Labor Activism in Bankruptcy

Abstract

This article analyzes labor union participation in corporate reorganizations and argues that this participation – particularly if expanded to include non-unionized workers – can provide benefits for corporate governance in the Chapter 11 context.

Many of the same dynamics that have motivated labor unions to engage in corporate governance through shareholder activism and labor campaigns also have motivated labor unions to participate more actively in the bankruptcies of corporate employers: workers have long-term interests in their employers but they are generally excluded from corporate governance mechanisms. In addition, bankruptcy and financial distress create unique governance dynamics that create an even stronger incentive for labor unions to develop new strategies to protect their interests. These dynamics have been characterized as a creditor competition for corporate control, and this competition simultaneously threatens the interests of workers and creates new opportunities for workers to participate in the reorganization process.

This labor participation in the reorganization process can protect not only the interests of the represented workers but also the interests of all stakeholders, as workers and their unions can be a valuable repository of information regarding the firm and industry. For example, in both the Hostess Bakeries and American Airlines bankruptcies discussed in this article, labor unions were able to forge alliances with other stakeholders and potential purchasers based in part on the unions’ internal perspective on the debtors’ operations.

This article concludes by considering whether, in the face of declining unionization rates, statutory employee committees could be used more broadly to incorporate worker voice into bankruptcy governance. While such committees are already permissible under current bankruptcy law, they are rarely used, in part, because of their perceived costs. The value contributed by labor union participation, however, suggests that these costs should be reconsidered in light of the benefits such committees can provide.

Keywords: Bankruptcy, Corporate Reorganization, Labor Union