Solvent firms that go bankrupt: cost cutting doesn't cut with labor
Karen Bramlitt's working life was turned upside down by her employer's decision to file for bankruptcy. With 19 years of seniority as a Continental Airlines flight attendant, Mrs. Bramlitt had a good chance of getting the monthly flight schedule she requested. She could live in Albuquerque, N.M., with her family and commute to Denver for the few days a month she was on duty.
All that changed Sept. 24 when the airline sought protection under the bankruptcy laws. Under new work rules the company adopted unilaterally, flight attendants are on call 24 hours a day and must report to the airport within two hours of a call, not enough time for Mrs. Bramlitt to fly 300 miles from Albuquerque. Crew members have lost their seniority rights, and the most senior attendants no longer receive $37,500 a year, but an hourly rate equivalent to $ 15,000 a year.
''I was going to be eligible (for retirement) in one year; now all that is out the window,'' she complains. She has not been offered a flight since the bankruptcy filing.
Next Tuesday the US Supreme Court will turn its attention to Mrs. Bramlitt and thousands of other workers affected by a growing number of still-solvent companies that are using the bankruptcy law to free themselves from burdensome labor contracts or expensive lawsuits. In the past, only companies that had already run out of cash filed for bankruptcy.
The question the court is being called on to settle in Tuesday's Bildisco case is how dire a company's financial situation must be before it can seek to have labor contacts torn up by the bankruptcy court.
(Bildisco is a New Jersey building materials company that filed a Chapter 11 bankruptcy in 1980. Then, to save $100,000, it refused to pay wage increases called for under a contract with the Teamsters union. A bankruptcy court supported Bildisco's rejection of the Teamster contract, but the National Labor Relations Board held against the company. Two US Circuit Courts of Appeals have issued conflicting rulings on the issue.)
The outcome is expected to have great impact on relations between workers and management, on the degree of confidence employees can have in the security of negotiated pay and benefits, and in the way corporations deal with challenging situations.
Although Continental only recently used the tactic and Eastern Airlines has threatened to, airlines are not alone in filing for bankruptcy before they are actually broke. In April, Wilson Foods Company used a bankruptcy filing to free itself from what it considered a burdensome contract with the Meatcutters union. And in August of 1982, the Manville Corporation filed for bankruptcy to protect itself from a slew of asbestos-related lawsuits, even though it had a net worth of $1.1 billion.
There are no comprehensive statistics on the number of companies making such filings, according to Rowena Wyant, vice-president of Dun & Bradstreet, which tracks business failures. But the number appears to have surged recently, says Vernon Countryman, a bankruptcy expert and Harvard Law School professor.
''There have been many more this year than in the Great Depression'' of the 1930s, Mr. Countryman says. ''I have read of at least a dozen and a half cases in the past year.''
Both labor leaders and more dispassionate observers expect the trend to grow if the Supreme Court decides a contract can be broken if it is merely burdensome , rather than allowing contracts to be torn up only if not doing so would directly cause the company to fail. ''It could spawn a wave of corporate lawlessness,'' argues Capt. Henry A. Duffy, president of the Air Line Pilots Association.
Bankruptcy is never likely to be entered into lightly, since companies give up a significant degree of operational freedom and forfeit considerable public esteem, notes Morris Shanker, a bankruptcy expert and law professor at Case Western Reserve University in Cleveland. But the Supreme Court decision ''will be a part of the dynamic lawyers and clients will be looking at in deciding whether or not to file,'' he says.
Corporate officials who have turned to bankruptcy or considered it to deal with burdensome contracts or lawsuits say they have done so reluctantly and only to save their companies and the jobs they provide. Bankruptcy ''is a last resort,'' says Eastern Airlines senior vice-president Morton Ehrlich. ''I can assure you that we do not view Chapter 11 as a panacea, wherein Eastern could obtain instant relief by ridding ourselves of unions.''
There are several reasons for the rise in the number of still-solvent companies filing for protection. A 1978 revision of the law made it easier for corporate officers to avoid losing their jobs after a company goes into bankruptcy. Competitive pressures have increased due to the recession and deregulation of some industries.
And during the recession, law firms significantly increased their in-house expertise on bankruptcy. As a result, their clients are ''looking at bankruptcy much earlier'' as a possible alternative, says Marjorie Girth, a law professor at the State University of New York at Buffalo.
At the recent AFL-CIO convention in Florida, labor leaders vowed to pressure Congress both to reregulate the airline industry and to halt what they see as abuse of the bankruptcy laws. But the Judiciary Committees in both the House and Senate, which have jurisdiction over the bankruptcy laws, say they have no current plans to hold hearings.
If the Supreme Court, however, takes a ''less than rigorous stand, there is a good chance Congress will do something about it,'' a House Judiciary Committee staff member says.