US Seeks Power to Rewrite Employment Contracts Outside of Bankruptcy

ABA Journal reports:

Employees who work for troubled companies and municipalities under contracts specifying pay, benefits and bonuses could see those agreements go by the wayside.

The U.S. government is seeking the power to rewrite employment contracts outside of bankruptcy court when it intervenes to help save troubled companies, the New York Times reports. The Treasury Department wants to be able to modify employee contracts when it seizes financial institutions, and President Obama’s auto task force wants to change union contracts at General Motors and Chrysler, according to the story.

Meanwhile, in a closely watched case, a bankruptcy judge has given the city of Vallejo, Calif., permission to alter its contracts with firefighters and other workers. U.S. Bankruptcy Judge Michael McManus turned down workers’ arguments that state labor laws protected the contracts, holding that federal bankruptcy law trumped the state provisions. Other cities are hopeful the case suggests that their worker contracts, protected by statutory and constitutional provisions, can also be changed by bankruptcy courts.

University of Pennsylvania law professor David Skeel said contracts are often at risk in economic downturns. “We run roughshod over some contracts and not over others,” he told the Times. “Right now, employment contracts seem to be the type of contract that is viewed as eminently rewritable.”

You'll want to read the whole article.This is an important topic that affects a lot of people.