A First? Labor Contract Dissolved in Municipal Bankruptcy

The City of Vallejo, Calif., has been in bankruptcy court for quite some time now, running up a legal tab of about $5 million, but it’s made some progress in getting most of its labor contracts voluntarily renegotiated to lower its obligations.

Not so the electrical workers’ union, however. The group never agreed to a new contract, so U.S. Bankruptcy Court Judge Michael McManus simply dissolved the existing contract. Now it’s back to the negotiating table, but gone immediately are $860,000 in pay raises due over the next two years.

Legal observers say this may have been the first time that a judge had dissolved a labor contract in a Chapter 9 bankruptcy proceeding (Chapter 9 covers government entities). In doing so, Judge McManus ruled that a municipal proceeding could dissolve a labor contract so long as it followed the same standards applied in a corporate bankruptcy.

The International Brotherhood of Electrical Workers (IBEW) said it has not decided whether to appeal the decision, but in the meantime would be conferring with "attorneys and international reps."

NOTE: The details in this blog are provided for informational purposes only. All answers are general in nature and do not constitute legal advice. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The author specifically disclaims any and all liability arising directly or indirectly from the reliance on or use of this blog.
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