It's a story told so often that we know the ending well before the last chapter. Company suffers losses, bankruptcy looms, and workers sacrifice their rights to collective bargaining, and lose their pension and benefits to save their jobs while company executives not only keep their benefits and pensions, but also receive generous bonuses.
It's a national embarrassment that the same executives who steer a company to the brink of collapse are given preferential treatment with the remaining assets. What's alarming is that current law actually favors this type of activity.
The Bankruptcy Code ranks creditors that have a financial claim against the company in bankruptcy proceedings. The ranking assigned by the Code determines which entity has priority to get paid first from the company's remaining assets. Workers who have pensions with investments in company stock are ranked as shareholders and are, in fact, among the last to be paid.
It's become standard operating procedure for companies to use bankruptcy or the threat of bankruptcy to shake down its employees.
Take, for example, the Tribune Company, a media giant that has been mired in bankruptcy proceedings since December 2008. Tribune paid management bonuses during this period totaling $46.5 million while salary and benefit freezes were mandated for the workers who hadn't already been laid off.
Workers for auto parts supplier Visteon also suffered a similar fate. Their company, which filed for bankruptcy in May 2009, was allowed to reward management with bonuses up to $35 million, including up to $6 million for senior executives, while closing plants and terminating retiree health benefits. Now Visteon is trying to terminate pension plans.
We are accustomed to hearing this story over and over again. It is time we changed the ending.
After having focused on the problem of jobs lost overseas through the bankruptcy process over the past few years, I began wondering how eager executives would be to pursue Chapter 11 if they couldn't use it to bust unions and if they could derive no personal reward from it.
I took up this idea with some House and Senate colleagues and we drafted a bill to bring some common sense to corporate bankruptcies. To me, common sense means that if workers are expected to take a hit, then CEOs better expect to share the pain.
What may seem like common sense to you and me isn't how the business world has been operating, so our bill takes steps to level the playing field for CEOs and their employees as their companies enter Chapter 11 bankruptcy. Specifically, our bill takes the following actions.
• Makes it tougher to reject collective bargaining agreements.
• Prevents companies from preserving management retiree health benefits while reducing everyone else's.
• Allows workers to assert claims for losses in certain defined contribution plans when such losses result from employer fraud or breach of fiduciary duty.
• Establishes a new priority administrative expense for workers' severance pay.
• Clarifies that back pay awarded via WARN Act damages are entitled to the same priority as back pay for other legal violations.
It seems inconceivable, but during the worst economic downturn since the Great Depression, the number of millionaires actually increased 16% over the past year. While I am not one to begrudge someone else's financial success, I do not suffer kindly those who cheat people out of their hard-earned wages, pensions, and health care in pursuit of a bigger bonus.
This measure is urgently needed to protect the jobs, benefits and retirement plans that provide for many working class families. These reforms will provide transparency to the bankruptcy process and change the Code so that executives must accept the same cuts in wages, benefits and pensions that they ask of workers.
It's time to level the playing field and eliminate the abuse our bankruptcy laws so we can have a better ending, not the same old story.