Laid-Off Hostess Workers Still Fighting for Pensions
When Hostess Brands Inc. announced it was going out of business, Twinkie lovers panicked, clearing out grocery shelves and forking over nearly $60 for a single box on eBay. But Hostess’ 18,500 workers faced bigger problems: a sluggish economy, high unemployment and a pension system that’s $55 million in the red.
Pensions were at the center of contentious labor negotiations that broke down when the Bakery, Confectionary, Tobacco and Grain Millers Union (BCTGM) went on strike. After Hostess violated union contracts in August 2011 by cutting off pension funding, the BCTGM ultimately refused to agree to concessions that included an eight percent pay cut and limited health benefits.
Had they agreed, it would’ve been the second blow to their compensation in less than four years. The BCTGM, Teamsters and other unions agreed to painful cutbacks to help pull Hostess out of its first bankruptcy in 2009.
Those concessions were meant to keep the company afloat, which they did — for a while. But when executives demanded more union sacrifices this year, BCTGM drew a line in the sand.
“The typical knee-jerk reaction in bankruptcy situations is to keep the company alive at any cost,” said Joseph Baldiga, a bankruptcy attorney and Chapter 7 trustee for the District of Massachusetts. “It’s fairly unusual to have a union stick to their position and force the company to liquidate. People commonly assume that when negotiations break down, everybody will take a step back, take a breath and get back to work on a deal to save the company. But it seems that at some point, employees can simply be asked to give up too much.”
With Hostess a year and a half behind on its pension payments, it’s up to the Pension Benefit Guaranty Corporation (PBGC) to rescue the underfunded plans. The PBGC was created in 1974 to encourage participation in the pension system by guaranteeing minimum pension benefits when companies can’t afford to fulfill them. It collects revenue through insurance premiums, investments and assets recovered from failed pensions and bankruptcies.
A Deficit of Trust
The former Hostess employees have standing in bankruptcy court, according to Baldiga. And after months of bitter negotiation, the BCTGM doesn’t trust Hostess’ executives to sell off the brands, facilities and equipment that could help make their pensions whole.
Lawyers from BCTGM have asked Judge Robert Drain to appoint a Chapter 11 trustee to oversee Hostess’ wind-down, after Drain earlier denied a request to convert the case to a Chapter 7 bankruptcy with trustee oversight. Drain said that doing so would be a “disaster” because a trustee could delay the sale of the assets and cause them to lose value in the process.
A trustee for the Hostess liquidation would have plenty of catching up to do, but Baldiga says it’s not a given that appointing one would slow the process down.
“In looking for a Chapter 11 trustee, the union seems to be thinking that the liquidation process should be taken out of the hands of the management that got them there,” Baldiga said. “Hostess management may have more familiarity with the company’s assets, but this isn’t rocket science, and making bankruptcies orderly and efficient is just what trustees do.”
Warning Would’ve Been Nice
One former Hostess worker, Mark Popovich, is already taking Hostess to court. Popovich loaded Hostess trucks in Toledo, Ohio until he was abruptly laid off following the liquidation announcement. Now he’s accusing Hostess of violating the Worker Adjustment and Retraining Notification Act, or WARN Act.
The WARN Act requires employers to notify workers of layoffs at least 60 days in advance, but there are several exceptions, including some that apply to Hostess. The WARN Act Employer’s Guide says notice isn’t required when a company “closes a facility or operating unit due to a strike or lockout and the closing is not intended to evade the purposes of the WARN Act.” There is also an exception for faltering companies that lay off workers after making good faith efforts to avoid shutting down.
Have you ever worked for a pension, only to see the plan collapse later? Let us know in the comments section below, or learn more about pensions on Lawyers.com.