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12.08.11 – (LAA) – Collective Bargaining Agreement in Bankruptcy

Hotline Update – December 8, 2011

There has been some confusion regarding what happens when the company wants to alter or terminate the Collective Bargaining Agreement in bankruptcy. Here is a more detailed explanation. The Q&A Document on the Bankruptcy Information section of has been updated with this information.

What happens if the company wants to alter or reject the Collective Bargaining Agreement?
Section 1113 of the Bankruptcy Code establishes the method by which a debtor can reject a collective bargaining agreement. In considering a debtor’s Section 1113 motion, the bankruptcy court will review certain actions the debtor has taken since the filing of its bankruptcy petition. Before authorizing rejection of a CBA, the debtor must demonstrate to the court that it has satisfied each of the following requirements:

  1. The debtor must make a proposal to the union to modify the CBA. American has indicated that it intends to make such a proposal. In his letter to APFA, American’s Senior Vice President Jeff Brundage stated, “American must now prepare to seek further changes to its APFA Agreement pursuant to Section1113 of the Bankruptcy Code. We will notify you promptly when we are prepared to present new proposals which reflect our changed circumstances.”
  2. American’s proposal must be based on the most complete and reliable information available at the time of the proposal.
  3. The proposed modifications must be necessary to permit American’s reorganization.
  4. The proposed modifications must assure that all creditors, the debtor and all of the affected parties are treated fairly and equitably.
  5. American must provide APFA such relevant information as is necessary to evaluate the proposal.
  6. Between the time American makes its proposal and the time the hearing on American’s request to reject the existing CBA, it must meet at reasonable times with APFA.
  7. At these negotiation sessions the debtor must confer in good faith in attempting to reach mutually satisfactory modifications of the collective bargaining agreement.
  8. APFA must have refused to accept American’s proposal without good cause.
  9. The balance of the equities must clearly favor rejection of the collective bargaining agreement.
  10. If the court grants American the right to reject the CBA, it can at that time implement its proposal.


Under Section 1113 (e) of the Bankruptcy Code, emergency short-term relief may be granted on an expedited basis without a full negotiating process if the court finds that the relief is “essential” to the continuation of business or to avoid “irreparable harm” to the bankruptcy estate.

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