Unbalanced Bargaining: Trump Entertainment Resorts Unite Here Local 54 and Expired Collective Bargaining Agreements Under § 1113
| Publication year | 2019 |
Unbalanced Bargaining: Trump Entertainment Resorts Unite Here Local 54 and Expired Collective Bargaining Agreements Under § 1113
Adam E. Ekbom
In Trump Entertainment Resorts Unite Here Local 54, the Third Circuit recently considered, as an issue of first impression, whether a chapter 11 debtor-employer is able to reject the continuing terms and conditions of an expired collective bargaining agreement with its unionized employees under 11 U.S.C. § 1113. The court affirmed the United States Bankruptcy Court for the District of Delaware's finding that the debtor-employer had such authority even though the agreement expired after the petition date. By upholding this decision, the Third Circuit joins a growing majority of bankruptcy courts that is diluting the special status collective bargaining agreements have in our bankruptcy scheme and tipping the scales to debtor-employers to unilaterally erode the employee's bargaining power. In so doing, the court has usurped the authority and jurisdiction of the National Labor Relations Board and undermined the standing of organized labor in our national social policy.
This Comment argues that expired collective bargaining agreements are not subject to rejection or modification through § 1113. In so doing, this Comment considers the conflicting statutory concerns between chapter 11, which seeks to lessen financial obligations that would impede reorganization, and the protections of the National Labor Relations Act as it relates to unequal bargaining and unfair labor practices. This Comment proposes legislative revisions to § 1113 to resolve this conflict and correct the unartful drafting of its creators. Finally, if courts continue to follow the Third Circuit's lead, this Comment provides recommendations for judges, debtor-employers, and unions that attempt to balance these conflicting policy concerns and reinforces the bankruptcy court's role as a court of equity.
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With the rubbing of a giant genie's lamp,1 a real-estate mogul and New York gossip-column personality opened his third hotel and casino in New Jersey's Atlantic City.2 At a cost of one billion dollars, Trump Taj Mahal towered over the boardwalk with seventy minarets sculpted in neon and tipped in gold.3 Donald J. Trump referred to it as the "eighth wonder of the world.4 " It was also heavily loaded with debt.5 The gamble did not payoff and, after a year in business, the Taj Mahal and Trump's other casino properties entered bankruptcy for the first time.6
By 2009, Trump casino holding corporations had gone through the revolving doors of bankruptcy three times.7 Mr. Trump took a minority interest in the newly reorganized Trump Entertainment Resorts, Inc.8 Bondholders, along with other creditors, received an ever-shrinking return on their investments.9 Trump Taj Mahal continued to weather competition by the eleven other casinos surrounding it in Atlantic City.10 Furthermore, the emergence of casinos inside and outside the state of New Jersey caused tourism to fade from the famed
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boardwalk.11 In 2012, tourism was further affected by inaccurate reporting12 that Hurricane Sandy had partially destroyed Atlantic City.13 In the aftermath of the hurricane, "plans for further casino construction dwindled."14
This combination of competition, natural disaster, and neglect caused the once opulent casino to fall into such disrepair that Mr. Trump sued to have his name, emblazoned in neon, removed from the Taj Mahal's fa$ade.15 In September 2014, Trump Entertainment Resorts, Inc. shuttered the Trump Plaza and, despite Trump Taj Mahal generating "the fifth-highest gambling revenue on the boardwalk," the company filed for chapter 11 reorganization.16 Company executives stated that, without modifications from its labor union's collective bargaining agreements,17 the Taj Mahal would close in November.18 Unite Here
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Local 54, representing 1,200 Taj Mahal employees,19 disagreed with management's assessment and fought against modifications to its agreement.20
The unionized laborers affected by the modifications served as "housekeepers, bartenders, cooks, cocktail servers, and other service workers" at Trump Taj Mahal.21 The majority of this workforce were middle-age women whose labor supported their children, families, and homes.22 In 2015, the average unionized worker's hourly pay was approximately $11.74.23 According to Unite Here, many workers, even those with seniority, have only seen eighty cents "in total raises over the last twelve years."24 However, over the same period, "the cost of living in Atlantic City has risen over 25 percent."25 During the financial recession, the casino-workers union agreed with Atlantic City casino operators "to wage freezes and benefit reductions totaling at least $40 million over the last five years."26 The Union, and many of its representatives, saw a large disparity between the casino industry and company executives generating larger profits and bonuses, while union wages remained stagnant.27
