Contributing to Bankruptcy

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By working to keep labor costs high, unions have contributed to A&P’s second bankruptcy. (The UFCW represents a large majority of A&P’s workers.)

Among the issues it cited for its bankruptcy filing—industry competition, paying leases on “dark stores,” and problems associated with supplier and service contracts (with unionized companies)—was the cost of its own unionized workforce. As 95% of its workforce is covered by contracts with the United Food & Commercial Workers, as it explains in its filing with the Court, A&P’s liabilities were only going to increase:

In addition to their specific obligations under the GHI  contract, the Debtors are parties to approximately 39 separate collective bargaining agreements (covering approximately 95 percent of the Debtors’ workforce).

Among other things, these agreements require the Debtors to make significant pension, and health care-related contributions on their employees’ behalf.  The Debtors believe these legacy obligations will continue to increase over time. Certain of the Debtors’ multi-employer pension plans have already reached “red” or “yellow” status under existing regulatory requirements, and the Debtors have recorded for a liability $97 million from previous pension fund withdrawals, as of September 11, 2010. The Debtors may have a potential additional withdrawal obligation of up to $50 million payable over a period of up to 25 years in the future. The Debtors believe their collectively-bargained wage, pension, and health care obligations place them at a competitive disadvantage and are unsustainable at existing levels.

‘Bumping’ was also a problem for the company.

Additionally, many of the debtor’s CBAs include “bumping” provisions that require the company to lay off employees by seniority. This clause has an interstore element, which means that if a store is closed, those senior employees can take the job of a more junior worker at another location.

“As a result, the closing of one store results in increased salaries–the same high salaries that may have in part precipitated the store closing–being transferred to another (possibly profitable) store,” the CRO [chief restructuring officer] said.