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Nadler, Durbin: Corporations Must Give Workers and Retirees Fair Treatment in Bankruptcy

Washington, June 25, 2020

Washington, D.C. – Today, House Judiciary Committee Chairman Jerrold Nadler (D-NY) and U.S. Senate Democratic Whip Dick Durbin (D-IL) introduced a bicameral bill to curb abuses that deprive employees and retirees of their earnings and retirement savings when businesses file for bankruptcy. The Protecting Employees and Retirees in Business Bankruptcies Act would make reforms to rebalance the Chapter 11 bankruptcy process, which has increasingly given corporate executives preferential treatment while giving short shrift to workers’ and retirees’ interests. 

“History shows that when big corporations seek the protection of the bankruptcy process, employees and retirees too often see their wages and benefits slashed while executives walk away with massive bonuses.,” said Nadler. “So far, the corporate bankruptcies resulting from the pandemic show that history is repeating itself: executives get millions and workers get left holding the bag.  This bill would curb those abusive practices and make sure working people get the fair deal that the bankruptcy laws were always supposed to provide.” 

“It’s unacceptable that when a big corporation files for bankruptcy, the interests of its employees and retirees can be placed below those of wealthy executives. This type of preferential treatment is unfair, and this bill seeks to level the playing field so those who give their lives to a company aren’t kicked to the curb,” Durbin said. “As we grapple with the economic consequences of the COVID-19 pandemic, this bill can help protect American workers from getting the short end of the stick if their company has to file for bankruptcy.”

Corporate bankruptcies are nothing new to American workers. In too many instances, workers’ claims for compensation and benefits are denied while executives’ claims are given preferential treatment. It is time for a more balanced and just approach.

Supporters of the bill include: AFL-CIO; Air Line Pilots Association; Alliance for Retired Americans; American Federation of State and County Municipal Employees; American Federation of Teachers; Association of Flight Attendants-CWA; Bakery, Confectionery, Tobacco Workers and Grain Millers' International Union; Communications Workers of America; International Association of Machinists; International Association of Sheet Metal, Air, Rail, and Transportation Workers; International Brotherhood of Teamsters; Transport Workers Union; United Auto Workers; United Food and Commercial Workers; United Mine Workers; United Steelworkers.

“Our bankruptcy laws are a critical safeguard in our economy, but they have become dangerously unbalanced. Congress has always recognized that employees are uniquely vulnerable in bankruptcy. However, the system has become one that exploits workers’ vulnerabilities, rather than creating a balance between workers and creditors. The Protecting Employees and Retirees in Business Bankruptcies Act of 2020 introduced today by Senator Durbin and Chairman Nadler will address the inequities in current law that leave workers and retirees bearing far too great a burden of a company’s bankruptcy,” said AFL-CIO President Richard Trumka.

“America's 16 million retail workers have been on the frontlines of the COVID-19 pandemic from day one, helping ensure that our country's families have the food and supplies they need. With COVID-19 wreaking havoc on our economy and driving many retailers out of business, we must not forget these brave workers who have kept our communities running during the crisis,” said UFCW International President Marc Perrone. “This bill protects Americans who lose their jobs when businesses declare bankruptcy, ensuring that these workers receive the pay and benefits they have earned and making clear that these workers should never have to take a back seat to CEO payouts or Wall Street profits. With this pandemic forcing thousands of Americans out of jobs every week, we must put workers and families first.”

“We need our elected-leaders in Washington, D.C. to reform corporate bankruptcy laws that favor the wealthy and well connected over working people. Corporations and Wall Street have a long history of using bankruptcy to deprive employees and retirees of their hard-fought earnings and retirement.  This must end. I commend Chairman Nadler and Senator Durbin for introducing legislation that would help ensure retiree and health care benefits are not reduced or eliminated during bankruptcy proceedings.  As our country faces a dual public health and economic crisis caused by the coronavirus pandemic, it is more important than ever to change this injustice. The last thing that we need during this current economic downturn which is on par with the great depression, is to strip workers of their economic livelihood and dignity,” said UAW President Rory L. Gamble.

“Union members regularly defer a portion of their wages so that companies can pay into fringe benefit packages designed to help workers and their families.  The current bankruptcy laws allow companies to take these deferred wages, use them for other purposes, and then declare bankruptcy absolving themselves of responsibility.  This cheats not just the workers and their families, but also the responsible companies who pay their commitments and often have unpaid liabilities shift to them.  SMART supports this legislation as a first step in the right direction to protect workers, their families, and fringe benefit funds from bankruptcy inequities,” said SMART (International Association of Sheet Metal, Air, Rail, and Transportation Workers) President Joseph Sellers, Jr. 

“Airline workers know far too well the devastating effects corporate bankruptcies have on the lives of hardworking Americans. Following 9/11, pilots made enormous financial sacrifices to help save our airlines, only to have tens of billions of dollars taken from us in pension and health-care cuts, as well as other negative forced changes, lasting years longer than the crisis,” said Capt. Joe DePete, ALPA president. “We are grateful to Sen. Durbin and Chairman Nadler for their leadership in bringing forth this comprehensive reform legislation that will prevent a repeat of that sad chapter in our history, provide much-needed transparency to the bankruptcy process, and benefit U.S. workers.”

The Protecting Employees and Retirees in Business Bankruptcies Act will protect workers from losing out by:

Improving Recoveries for Employees and Retirees:

  • Increasing the maximum value of worker wage claims entitled to priority payment to $20,000 per employee and allowing an additional priority claim for each employee benefit plan of up to $20,000 per employee;
  • Eliminating the restriction that priority wage and benefit claims must be earned within 180 days of the bankruptcy filing in order to be entitled to priority payment;
  • Allowing workers to assert claims for losses in certain defined contribution plans when such losses result from employer fraud or breach of fiduciary duty; and
  • Establishing new rules for priority payment of workers’ severance pay.

Reducing Employees’ and Retirees’ Losses:

  • Tightening the conditions under which collective bargaining agreements can be rejected in bankruptcy;
  • Toughening the procedures through which retiree benefits can be reduced or eliminated;
  • Requiring that court approval of bankruptcy sales be based on preserving existing jobs and retiree pension and health benefits; and
  • Clarifying that the principal purpose of Chapter 11 bankruptcy is the preservation of jobs to the maximum extent possible.  

Restricting Excessive Executive Compensation Programs:

  • Toughening court approval requirements to prohibit excessive bonus and other compensation programs proposed for senior executives and other highly compensated personnel; and
  • Ensuring that company insiders cannot maintain their retirement benefit programs intact if workers have lost their retirement or health benefits.
Today’s House bill is cosponsored by Representatives Donald Norcross (D-NJ-01), David N. Cicilline (D-RI-01), Val Demings (D-FL-10), Henry C. “Hank” Johnson, Jr. (D-GA-04), Pramila Jayapal (D-WA-07), Mary Gay Scanlon (D-PA-05), Madeleine Dean (D-PA-04) and Sylvia R. Garcia (D-TX-29).

Today’s Senate bill is cosponsored by Senators Sheldon Whitehouse (D-RI), Amy Klobuchar (D-MN), Kamala Harris (D-CA),  Sherrod Brown (D-OH), Brian Schatz (D-HI), and Jeff Merkley (D-OR). 
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