Opinion ID: 540349
Heading Depth: 2
Heading Rank: 2

Heading: Contract Rejection Damages

Text: 22 Bankruptcy Code Section 365 permits an employer to reject a collective bargaining agreement and set new terms and conditions of employment. 11 U.S.C. Sec. 365; NLRB v. Bildisco & Bildisco, 465 U.S. 513, 531, 104 S.Ct. 1188, 1198-99, 79 L.Ed.2d 482 (1984). When so rejected, the agreement is deemed breached the day before the Chapter 11 petition was filed. 11 U.S.C. Sec. 365(g). Section 502(g) provides a remedy for this breach in lieu of the labor law remedies which would have been available outside bankruptcy. The appellants contend that, in addition to accrued wages and benefits, future wages and benefits are recoverable as of right as Section 502 contract rejection damages. 23 In support of their contention that the district court erred in rejecting their damage claims, the appellants rely principally upon NLRB v. Bildisco & Bildisco, 465 U.S. 513, 104 S.Ct. 1188, 79 L.Ed.2d 482 (1983), in which the Supreme Court held that the authority of a debtor-in-possession to seek the rejection of a collective bargaining agreement was not subject to the modification restrictions of Section 8(d) of the NLRA. In a footnote the Court stated that the losses occasioned by the rejection of a collective-bargaining agreement must be estimated, including unliquidated losses attributable to fringe benefits or security provisions like seniority rights. Id. at 530 n. 12, 104 S.Ct. at 1198 n. 12. The appellants read this portion of the opinion as mandating the award of contract rejection damages whenever a collective bargaining agreement is breached. The plaintiffs fail to recognize, however, that this footnote was simply the Court's attempt at clarifying Section 502(c), which requires the estimation of unliquidated claims if such are otherwise recoverable. Id. at 530, 104 S.Ct. at 1198. Whether certain types of damages are recoverable under Section 502 will depend upon the particular contract at issue and the circumstances surrounding its rejection.
24 Unlike a contract of employment, ordinarily a collective bargaining agreement does not create an employer-employee relationship; and its rejection does not terminate an employment relationship. It neither obligates any employee to perform work nor requires the employer to provide work. It is simply a generalized code to govern a myriad of cases which the draftsman cannot wholly anticipate.... The collective agreement covers the whole employment relationship. It calls into being a new common law--the common law of a particular industry or of a particular plan. John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 550, 84 S.Ct. 909, 915, 11 L.Ed.2d 898 (1964). As has been noted by the Supreme Court: 25 [C]ollective bargaining between employer and the representatives of a unit, usually a union, results in an accord as to the terms which will govern hiring and work and pay in that unit. The result is not, however, a contract of employment except in rare cases; no one has a job by reason of it and no obligation to any individual ordinarily comes into existence from it alone. The negotiations between union and management result in what often has been called a trade agreement, rather than in a contract of employment. 26 J.I. Case Co. v. National Labor Relations Board, 321 U.S. 332, 335, 64 S.Ct. 576, 579, 88 L.Ed. 762 (1944). Unless a collective bargaining agreement guarantees future employment, lost future wages and benefits as damages for its breach are not recoverable in periods when no work would have been available. See, e.g., NLRB v. Biscayne Television Corp., 337 F.2d 267, 268 (5th Cir.1964); Nabors v. NLRB, 323 F.2d 686, 690 (5th Cir.1963), cert. denied, 376 U.S. 911, 84 S.Ct. 666, 11 L.Ed.2d 609 (1964); NLRB v. Columbia Tribune Publishing Co., 495 F.2d 1384, 1393 (8th Cir.1974). 4 Likewise, employees working under such an agreement are not entitled to lost future wages if the employer ceases operations. See, e.g., J.I. Case, supra; Fraser v. Magic Chef-Food Giant Markets, Inc., 324 F.2d 853 (6th Cir.1963); Bakery & Confectionary Workers Intern. Union of America v. Great Atlantic & Pacific Tea Co., 357 F.Supp. 1322 (W.D.Pa.1973), aff'd mem., 491 F.2d 748 (3d Cir.1974); Abbington v. Dayton Malleable, Inc., 561 F.Supp. 1290 (S.D.Ohio 1983), aff'd mem., 738 F.2d 438 (6th Cir.1984). 27 The collective bargaining agreement in the present case provides no guarantees of continued employment. Hence, even if the present agreement had not been cancelled, damages would only be available for the time Continental would have been able to continue in business. In rejecting all of the appellants' damage claims, Judge Roberts relied upon a previous finding, not here appealed, that had Continental not made its unilateral changes in pilot pay and work rules[ ] it would have been unable to continue its operations for very much longer for want of necessary cash, and that absent the implementation of the September 27 Emergency Work Rules, Continental would have run ... [out] of cash and would have had to shut its doors even before this hearing commenced, that date being January 30, 1984. Recognizing that if Continental went out of business, the employees would have no damage claims under the agreement, Judge Roberts held that no damages should be available under Section 502(g). Although the reasoning utilized by Judge Roberts in rejecting the claims parallels our own here, he failed to recognize that the finding relied upon suggests that Continental could have continued to operate under its labor contracts for some period of up to four months following September 27, 1983. As the employees operating under the agreement would have had a claim for damages--accruing until Continental ceased operations--had the contract not been rejected, they are entitled to contract rejection damages for the same period. These damages are to be considered unsecured claims measured by the differences in the rates of pay and fringe benefits set forth in the agreements and the pay and benefits actually received under the Emergency Work Rules.
