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Bankruptcy Code Section 1113 Trumps NLRA
A significant problem confronting many debtors seeking to reorganize through Chapter 11 involves the resolution of labor contract issues. A recent decision from the U.S. Court of Appeals for the Third Circuit will likely impact how that problem is solved by debtors teetering on the brink of, or already in, Chapter 11 where their operative collective bargaining agreement has or soon will expire. Deciding an issue of first impression, the Third Circuit in In re Trump Entertainment Resorts, 2016 U.S. App. LEXIS 672 (3d Cir. Jan. 15, 2016), affirmed a bankruptcy court's determination that Section 1113 of the Bankruptcy Code allows a debtor to reject the continuing terms and conditions of an expired Collective Bargaining Agreement (CBA). In so holding, the court effectively determined that the policies and goals underlying Section 1113 override the countervailing requirements of the National Labor Relations Act (NLRA), which otherwise prohibit an employer from unilaterally changing the terms and conditions of a CBA, even after expiration.
The Case
The facts in Trump tell the familiar story of the crisis conditions that have enveloped many Atlantic City, NJ, casinos. The debtors own and operate the Trump Taj Mahal, which has nearly 1,500 unionized employees, most of whom are represented by the appellant, Unite Here Local 54. The union and the Taj Mahal were parties to a CBA, the term of which initially went through Sept. 14, 2014, but thereafter continued on a year-to-year basis unless either party gave 60 days' notice of its intent to terminate, modify or amend. In early 2014, the debtors sought to renegotiate the CBA due to the casino's deteriorating financial condition. Those negotiations failed to result in a modified contract prior to the debtors' September 2014 bankruptcy. Immediately after filing, the debtors requested an extension of the CBA's term, which the union refused, resulting in the CBA's expiration a few days later.
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