Just what is Section 1113 anyway?  Both AFA and UAL offer their own interpretations which we have included below.  Read them both for some insight into the bankrupty process.

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AFA's Section 1113 Review

Summary of Section 1113 of the Bankruptcy Code

“Rejection of Collective Bargaining Agreements”

November 5, 2004

United Airlines is again seeking court approval for additional concessions from employees. This continued assault on our Contract exploits the bankruptcy code to restructure the airline on the backs of employees who have already sacrificed so much. Although we have experienced the Section 1113 process before, it is important that we again review this bankruptcy law as we face this new assault on our jobs in a two year old bankruptcy and under different circumstances so that we may be fully armed with fact in determining our best course of action.

The Section 1113 bankruptcy code is titled “Rejection of Collective Bargaining Agreements” because this code ultimately is the provision through which a company (a “debtor”) may seek to reject a Contract. Bankruptcy law provides a company with this right, providing the debtor meet certain criteria in the process. S ection 1113 of the Bankruptcy Code allows the debtor to modify or reject a collective bargaining agreement in two different ways: Section 1113(c) and Section 1113(e).

Section 1113(c) Motion Review

Section 1113 (c) is the bankruptcy code under which a debtor seeks to reject a collective bargaining agreement or reach a consensual agreement with the Union to put in place long-term or permanent modifications to the Contract.

Example:

It was under a Section 1113(c) that the Restructuring Agreement, effective May 1, 2003, came into effect. Absent this agreement, the court would have ruled over whether to accept or reject our Contract.

United’s Bankruptcy Judge Eugene Wedoff made the following statement in court on April 30, 2003 when approving the six-year concessionary agreements between United and each of the Unions, “… the power of the Court in a situation like this is really very limited ... the only power the Court has is to either grant or deny a motion by the debtor to reject a collective bargaining agreement. It's an all or nothing proposition. The parties themselves have the opportunity to create solutions of considerably more subtlety and appropriateness for the case.”

This section of the bankruptcy code provides the following parameters:

1. Prior to filing to reject a Contract, the debtor must make a proposal to the Union that details all of the modifications “necessary” to restructure while also assuring that all creditors and affected parties are treated “fairly and equitably.”
2. The debtor must provide the Union with relevant information necessary to evaluate the debtor’s proposal.
3. Both parties are required to meet, at a reasonable time, to confer in “good faith” in an attempt to reach mutual agreement on modifications to the Contract.

Once the debtor officially files a Section 1113(c) motion with the court, a hearing will be scheduled to occur within 14 days after the filing date unless the parties mutually agree to a later date or the court determines a need to extend the hearing date according to the circumstances of the case. The bankruptcy judge will make a ruling on the motion within 30-days of the hearing. Discussions between the company and the Union may continue in an effort to work toward a consensual agreement up to the date of the court ruling.

Absent a consensual agreement and assuming the debtor has met the parameters listed above, the court will approve the rejection of the Contract if:

1. the Union has refused to accept such proposal without “good cause” (as determined by the court including the parameters listed above); and
2. the court determines that the concessions of other constituencies in the bankruptcy is commensurate to those made by labor .

Section 1113(e) Motion Review

Section 1113 (e) allows a debtor to ask the court for temporary or interim relief on an emergency basis. The Company must show that the changes sought are “essential to the continuation of the debtor’s business” or needed “to avoid irreparable damage” to the Company. Unlike the bankruptcy code under Section 1113(c), the court has more latitude to determine the application of changes to a collective bargaining agreement.

Example:

It was under a Section 1113(e) motion that the Interim Relief Agreement, effective January 1, 2003, went into “emergency” effect for nearly 9% cut in our wages. It was under this motion that the International Association of Machinists and Aerospace Workers Districts 141 and 141-M (IAM) refused a consensual agreement for a 13% “emergency” wage cut and the court subsequently imposed a wage cut of 14%.

On October 15, 2004, US Airways employees experience the effects of a Section 1113(e) motion when after several days of hearings that included arguments from the Union , the court imposed a 21% pay cut in addition to a few other productivity modifications on all employee groups except the pilots who had reached a consensual agreement. US Airways had requested a 23% pay cut and the productivity modifications. While forcing a 21 % pay cut across the board for front-line employees, salaried employees took cuts of 5 percent to 10 percent and the US Airway's CEO, Bruce R. Lakefield, did not take a cut in pay at all. The court also ruled that the emergency cuts remain in place for a period of four months while US Airways seeks permanent cuts through a Section 1113(c) process. For Flight Attendants, the cuts meant slashing average pay from about $36,000 to $28,000 a year. These latest cuts follow two previous rounds of employee concessions at US Airways.

Do employees have any recourse in the event of imposed modifications or rejection of a collective bargaining agreement?

Employees can engage in a strike and other forms of self-help.

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UAL's Section 1113 Review

Section 1113(c)

Section 1113(c) of the Bankruptcy Code allows a bankrupt company that meets several requirements (see below) to reject an existing collective bargaining agreement (CBA).

Under 1113(c), companies only can reject a unio n contract after satisfying several procedural and substantive requirements. Procedurally, the company has to show that it made a proposal to its union; that it met and negotiated in good faith with its union about the proposal; and that it provided its union with information relevant to evaluate the proposal. Substantively, the company must show that the proposal is necessary to permit a successful reorganization; that the proposal treats employees and all other stakeholders fairly and equitably; and that the union has rejected the proposal without good cause.

Under 1113(c), a company can make changes to wages, work rules, benefits and other provisions. If a negotiated agreement is not reached, and a company files an 1113(c) motion, it triggers a schedule of bankruptcy court activities culminating in a hearing (or trial), after which the judge decides whether or not the company can reject the existing contracts.

Even after an 1113(c) filing, the company and its union can continue to negotiate in an effort to reach an agreement that would eliminate the need for the trial. Under the Bankruptcy Code, in the absence of an agreement, the Judge must rule on an 1113(c) motion within 51 days of its filing. If the judge does nothing, the company is free to reject the union contracts and make changes to its provisions.

United's 1113(c) experience

In early 2003, United sought changes to its union contracts because it was imperative for the company to get its financial house in order as quickly as possible. While United had received temporary wage relief from its unions in January of that year, the company needed this relief to become permanent and required additional contract changes to become effective in May 2003.

The company filed an 1113(c) motion on March 17, 2003, but extensive negotiations with its unions continued after this date. The filing was necessary to ensure the savings were effective as of May 2003, which allowed the company to meet the terms of its DIP financing.

The company subsequently reached agreements with each of its unions to amend the contracts, which were then ratified by each union's membership. On April 30th, the Court approved the revised agreements.