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Hostess, Teamsters Square Off In Bankruptcy Battle That May Kill Twinkies

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Marking the peak of a heated labor dispute, Hostess Brands and the Teamsters union are squaring off in bankruptcy court Tuesday in a case that could decide the iconic company's future.

The union, which represents 7,500 Hostess workers, hasn't reached a contract agreement with the bankrupt maker of Twinkies, Ding Dongs and Wonder bread, saying the company is demanding too much in the way of concessions.

Hostess argues that its pension and labor costs are untenable. A ruling against Hostess in court would force the company back to the bargaining table with the Teamsters. A ruling in favor of Hostess would allow the company to escape its current labor contracts.

"And in that case, we will be on strike," Ken Hall, Teamsters vice president, told The Huffington Post. According to Hall, the union's Hostess workers voted overwhelmingly to authorize a strike. Though he wouldn't put a date on it, he said the strike could happen "very soon." The union recently acknowledged to the court that negotiations were "in crisis."

Hostess CEO Gregory F. Rayburn said in an emailed statement that a strike by either the Teamsters or the workforce's other major union, the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union, would put the company under.

"Hostess will be forced to liquidate if there were a strike by either of its largest unions because its lenders would pull their financing," Rayburn said. "That’s why the company has tried to reach a consensual agreement with its unions that would lower the costs of its union pension and health plans while still providing employees with good, industry standard benefits."

The two sides failed to reach an agreement in advance of the hearing in bankruptcy court in New York, each arguing that the other's proposals were unreasonable. After an offer made by Hostess over the weekend calling for steep pension cuts, the Teamsters made a counter offer with more modest concessions that amount to $150 million annually, including the temporary suspension of pension payments, according to the union. Hostess maintains that the current employee pension plans are too costly and financially unstable.

In a letter to employees Monday, Hostess warned that a strike would cripple the company: "All Hostess Brands operations would shut down and liquidation would begin. The 18,500 jobs, plus the health insurance that comes with them, would be lost for good."

The union's hard stance suggests a degree of frustration among rank-and-file workers. Dow Jones reported earlier this month that Hostess' creditors were concerned that the company may have manipulated executive pay leading up to its Chapter 11 filing, possibly allowing Hostess managers to sidestep compensation requirements under bankruptcy law. The company has denied the creditors' implications.

Joseph Ortuso, a Hostess route salesman and Teamster based in New Jersey, said the news about executive pay was galling, given the talk of the need for shared sacrifice as the company struggles. "They're saying they can't afford to pay pensions when they’ve given [huge] increases to executives," Ortuso, 53, said.

According to Hostess, the raises put in place for executives last year were scrapped, and the company's top four executives have agreed to work for $1 until either the end of this year or when the company emerges from Chapter 11, whichever comes first. The company also says unionized employees have had more generous raises than non-unionized employees during the past three years.

"It is factually incorrect to claim that union employees are the only ones being asked to sacrifice," Rayburn said.

Hall, the Teamsters official, has been critical of Hostess management since the company came out of its last restructuring three years ago. He said the company needs to steer its branding and image toward healthier products to appeal to modern consumers.

"All the other companies have changed with consumers' desires," Hall said. "This company hasn’t. We want to make sure whatever our members are giving up will help make this company profitable."

The company maintains that it, too, would like to invest in branding, marketing and research and development, but can't under its current cost structure.

The bankruptcy judge is expected to make a decision on Hostess' union contracts in several weeks.

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