Franken: Corporations must give workers and retirees fair treatment in bankruptcy

U.S. Senators Al Franken (D-MN), Dick Durbin (D-IL), Tom Harkin (D-IA), Sheldon Whitehouse (D-RI), and Sherrod Brown (D-OH) introduced legislation today to curb abuses that deprive employees and retirees of their earnings and retirement savings when businesses collapse. The Protecting Employees and Retirees in Business Bankruptcies Act would make several changes to Chapter 11 bankruptcy law, putting workers’ interests near the top when companies file for bankruptcy. A companion measure has been introduced in the House of Representatives by House Judiciary Committee Ranking Member John Conyers (D-MI).

“When a company enters bankruptcy, employees shouldn’t have to fight for what they’ve earned while executives get to walk off with huge bonuses,” said Senator Franken. “We’ve seen our workers lose out too many times, and that needs to change. I will press to get this bill passed to help preserve jobs, pensions, and retiree health care benefits.”

Corporate bankruptcies are nothing new to American workers. In too many instances, workers’ claims for compensation and benefits are denied while executives’ claims are given preferential treatment. It is time for a more balanced and just approach.

“Companies, banks, and Wall Street speculators have for decades used the bankruptcy system to break promises to American workers and retirees and play recklessly with American jobs,” said Leo Gerard, International President of the United Steelworkers. “Congress now has the opportunity to level the playing field for working Americans by re-orienting the bankruptcy laws to allow companies to reorganize responsibility while recognizing the importance of maintaining jobs that lift workers into the middle class and provide security and dignity in retirement.”

The Protecting Employees and Retirees in Business Bankruptcies Act will protect workers from losing out by:

Improving Recoveries for Employees and Retirees:

Increasing the amount of worker claims entitled to priority payment for unpaid wages and contributions to employee benefit plans up to $20,000;
Eliminating the difficult-to-prove restriction in current law that wage and benefit claims must be earned within 180 days of the bankruptcy filing in order to be entitled to priority payment;
Allowing employees to assert claims for losses in certain defined contribution plans when such losses result from employer fraud or breach of fiduciary duty;
Establishing a new priority administrative expense for workers’ severance pay; and
Clarifying that back pay awards for WARN Act damages are entitled to the same priority as back pay for other legal violations.

Reducing Employees’ and Retirees’ Losses:

Restricting the conditions under which collective bargaining agreements and commitments to fund retiree pensions and health benefits may be eliminated or adversely affected;
Preventing companies from singling out non-management retirees for concessions;
Requiring a court to consider the impact a bidder’s offer to purchase a company’s assets would have on maintaining existing jobs and preserving retiree pension and health benefits; and
Clarifying that the principal purpose of Chapter 11 bankruptcy is the preservation of jobs to the maximum extent possible

Restricting Excessive Executive Compensation Programs:

Requiring full disclosure and court approval of executive compensation packages;
Restricting the payment of bonuses and other forms of incentive compensation to senior officers and others; and
Ensuring that insiders cannot receive retiree benefits if workers have lost their retirement or health benefits.