28 The appellants contend that contract rejection damages should be available for the time the employees were out on strike. As noted above, the purpose of Section 502(g) is to give the same remedy as would be available had the contract not been rejected. Absent constructive dismissal by the employer, 5 employees who strike are not ordinarily entitled to back pay for the period for time they are on strike, even if the strike is in response to an unfair labor practice. See Phelps Dodge Corp. v. NLRB, 313 U.S. 177, 198 n. 7, 61 S.Ct. 845, 854 n. 7, 85 L.Ed. 1271 (noting that the NLRB does not award backpay for an unfair labor practice strike); J.H. Rutter-Rex Manuf. Co. v. NLRB, 399 F.2d 356, 361 (5th Cir.1968), rev'd on other grounds, 396 U.S. 258, 90 S.Ct. 417, 24 L.Ed.2d 405 (1969) (liability for backpay to unfair labor practice strikers begins with application for reinstatement); Studio 44, Inc., 284 N.L.R.B. No. 67 at 13 n. 22 (1987) (It is well settled that unfair labor practice strikers are not entitled to reinstatement and backpay until they have made an unconditional offer to return to work); Comfort, Inc., 152 N.L.R.B. 1074, 1090 (1965), enforced, NLRB v. Comfort, Inc., 365 F.2d 867 (8th Cir.1966). As no damages would have been available to Continental employees for the time when they were on strike outside of bankruptcy, none should be given in this instance. 29 The cases relied upon by the appellants do not dictate a different outcome. For example, the appellants cite our decisions in Mungin v. Florida East Coast Railway Co., 416 F.2d 1169 (5th Cir.1969) and United Industrial Workers v. Board of Trustees of Galveston Wharves, 400 F.2d 320 (5th Cir.1968), cert. denied, 395 U.S. 905, 89 S.Ct. 1747, 23 L.Ed.2d 219 (1969), in support of their contention that a back pay remedy is available for striking employees. In both of these cases the disputed actions of the carriers constituted violations of Sec. 6 of the Railway Labor Act, for which we ruled that back-pay could be awarded as a sanction, calculated from the time of the wrongful discharge until the employees were reinstated pending bargaining. Id. at 328. We noted that the purpose of the sanction was to recreate, so far as possible, the status quo before the wrongful action was taken and to maintain it until the carriers complied with the good faith bargaining required by Sec. 6 of the Act. Id. at 329. 30 The plaintiffs' reliance upon Mungin and Galveston Wharves in the present instance is misplaced. Continental's rejection of the collective bargaining agreement, unenforceable from the time of the bankruptcy filing, involved no statutory violation. 6 In consequence, we have no such concern to preserve the status quo pending statutory compliance as we had in Mungin and Galveston Wharves. We noted the distinction between cases involving statutory violations and those involving breach of contract in both Galveston Wharves and Mungin when we stated:  'But the employees here do not claim backpay for a breach of contract. Their claim arises out of a violation of the federal statute. The contract-dispute cases therefore are not relevant.'  Mungin, 416 F.2d at 1177 (quoting Galveston Wharves, 400 F.2d at 327). Similarly, as the claims here involved are for contract rejection damages, our holdings concerning sanctions for statutory violations are not relevant. 31 Another case relied upon by the appellants, Carpenter Sprinkler Corp. v. NLRB, 605 F.2d 60 (2d.Cir.1979), actually supports our ruling here. In Carpenter, an employer's unilateral change in wages and benefits prompted its union employees to strike. An Administrative Law Judge found the employer to have committed an unfair labor practice and ordered the strikers be reinstated with back pay. This order was modified by the NLRB to include a back pay award for the strike replacements as well. On appeal, the court in Carpenter enforced only that portion of the Board's order which awarded back pay to the reinstated strikers. The appellants assume that the back pay was to run from the beginning of the strike. A reading of the Board's order itself, however, reveals that the award was to consist of the difference between the wages and other economic benefits which [the workers] actually received and the economic benefits which they would have received absent Respondent's unlawful conduct. 238 N.L.R.B. 974, 976 (1978). The Board ruled that the employer's liability for back pay shall commence as of the date of the employee's unconditional offer to return to work. Id. (citing Newport News Shipbilding and Dry Dock Co., 236 N.L.R.B. 1637 (1978)).