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Bankruptcy Code Section 1113 Trumps NLRA

By Francis J. Lawall, Henry J. Jaffe and Michael J. Custer

A significant problem confronting many debtors seeking to reorganize through Chapter 11 involves the resolution of labor contract issues. A recent decision from the U.S. Court of Appeals for the Third Circuit will likely impact how that problem is solved by debtors teetering on the brink of, or already in, Chapter 11 where their operative collective bargaining agreement has or soon will expire. Deciding an issue of first impression, the Third Circuit in In re Trump Entertainment Resorts, 2016 U.S. App. LEXIS 672 (3d Cir. Jan. 15, 2016), affirmed a bankruptcy court's determination that Section 1113 of the Bankruptcy Code allows a debtor to reject the continuing terms and conditions of an expired Collective Bargaining Agreement (CBA). In so holding, the court effectively determined that the policies and goals underlying Section 1113 override the countervailing requirements of the National Labor Relations Act (NLRA), which otherwise prohibit an employer from unilaterally changing the terms and conditions of a CBA, even after expiration.

The Case

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