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| In a First, Bankruptcy Judge Rules Calif. City Can Void Union Contracts |
| 2009-03-17 |
| In the first ruling of its kind, a bankruptcy judge held the city of Vallejo, Calif. has the authority to void its existing union contracts in its effort to reorganize, holding public workers do not enjoy the same protections Congress gave union workers at private companies. Municipal bankruptcy is so rare that no judge had yet ruled on whether Congressional reforms in the 1990s that required companies to provide worker protections before attempting to dissolve union contracts also applied to public workers' union contracts U.S. Bankruptcy Judge Michael McManus held March 13 that when Congress enacted 11 U.S.C. sec. 1113 to limit companies from outright rejection of union contracts it limited it to Chapter 11 bankruptcies. By failing to extend the limits to Chapter 9, which covers municipal bankruptcy, McManus said cities have broader latitude to break existing union pacts. "This will have a huge effect nationwide if it is upheld," said Kelly Woodruff, of Farella, Braun & Martel in San Francisco, representing the firefighters and electrical workers unions. Woodruff said the unions would certainly appeal if the city ultimately voids the existing contracts with the two unions. The decision will be particularly important to cities with large unfunded pension liabilities, according to James Spiotto, of Chapman & Cutler in Chicago and a specialist in municipal bankruptcy who helped advise the Senate Judiciary Committee on Chapter 9 reforms. He said the unfunded pension liabilities for states and cities was $800 billion a few years ago and may be at $1 trillion today. "The question is whether it is an inability to pay or an unwillingness to pay. If municipalities can't provide basic services and still pay labor costs or pensions then that is a real issue," Spiotto said. |
| Posted by:Matt |
| #3 I understand that the elected officials of the government of Vallejo agreed to generous contracts because they knew the unionized employees would be more likely to vote for them. There is an issue of self-dealing here: bribe your employees for votes, and even if you eventually are voted out of office, your successors won't be able to reverse the damage without declaring bankruptcy. |
| Posted by: Eric Jablow 2009-03-17 21:41 |
| #2 another note: over several years my employer asked to increase bennies, as well as defer payments to our pension fund and avoid any pay raises for "cash flow" to Special Projects™. These were agreed to by contract. When you look for the start of the Pension Crisis©, look here for Chapter 1. I get a pretty good pension when I retire, lose my SSI contributions on my side engineering business (oh well) to about 20%... but that's what I signed on for. Changing the rules after life-altering decisions have been made for decades? Unacceptable |
| Posted by: Frank G 2009-03-17 21:19 |
| #1 won't stand. Every contract has two parties. Cities can pay via many means. NB: I work for one. |
| Posted by: Frank G 2009-03-17 20:37 |