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Bankruptcy may void a collective bargaining agreement

On Behalf of | Aug 28, 2020 | Firm News |

Negotiating a collective bargaining agreement with an employer is one of the most important functions of a union. However, if the employer decides to file for Chapter 11 bankruptcy, the union may have cause for concern. Under some circumstances, a company may use a bankruptcy to try to void a CBA. 

The idea behind Chapter 11 bankruptcy is to allow businesses with substantial debt to restructure themselves so they can return to financial solvency. A business could use bankruptcy to reject costly contracts, including CBAs. Fortunately, as the National Law Review points out, a union still has a say if a company tries to void a CBA. 

Initial Proposal

According to section 1113 of the Bankruptcy Code, a business must present the representative of a union with a proposal that describes what the business wants to modify or void in the CBA. The proposal, while it seeks to benefit the company, should also benefit all parties affected by the rejection of the CBA. The business should also provide any information the union needs to evaluate the proposal. 


The next step is for the business and the union to negotiate a final solution. These talks must last for a reasonable time period and must be in good faith. If these talks work out, both the union and the business may come up with a solution that they can live with. 

Court action

If talks fail, the company may ask the court to go ahead and void the CBA. Courts may take this action for a number of reasons. A court may determine that the union did not have a good reason for rejecting the proposal. The court might find that that the company has fulfilled everything required of it. Finally, a court determines that the balance of equities comes out in favor of voiding the CBA. 

Further bargaining

In the event an employer successfully voids a CBA, it does not mean the employer can simply ignore the union going forward. The union still represents the employees that work for the business. Therefore, the employer still has the duty to meet with the union and conduct negotiations on future bargaining agreements.