In The ‘Back Seat’ No More: New Legislation Would Protect Workers, Retirees When Their Employers Go Bankrupt

Democrats in both the House and Senate introduced legislation Wednesday designed to protect the earnings and retirement savings of workers and retirees when businesses collapse.

The Protecting Employees and Retirees in Business Bankruptcies Act would make several changes to Chapter 11 bankruptcy law, putting workers interests near the top when companies file for bankruptcy, according to Sen. Dick Durbin (D-Ill.) and House Judiciary Committee Chairman John Conyers (D-Mich.), the lawmakers behind the proposal.

The Senate bill is cosponsored by Sens. Tom Harkin (D-Iowa), Sherrod Brown (D-Ohio) and Al Franken (D-Minn.).

The legislation is similar to a bill Durbin and Conyers introduced in the previous Congress.

“American workers and retirees who give their lives to a company are too often treated like strangers when their employer files bankruptcy,” says Durbin, the second-highest ranking Democrat in the Senate. “This bill says that if a company goes bankrupt, employees and retirees won’t take a back seat to creditors and executive bonuses in getting fair treatment.”

In too many corporate bankruptcies, workers’ claims for compensation and benefits are denied while executives’ claims are given preferential treatment, supporters of the legislation say. The legislation in question provides for a more balanced and just approach, they add.

“Workers of distressed companies are frequently asked to save their companies by sacrificing their wages, benefits and right to collective bargaining while executives are rewarded with bonuses and golden parachutes,” said Conyers. “Our bill establishes that sacrifice should be spread evenly among all employees when companies face bankruptcy.”

Lawmakers say that the Protecting Employees and Retirees in Business Bankruptcies Act would protect workers from losing out by:

Improving Recoveries for Employees and Retirees:
· Doubles the maximum value of wage claims entitled to priority payment for each worker to $20,000
· Allows a second claim of up to $20,000 for contributions to employee benefit plans
· Eliminates the restriction that wage and benefit claims must be earned within 180 days of the bankruptcy filing in order to be entitled to priority payment
· Allows workers to assert claims for losses in certain defined contribution plans when such losses result from employer fraud or breach of fiduciary duty
· Establishes a new priority administrative expense for workers’ severance pay
· Clarifies that back pay awarded via WARN Act damages are entitled to the same priority as back pay for other legal violations

Reducing Employees’ and Retirees’ Losses:

· Restricts the situations in which collective bargaining agreements can be rejected, tightens the criteria by which collective bargaining agreements can be amended, and encourages negotiated settlements
· Toughens the procedures through which retiree benefits can be reduced or eliminated, including preventing companies seeking retiree health benefit reductions from singling out non-management retirees for concessions
· Requires the court to consider the impact of a bidder’s offer to purchase a company’s assets would have on maintaining existing jobs and preserving retiree pension and health benefits
· Clarifies that the principal purpose of Chapter 11 bankruptcy is the preservation of jobs to the maximum extent possible

Restricting Executive Compensation Programs:
· Requires disclosure and court approval of executive compensation for firms in bankruptcy
· Prohibits the payment of bonuses and other forms of incentive compensation to senior officers and others
· Ensures that insiders cannot receive retiree benefits if workers have lost their retirement or health benefits

Durbin and Conyers say that their bill enjoys strong labor support.

“Workers and retirees throughout American industry have seen hard-won benefits stripped away by a deadly combination of American bankruptcy laws and other governmental policies that have for years been aligned against their interests,” says Leo Gerard, international president of the United Steelworkers, one of the unions that supports the legislation. “Congress can now begin to set things right by reforming the bankruptcy laws to level the playing field, respect the bargaining process, and encourage companies to reorganize in a responsible way.”

Publisher of the news site On The Hill, Scott Nance has covered Congress and the federal government for more than a decade.

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