Companies File Bankruptcy So They Can Ask Courts to Slash Union Pensions and Benefits

Bankrupt Patriot Coal asks court to slash union pensions

April 29, 2013

Reuters - Patriot Coal Corp on Monday will seek court permission to slash healthcare and pension benefits for about 13,000 union workers, an issue that has set off weeks of street protests by affected workers.

The company, which declared bankruptcy last year, said it wants to save $150 million a year on its labor obligations to help it regain profitability.

But the United Mine Workers of America, the nation's biggest coal miners' union, says the cuts are unfair and plans to protest outside U.S. Bankruptcy Court in St. Louis when the hearing starts on Monday.

Under bankruptcy law, if companies cannot negotiate compromises with unions, they can seek court permission to impose cuts unilaterally. And because employees' claims are subordinate to secured debt like loans and bonds, worker benefits are often the first place bankrupt companies look for cost savings.

This is especially pertinent in the coal industry, where benefits for generations of retirees are shouldered by an ever-shrinking workforce.

At the hearing starting Monday before Judge Kathy Surratt-States, Patriot must show that the cuts are crucial to its survival and that a good-faith effort was made to achieve them cooperatively.

Patriot will call witnesses, and then the union will begin its rebuttal with its own set of witnesses, in a process that could go all week.

Patriot has said the cuts are not a matter of stinginess, saying that current benefit obligations could send the company into liquidation.

Under its latest offer, Patriot would cease pension contributions and replace current health benefits with a voluntary employees' beneficiary association. The VEBA would be funded by $15 million in up-front cash, plus $300 million in profit-sharing contributions and recoveries from litigation. The union would also receive a 35 percent equity stake in post-bankruptcy Patriot, which it could sell to help fund the VEBA.

Lawyers for the union have acknowledged Patriot's financial woes, which were brought on by high labor costs combined with weak coal prices caused in part by a glut of natural gas.

But they say that Patriot's bankruptcy is even harder on workers and retirees than most, alleging that former parent Peabody Energy Corp set Patriot up to fail when it spun it off in 2007.

Peabody, which retained profitable coal mines throughout the United States and Australia after the spinoff, loaded Patriot up with pension and benefit liabilities for retirees, many of whom retired before the spinoff and never worked for Patriot.

The union has filed a separate lawsuit in federal court in West Virginia, where many of Patriot's operations are centered, seeking to hold Peabody liable for the benefits workers might lose through Patriot's insolvency.

Led by Cecil Roberts, the union has staged protests in New York, Appalachia and St. Louis since Patriot declared bankruptcy in July.

Patriot also has several thousand non-union employees, with whom it reached new, consensual labor terms last week.

The bankruptcy is In Re Patriot Coal Corp, U.S. Bankruptcy Court, Eastern District of Missouri, No. 12-51502.

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