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Collective Bargaining Aftermath
At first blush, the recent decision, In re Northwest Airlines Corp., 483 F.3d 160 (2d Cir. 2007), in which the United States Court of Appeals for the Second Circuit held that a federal court may enjoin a strike by employees covered under the Railway Labor Act (the 'RLA') following rejection of their collective bargaining agreement ('CBA'), would appear to be of limited applicability outside of airline bankruptcies. But the Second Circuit's underlying rationale ' that rejection of a CBA under Section 1113 'abrogates' the contract, 'effectively shielding [the debtor] from a charge of breach' ' has broader application to the rights of all employees, even those working in industries not covered by the RLA. Id. at 174. Courts adopting this rationale will likely conclude that rejecting a CBA under Section 1113 does not give rise to employee claims for rejection damages against the debtor.
Indeed, within 15 days of the Second Circuit's ruling, the bankruptcy court presiding over Northwest Airlines' Chapter 11 case concluded that it had no choice but to disallow the proof of claim filed by the flight attendants' union on behalf of approximately 7500 flight attendants, holding that if the CBA had not been breached when it was rejected, then the flight attendants could not have any claims. In re Northwest Airlines Corp., 366 B.R. 270, 274-75 (Bankr. S.D.N.Y. 2007). The bankruptcy court left open the possibility that if the flight attendants union ratified a new agreement with the debtor that provided for a claim, the court might reconsider and allow a claim for the flight attendants. Id. at 277.
The bankruptcy court's decision had a severe and immediate impact on the flight attendants, the only employee group that had not reached an agreement with Northwest Airlines. At the time this decision was rendered, unsecured claims against Northwest Airlines were trading for between 80% and 95%, with trading fueled by speculation about a possible Northwest Airlines merger with another airline. See Northwest Airlines Form 8-K dated Feb. 6, 2007 at pg. 4. The other Northwest Airlines unions had already cashed in on substantial portions of their claims and made lump sum payments to their members ' in some cases almost as high as one year's wages ' to compensate the employees for lost wages and benefits.
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