Business collapse can end union contracts, but not AIG bonus contracts

Photo: MHS

Contracts guaranteeing bonuses to executives at collapsing businesses — like American International Group (AIG) — are held inviolable, while labor union contracts regularly get voided or reneged-on when corporations declare (or even threaten) bankruptcy. Labor experts say it’s the law of the land.

Today President Obama told Treasury Secretary Timothy Geithner to find a way to stop AIG — which took in $170 billion in public bailout funds — from paying $165 million in executive bonuses. But even if Geithner succeeds, management’s preeminence in law will remain deeply seated in the American legal system.

The most local and recent example of workers whose contracts became casualties to corporate collapse are the Star Tribune’s pressmen. Only by caving to concession demands on Friday did they avoid having a bankruptcy judge void their contract. (The week began with news arising from the negotiations that the Star Tribune burned through as much as $11 million in a court battle with the rival Pioneer Press defending Par Ridder, the publisher who in 2007 oversaw half a year of the newspaper’s hurtle toward insolvency.)

As University of Minnesota Prof. John Budd tells the Minnesota Independent, it comes down to who calls the bankruptcy shots.

“I imagine that AIG could void its executive bonus contracts if it filed for bankruptcy,” he said. “But you have executives making the decision whether or not to file for bankruptcy so the right incentives are not there.”

Other experts say contrasting contract situations are only part of the picture. The real matter is one of “the different ways that workers are treated in this economic crunch from the ways [executives] are treated, law or no law,” says Peter Rachleff, professor of labor history at Macalester College.

“I have commented on this issue for years in my classes,” adds Prof. James Scoville, Budd’s Carlson School of Business colleague, who teaches ethics and labor relations.

Scoville cites a maxim by Jim Gross, professor of labor policy and labor arbitration at Cornell University’s School of Industrial and Labor Relations: “Property rights have trumped labor rights at every turn.”

Gross tells MnIndy he coined the phrase a decade ago in his book “Broken Promises: The Subversion of American Labor Relations Policy, 1947-1994.”

It has wide application as a general proposition, he says, “despite rhetoric to the contrary about workers’ rights and human rights.”

Contractual rules developed over centuries of common law overwhelmingly favor property owners and the management that serves them, in Gross’ view.

“The last time we had major labor law reform in favor of workers’ rights was in the Great Depression,” he says, and even as much as that era’s Wagner Act supported labor, its “underlying core principle was freedom of contract.”

The resulting balance of power between employers and unions “far favors employers in this country because we have employment at will,” says Gross.

The Employee Free Choice Act (EFCA) would bring United States’ labor policy into alignment with that of nearly every other developed country, he adds, but recent efforts for its passage are not encouraging.