Real-world wisdom from outside the beltway.
Friday, September 7, 2007
The Unfairness of America's Bankruptcy Laws
Remember how a few years ago Congress passed a bill trying to turn people who go bankrupt into indentured servants to the credit card industry? Big surprise - that same harsh bankruptcy treatment is not applicable to big corporations. Apparently to Congress, what's good for Americans isn't good for Corporate America.
Corporate Bankruptcy Laws Unfair, Need to Be Overhauled
Posted By James Parks On September 7, 2007 @ 3:22 pm In Legislation & Politics
Air Line Pilots President Capt. John Prater, right, and United Steelworkers Vice President Fred Redmond prepare to testify before a congressional hearing on corporate bankruptcies.
When Kim Townsend’s employer, the Hastings Manufacturing Co., faced financial problems, the 350 workers agreed to millions of dollars in concessions, forgoing raises they had just negotiated, paying part of their health care costs and giving up a paid holiday. But that was not enough.
Eventually the company declared bankruptcy and was taken over by a new owner who demanded even more concessions to keep the doors open. Townsend, chief steward for UAW Local 138 in Hastings, Mich., told a congressional panel yesterday:
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.
The new owner also forced retirees to pay for their own health care coverage.
Townsend was one of five union witnesses who testified yesterday before the House Judiciary Subcommittee on Commercial and Administrative Law on the need to overhaul the nation’s corporate bankruptcy laws.
Retired United Steelworkers member  Steve Skvara, who attended the hearing, but did not testify, knows the anguish workers forced out by bankruptcy face. At the AFL-CIO Presidential Candidates Forum in Chicago, he told the candidates:
After 34 years with LTV Steel, I was forced to retire because of a disability. Two years later,  LTV filed bankruptcy. I lost a third of my pension, and my family lost their health care. Every day of my life, I sit at the kitchen table across from the woman who devoted 36 years of her life to my family, and I can’t afford to pay for her health care.
What’s wrong with America and what will you do to change it?
Skvara is not alone. The Kaiser Family Foundation reports that more than 200,000 retirees and dependents lost their health coverage between 2002 and 2003 as a result of the bankruptcies of just two companies: LTV Steel and Bethlehem Steel.
Over the past decade, the nation’s bankruptcy laws  have become completely unbalanced. Companies are using laws that were created to protect workers in times of economic stress to force workers to pay the cost of business failure.
AFL-CIO Secretary-Treasurer Richard Trumka said:
Today the bankruptcy system has become effectively a device for the wholesale transfer of wealth from workers to other creditors. It has become a system that exploits workers’ vulnerabilities rather than seeking to create a balance between workers and other creditors.
When many of the nation’s airlines filed for bankruptcy after Sept. 11, 2001, they routinely rejected contracts and used the bankruptcy laws to gut employee wages, pensions and working conditions and cut jobs. For example,  Air Line Pilots President Capt. John Prater said 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. Yet the airline’s CEO received a compensation package last year worth  more than $40 million.
He called on Congress to overhaul the corporate bankruptcy process to limit when a bankrupt company can break a union contract and to ensure equitable treatment of employees and executives in the process.
Greg Davidowitch, United Airlines Master Executive Council president for the  Flight Attendants-CWA, said if the current system was fair:
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.
I implore you to 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.
 United Steelworkers Vice President Fred Redmond cited his own experience at an aluminum plant in McCook, Ill., which declared bankruptcy, and said Congress should enact laws that restore balance between company needs and workers’ rights, respect the role of collective bargaining and assign higher priority to meeting obligations to employees and retirees.
But it was Townsend who summed up the need for reform best when she told the committee:
The current bankruptcy law seems unfair. The net effect of the bankruptcy proceedings (at Hastings Manufacturing) 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. 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.
Article printed from AFL-CIO Weblog:
URLs in this post:
 Steve Skvara: http://blog.aflcio.org/2007/09/03/this-labor-day-steve-skvara-speaks-for-americas-workers
 LTV filed bankruptcy: http://www.usw.org/usw/program/content/3032.php
 have become completely unbalanced: http://blog.aflcio.org/2006/04/24/abusing-bankruptcy-itâs-ok-if-youâre-a-corporation/
 Air Line Pilots: http://www.alpa.org/
 more than $40 million: http://blog.aflcio.org/2007/07/16/uniteds-ceo-rakes-in-40-million-while-airline-staff-pensions-sink
 Flight Attendants-CWA: http://www.afa-cwa.org/
 United Steelworkers: http://www.uswa.org/