in the record. But part of the problem is that the law is simply not 

clear, leading to a split of authority among the circuits. It is no secret that certain districts in our Nation interpret the law to favor 

the reorganization of businesses over other priorities, including job 

preservation, salary protections, and other benefits. 

This is particularly true with respect to the standards by which 

collective bargaining agreements can be rejected and retiree benefits modified in Chapter 11. Businesses as a result take advantage 

of these venue options and file their Chapter 11 cases in employerfriendly districts. According to the American Bankruptcy Institute, 

this is among the reasons that Delphi, a Michigan-headquartered 

company, filed for bankruptcy in New York. 

Now, I don’t know what is so great about a law that allows these 

companies to forum shop. Boy, when they hear a trial lawyer trying 

to do that, this Congress collectively hits the roof. ‘‘How dare they 

do that!’’ As a matter of fact, we changed the whole law and started 

creating legal restrictions on forum shopping, and yet here it is, 

laying here for the advantage of corporations. 

I ask unanimous consent to take a minute to go down to the rest 

of the folks—— 

Ms. SA ́ NCHEZ. Without objection, it will be granted. I am just 

going to make the Members of the Subcommittee aware that we 

have one more person who has 5 minutes of questioning, and there 

is another hearing scheduled in this very room at 1 o’clock. So we 

are going to need to wrap up testimony very quickly. 

I will allow the witnesses to answer. 

Mr. CONYERS. Mr. Prater? 

Mr. PRATER. I will be as succinct as you like our members to be 

when they are on the P.A. and you are trying to get a little sleep 

on the way home. Quite simply, I disagree completely with Mr. 

Bernstein. The 1113 section has not worked in the Bankruptcy 

Code. 

My family has had five airline bankruptcies, two for me, three 

for my wife. It has not worked: 1113 came into being in 1984 when 

Congress recognized that management should not have the unilateral right to abrogate a labor contract. Yet it passed that to a 

judge, and what we are living with now is the fact that management is getting their way in bankruptcy court. So it has not 

worked, and we would like to work with Congress to help modify 

that. 

Thank you. 

Mr. CONYERS. Thank you. 

61 

Mr. DAVIDOWITCH. Here is the irony in the current corporate 

bankruptcy law. The executives who are largely responsible for putting the company into bankruptcy in the first place are rewarded 

lavishly with bonuses and enhanced compensation packages during 

the course of the bankruptcy and rewarded lavishly upon exit from 

bankruptcy, while the workers see their rights destroyed under 

Section 1113 and Section 1114, having their health care cut and 

their pensions taken away from them. 

What I would suggest to this Committee, at a minimum, is to restore the balance that Congress intended when the Bankruptcy 

Code was last reformed to level the playing field. At a minimum, 

employees should have the right to strike, to withhold their service 

when their terms of their collective bargaining agreement has been 

changed. The unfairness that exists under the current application 

of the law and how it has been interpreted over the years has really created a lopsided scale of justice for the flight attendants and 

for other workers. 

Mr. CONYERS. Thank you. 

Mr. Trumka? 

Mr. TRUMKA. Thank you. 

First thing I would like to do is respond to Representative Cannon and say that, in fact, there is class warfare going on in this 

country, and we have been attacked continuously for the last 30 

years, the workers of this country. And the notion that you can empower individuals to do better than they will collectively I think is 

nearly laughable. 

I came out of a coal mine, and I can tell you something: That coal 

mine was owned by a large steel company. And I could have stood 

up and yelled at the top of my lungs, I could have done everything 

there, and I can promise you that they would given not two hoots 

about me. It was the fact that we were able to come together, individually, and have a greater voice, and to sit down at the table as 

equals with the management. 

And I can tell you this, that in a labor-management relationship, 

when you come together as equals, you make much better decisions 

for everybody. And I will give you a classic example. My son, who 

is 3 years old, came to me one day and said, ‘‘I want something.’’ 

And I flippantly said, ‘‘No.’’ I didn’t have to give him a reason. I 

didn’t have to explain to him. It was no. It was no because I had 

the power and he didn’t. 

Then my wife came to me, made a request—not necessarily a request. She said she was going to do something. I can guarantee you 

that it wasn’t a flippant no, because the balance of power was a 

whole lot different there. That is what happens when workers join 

together and they can have a collective voice. We all make better 

decisions. 

The other thing—— 

Mr. CANNON. Would the gentleman yield just a moment? 

Ms. SA ́ NCHEZ. Mr. Cannon and Mr. Trumka both, I respect you 

mightily. We have another hearing scheduled here in 10 minutes. 

Mr. Watt has not gotten an opportunity to ask his final round of 

questions. 

Mr. WATT. Madam Chair, this sounds like a good discussion. 

62 

Ms. SA ́ NCHEZ. Wait, wait, wait. If I can get a promise from Mr. 

Watt that he is willing to yield, his 5 minutes to allow this exchange—— 

Mr. WATT. I will yield to the gentleman—— 

Mr. CANNON. And I won’t take much time, except to say that we 

are not in very much of disagreement. There was a time when you 

needed collective bargaining. That time has transformed itself as 

labor has become more scarce. My goal in life is to be labor scarce 

and well-paid, and that means—and I think that—and I have been 

preaching this for years and years to the unions. 

And of all people, Mr. Trumka, you are one of the leaders in having actually accomplished this—that is, that if you guys empower 

your employees to work in many places, and the demand for workers goes up, that is when the employee is no longer a 3-year-old 

child. That is when he is an adult and an American and has all 

the respect that America affords to individuals. 

So we are not very much in disagreement there. 

Ms. SA ́ NCHEZ. I will allow Mr. Trumka a minute and a half to 

respond, and then we will conclude this hearing. Mr. Trumka, you 

get the final word. 

Mr. TRUMKA. I just say that that is good to hear that we are not 

that far apart, because there is a whole lot different than treating 

your workers, and giving them skills, and telling them to empower 

them as individuals. Those skills help them empower them collectively so that we all do a lot better, and that is what we do. 

Just to come back quickly to the bankruptcy bill and leave you 

with this parting word, currently all incentives that exist in the 

bankruptcy bill as interpreted give them to management to take on 

labor first and foremost. They should be changed so that the incentive is that if you take on and create pain for workers, the pain will 

be shared equally with you. 

Ms. SA ́ NCHEZ. The time of the gentleman has expired. We are 

going to conclude our hearing, and I want to thank all the witnesses, again, for their time in coming today to give their testimony. Without objection, Members will have 5 legislative days to 

submit any additional written questions, which we will forward to 

the witnesses, and ask that you answer as promptly as you can to 

be made part of the record. 

Without objection, the record will remain open for 5 legislative 

days for the submission of any additional material. Again, I thank 

everybody for their time and their patience, and this hearing of the 

Subcommittee on Commercial and Administrative Law is adjourned. 

[Whereupon, at 12:55 p.m., the Subcommittee was adjourned.] 

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