Labor & Employment Law

Bankrupt municipality may void union contracts

In a case of first impression, a municipality in bankruptcy may reject its collective bargaining agreements with the firefighters and electrical workers unions, a federal bankruptcy court ruled, concluding Chapter 9 of the Bankruptcy Code permits a municipality to reject bargaining agreements with its public employee unions.

The decision is In re City of Vallejo, (E.D. CA. March 13, 2009). A March 17, 2009 National Law Journal article about this case is available here.

As the article states:

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 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.

Mitchell H. Rubinstein

Full post as published by New York Public Personnel Law on April 23, 2009 (boomark / email).