Now that proposals have been made, the company will spend time bargaining in good faith with the unions to reach consensual agreements that will position American to regain its position as an industry leader. Our company bears an extraordinary responsibility to do this right. The approach we take will be respectful, open and we’re focused on forging a path that treats people fairly.
While American believes it is in the best interest for everyone involved that consensual agreements be reached, sometimes that isn’t the outcome. If a consensual contract agreement is not reached, the company may file a motion to reject any collective bargaining agreements (CBA) under section 1113 of the Bankruptcy Code, and the court determines whether the company proposals satisfy the requirements of that section as set forth below.
If a Motion to Reject is filed, Section 1113 sets a strict timetable, subject to potential modification by the Judge.
- The court schedules a hearing within 21 days after the motion is filed. At that hearing, the Judge hears arguments related to the fairness and equity of the company's offers. Both the company and unions offer testimony related to the proposals.
- Within 30 days from the beginning of the hearing, the Judge will decide whether to permit the employer to reject the existing CBA and implement the proposals it made to the union.
What Must the Company Prove?
For the court to approve the company's 1113 motion, five conditions must be met:
- Necessary: Proposed modifications must be necessary to permit the company's reorganization. In most courts this means the CBA changes are reasonably necessary to successful reorganization in the long term. Changes can be proposed in pay, scope, work rules, or benefits, as long as collectively, the changes can be justified as necessary to the reorganization.
- Bargaining in Good Faith: The company must bargain in good faith with the unions. It should take into consideration any alternatives the unions suggest for reaching the necessary financial savings.
- All Parties Treated Fairly: Proposed modifications must assure that all affected parties are treated fairly and equitably, including all the union and non-union employees, management, creditors, shareholders and vendors. All employee groups must bear their fair share of reductions.
- Union Must Have Refused to Accept the Proposal Without Good Cause: The union does not have good cause to disagree with proposals simply because the 1113 proposal entails sacrifices.
- The Balance of Equities Must Clearly Favor Rejection; Courts consider:
- The likelihood and consequences of liquidation if rejection was not permitted;
- the likely reduction in the value of creditor's claims if the CBA remained in force;
- the likelihood and consequences of a strike if the CBA was voided;
- the impact the changes will have on the collective bargaining unit as a whole and the individuals in the unit, including a consideration of those employees‘ wages and benefits compared to those of others in the industry; and
- the good or bad faith of the parties in dealing with the company's financial dilemma. If the Judge believes the company may liquidate absent rejection of the CBA, the court may favor rejection.
What Happens When the Judge’s Decision Is Made?
If the court permits the employer to terminate the CBA, the company's proposed contract changes are implemented. The company may implement only those proposals made during the 1113 negotiations - it cannot make changes outside of those proposals.
- The duty to bargain continues and the parties return to negotiations for a new agreement.
- A union is permitted to strike only if released from bargaining by the NMB.
If the Judge rules that the company's 1113 proposal is not both fair and equitable and reasonably necessary for the company's reorganization, the current CBA remains in force.