Here's a sobering question: If huge coal corporations like Peabody and Arch can elude pension and medical liabilities by transferring them to a spinoff firm that declares bankruptcy, why can't many U.S. companies escape their union contracts in the same manner?
This possibility is raised by Wednesday's bankruptcy court decision letting Patriot Coal shed $150 million yearly obligations owed to retired miners. U.S. Sen. Joe Manchin, D-W.Va., exploded:
"This ruling is a travesty. It is wrong that Peabody can set up a company such as Patriot, fill that company with its liabilities and then spin that company off for the sole purpose of avoiding its contractual and moral obligations to its workers. I don't think bankruptcy laws were ever designed to shield corporations from their promises and responsibilities."
Sen. Jay Rockefeller, D-W.Va., added:
"Once again, we are seeing how the bankruptcy system is stacked against the American worker. I will continue fighting to put workers and employers on a level playing field by closing the legal loopholes that allow companies to pad their profits while abusing the legal system to escape from the promises they made. It's tragic to watch how some industries treat their workers after they've given much of their lives to these companies."
In 2007, Peabody Energy -- the world's largest coal firm -- created Patriot and put its unionized mines into it. The following year, Arch Coal did likewise, putting union mines into a spinoff that merged into Patriot. Then Patriot declared bankruptcy, saying it can't afford $1.6 billion worker and retiree commitments it made.
Wiping out Patriot's pension and health benefits would halt life support for about 10,000 retired West Virginia and Kentucky miners, plus 13,000 dependents. In the bankruptcy plan approved Wednesday, Patriot will cease pension contributions and put medical insurance into a voluntary system funded by $15 million up-front cash and a $300 million profit-sharing pledge. The United Mine Workers would be given 35 percent ownership of Patriot.
More complications: If Patriot leaves an industry-wide miner pension system, it may be forced to pay a $959 million "withdrawal liability," say other coal corporations who would have to make up the lost pension funds.
Further, Patriot says it may sue Peabody on grounds that the coal giant committed a "fraudulent transfer" by giving Patriot its union obligations in 2007. What a mess.
Labor professor Bob Bruno of the University of Illinois summed up:
"If you can in fact spin off ... your legacy obligations ... and then walk away ... it's going to completely undermine what it means to get into contractual obligations in the workplace."