1 Bankruptcy Law and Labor Law “... the trustee, subject to the court's approval, may assume or reject any executory contract or unexpired lease of the debtor." Bankruptcy Code –A CBA an “executory contract” under bankruptcy code and may be rejected by employer (debtor-in-possession) with approval of bankruptcy court –NLRB v. Bildisco & Bildisco, U.S. Supreme Court, 465 U.S. 513 (1984)

2 Requirements for Court Approval of CBA Rejection Section 1113 of Bankruptcy Code (1984 amendments) –Firm must make a proposal to union –Proposal must be based on complete and reliable info –Proposal must be “necessary” to permit reorganization –Proposed modifications must assure all affected parties treated fairly –Firm must provide info to union –Firm must meet at reasonable times with union –Parties must negotiate in good faith to reach agreement –Rejection by union must be for good cause –Balance of equities must clearly favor rejection of CBA

3 Meaning of “necessary” Third Circuit – “Imminent Liquidation” Standard –Avoidance of “imminent liquidation” –Proposal must be essential to the success of reorganization? –Desirability of cost reduction insufficient to meet standards –Modification must prevent short-term liquidation, not the contribution to long term success –Proposed changes must be the minimum to meet the standard Second Circuit – “Successful Reorganization” Standard –Proposed changes need not be minimal, but those necessary to successfully reorganize –Balance of equities criteria Likelihood and consequences of liquidation Reduction in value of creditors’ claims Likelihood and consequences of a strike if CBA voided Cost of any employee claims for breach of contract Ee wages and benefits compared to comparable firms in industry Parties’ good or bad faith