Judge rules that Patriot can sever union contract

May 30, 2013

A federal bankruptcy judge ruled that Patriot Coal Corp. can reject collective bargaining agreements, cease pension contributions and convert retiree healthcare to an outside fund as part of its plan to save $150 million a year in labor costs.

The ruling by Judge Kathy Surratt-States will give Patriot Coal, which filed for bankruptcy last year, a clear upper hand in negotiations with the United Mine Workers of America, and could lead to far less-generous health insurance for about 21,000 retired mine workers and their families, the St. Louis Post-Dispatch reported.

Patriot filed Chapter 11 bankruptcy protection in July and has said it needs $150 million in savings from the union to keep its doors open. For that it needs lower labor costs.

Judge Surratt-States said in her ruling that the company might have been a victim of unwarranted optimism about future prospects, but that unions shared some blame.

The company has held 15 rounds of talks with the Mine Workers since November on its existing contract, which covers 57 percent of Patriot’s 2,900 miners, and swapped five rounds of proposals and counterproposals. Now it has the right to wipe out that contract entirely, starting June 1, though the union has threatened to strike if that happens.

In a statement after the ruling, Patriot said it plans to keep the existing contract in place “for the coming days,” but that it needs a new deal by July 1. It has pushed in the past to lower union wages to the level of Patriot’s non-union employees.

“We continue to believe that a consensual resolution is the best possible outcome for all parties,” said Patriot president and chief executive Bennett Hatfield.

UMWA president Cecil Roberts said that his union is open to more talks as well.

“We will continue to meet with the company this week to see if there is a way forward,” he said in a statement. “We remain willing to take painful steps to help Patriot get through the rough period it faces over the next couple of years.”

But if no deal is reached, the union’s only real weapon is a strike.

Patriot’s current proposal would cease pension contributions and convert healthcare to a voluntary employees’ beneficiary association, or VEBA, funded by $15 million in up-front cash and $300 million in profit-sharing contributions. The union would receive a 35 percent equity stake in post-bankruptcy Patriot, which it could sell to help fund the VEBA. The company’s proposal would also reduce wages and decrease paid time-off.
When Patriot was spun off of St. Louis-based Peabody Energy in 2007, it brought with it health care obligations for thousands of retired mineworkers in Appalachia and the Illinois basin.

The company picked up more retirees from Arch Coal when it bought Magnum Coal a year later. Now, Patriot says, the health care bill — projected to be $1.6 billion over retirees’ lifetimes — for all those people is choking the entire company.

Both Patriot and the union have pointed the finger at Peabody for dumping its retirees on the new company, and both have filed suit against Peabody to recover health care costs. But in the short term, Patriot says, it needs a new start and that means cutting its health bill. Surratt-States agreed.

“Debtors are in bankruptcy, and bankruptcy changes everything,” she wrote.

The union head said the UMWA plans to appeal the ruling to the U.S. District Court and will continue its lawsuits against both Peabody and Arch.



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