Republican presidential front-runner Donald Trump may soon find himself facing an unwelcome distraction on the campaign trail if the Supreme Court decides to take up a case involving whether one of his namesake hotel-casinos can break a union agreement and drop its workers’ healthcare plan and shift them to to Obamacare instead.
That’s because a labor organization representing workers at the Trump Taj Mahal casino in Atlantic City has requested that the Supreme Court overturn a lower court’s ruling that allowed the casino to rewrite its collective bargaining contract with the union.
The union made the request April 14. The high court has until mid-May to respond.
There’s a good chance that the justices will take the case since it involves long-standing tensions between federal labor law and bankruptcy law. The National Labor Relations Board, the federal agency that enforces labor laws, has sharply disagreed with the lower court’s ruling.
Mark Salzberg, a partner at the Washington law firm Squire Patton Boggs who specializes in bankruptcy litigation, said the lower court rejected a “power grab” by unions that would have created a major loophole in certain bankruptcy cases.
“It was a big attempt by the unions to gain rights they didn’t have,” Salzberg said, adding that had the unions succeeded it “would have really tied the hands of some debtor companies trying to reorganize.”
If the justices take up the case, it would be an unwelcome situation for Trump, who has largely run on economic populism themes meant to appeal to blue-collar workers. It also would highlight the fact that some his biggest enterprises have gone bankrupt. The Trump campaign did not respond to a request for comment.
Trump founded the Atlantic City casino in 1990, which is now owned by Trump Entertainment Resorts. He sold off majority ownership of the company in 2012 and gave up his remaining 10 percent stake earlier this year, according to the Associated Press.
The case is called Unite Here Local 54 v. Trump Entertainment Resorts. The company declared bankruptcy in 2014, having lost $25 million in the previous year. As part of the reorganization, a bankruptcy court allowed the company to alter the terms of its contract with Local 54, which represented about 1,100 of the Trump Taj Mahal’s 3,000 employees.
The changes involved replacing the workers’ pension system with a 401(k) program and replacing the healthcare program with Obamacare. The union adamantly opposed both and fought them in court.
In February, the Third Circuit Court of Appeals said the bankruptcy court got it right and upheld the ruling. Nevertheless, it conceded that there was a major legal gray area involved.
“Section 1113 of the Bankruptcy Code allows a Chapter 11 debtor to ‘reject’ its collective bargaining agreements (CBAs) under certain circumstances. The National Labor Relations Act (NLRA) prohibits an employer from unilaterally changing the terms and conditions of a CBA even after its expiration,” the court noted.
Ordinarily, federal labor law says that union contracts remain in effect even after they have expired. Congress wrote the law that way to prevent businesses from being able to undermine a union by simply refusing to renegotiate its contract.
Courts can, however, amend or reject an expired labor contract if they decide the union has refused to renegotiate in good faith. That’s what the bankruptcy court did in the Taj Mahal case, finding that the contract officially expired in September 2014 and the union had rejected all offers by the casino to replace it.
The wrinkle in the case is that federal bankruptcy law doesn’t explicitly say whether an “expired” contract can be rewritten. The legislators who wrote the law did not address that scenario.
Local 54 argued that while its contract had expired, it not only remained in effect thanks to federal labor law but that its terms could not be changed in bankruptcy court. Why? Because there was no contract anymore for the courts to alter.
“The union argues that the plain meaning of a ‘collective bargaining agreement’ is a ‘contract between an employer and a labor union.’ Therefore, because the CBA has expired, there is no ‘contract’ to be rejected,” the Third Circuit Court noted.
In effect, the union was saying that once the contract expired, the casino was no longer subject to its legal obligations under contract law but the casino did become subject to legal obligations under federal labor law to maintain the original contract’s terms. While a bankruptcy court can alter the contract, it cannot alter the federal obligations.
The National Labor Relations Board, the main federal labor law enforcement agency, agreed with the union, saying the bankruptcy court went too far and usurped the board’s powers.
“Only the NLRB may enforce an employer’s obligation to maintain the status quo terms and conditions of employment in the post-contract-termination period,” it argued in an amicus brief to the Third Circuit Court.
In practical terms, that would have meant that in bankruptcy cases in which a company has an expired union contract, courts cannot alter the terms of the contract even if they think that doing so would be necessary to prevent the company from having to liquidate.
It is unlikely that most unions take it that far since once a company liquidates its members would be out of jobs. But it would have vastly strengthened the unions’ hand in negotiations with companies going into bankruptcy.
Vincent Vernuccio, a labor law attorney with the conservative Mackinac Institute, said it was an issue that the Supreme Court should step in and resolve.
“The conflict between the language of the Bankruptcy Act and the subsequent decision by the Bankruptcy Court and the actions of the NLRB show, yet again, a need for higher court to correct a board that consistently interprets the law in any way it can to favor unions,” he said.