In the aftermath of Trump Entertainment Resorts, Inc.'s bankruptcy case, its unionized employees were faced with financial and emotional hardships. In the first half of 2016, the state of "New Jersey's foreclosure rate was 0.98 percent of housing units, or one in every 102 homes."28 Atlantic City "had the highest foreclosure rate of any major U.S. metropolitan area at 1.8 percent."29 Tina Condos, a unionized cocktail waitress who had worked at Trump Taj Mahal since its grand opening, is only one of many workers who had lost their homes to foreclosure in the wake of this case.30
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The subsequent labor dispute and legal challenge reaffirmed the courts' conflicting applications of collective bargaining agreements under bankruptcy law and the National Labor Relations Act (hereinafter the "NLRA").31 In a matter of first impression, the Court of Appeals for the Third Circuit addressed whether "a Chapter 11 debtor-employer is able to reject the continuing terms and conditions of a collective bargaining agreement (CBA) under [11 U.S.C.] § 1113 after the CBA has expired."32 Collective bargaining agreements are not considered "executory contracts" under the Bankruptcy Code and are not subject to the assumption or rejection procedures outlined in § 365.33 The NLRA "prohibits an employer from unilaterally changing the terms and conditions of a CBA even after its expiration."34 Therefore, "key terms and conditions of an expired CBA continue to govern the relationship between the debtor-employer and its unionized employees until the parties reach a new agreement or bargain to impasse."35
The Court of Appeals for the Third Circuit affirmed the United States Bankruptcy Court for the District of Delaware's holding that the debtor had authority to reject an expired collective bargaining agreement even though the agreement expired after the petition date.36 The bankruptcy court further held that the debtor met its burden under § 1113 to reject the collective bargaining agreement.37 By upholding this decision, the Third Circuit joined a growing majority of bankruptcy courts that have determined that § 1113 provisions extend to the status quo terms of expired collective bargaining agreements.38
This growing majority has diluted the special status collective bargaining agreements have in our bankruptcy scheme and tips the scales to debtor-
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employers to unilaterally erode employee's hard-won bargaining power. These recent developments mirror Justice Brennan's concern that when courts hold that an employer "may disregard the terms of a collective bargaining agreement after a bankruptcy petition had been filed," this "deprives the parties to the agreement of their 'system of industrial self-government'" and without that systematic "resolution of the parties' disputes will indeed be left to 'the relative strength . . . of the contending forces.'"39
Private employer collective bargaining agreements are still common in various industries including, in the case of Trump Entertainment Resorts, Inc., hospitality. According to the Bureau of Labor Statistics, union wage and salary employees made up 10.7 percent of the American workforce in 2016.40 The hospitality industry, as of 2016, consisted of 389,000 union members.41 In Atlantic City, Trump Taj Mahal's competitors all had a portion of their workforce composed of union workers.42 Collective bargaining agreements provide benefits for both management and union members.43 Management is able to centralize labor negotiations directly through the representing unions as opposed to individual employees. In exchange for certain employment protections, management is able to set specific pay scales and performance standards based on seniority.44 By negotiating collectively, union workers have structured grievance and arbitration procedures to resolve disputes and secure robust benefits packages, including pensions, which are becoming less common in the private-sector. Furthermore, the NLRA structures the negotiation process between the employer and employees with the National Labor Relations Board (hereinafter the "NLRB") to mitigate disputes and maintain the balance between management and union members.45
Since its inception, § 1113, intended to protect labor's bargaining power and uphold the authority of the NLRA,46 has stood out like a sore thumb in a
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bankruptcy chapter focused upon the debtor's ability to reorganize.47 Reorganization, outside of collective bargaining agreements, generally favors the debtor's ability to escape from pre-petition contractual obligations, as demonstrated in § 365.48 The majority view demonstrates that, despite legislative intention, bankruptcy courts have favored a debtor's reorganization over the interest of labor in their application of §...
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