Judge Frees Patriot Coal To Eliminate Retiree Benefits for 20,000

Mike Elk

The UMWA staged huge rallies to try to sway the judge in Patriot Coal's bankruptcy case, but the ruling went against the union. (UMWA Local 2300)

Today, in a deci­sion long dread­ed by union coal min­ers, a bank­rupt­cy court in St. Louis agreed that Patri­ot Coal has the right to void its col­lec­tive bar­gain­ing agree­ments and can­cel its pen­sion and retire­ment oblig­a­tions to 20,000 work­ers and fam­i­ly members.

The Unit­ed Mine Work­ers of Amer­i­ca (UMWA) argued in court that Patri­ot should not be let out of its debts, charg­ing that its par­ent com­pa­ny, Peabody Ener­gy, had designed Patri­ot to fail as a ploy to get out of $1 bil­lion in retiree oblig­a­tions. Accord­ing to a finan­cial analy­sis by Tem­ple Uni­ver­si­ty Pro­fes­sor of Finance Bruce Rad­er, Patri­ot Coal was spun off from Peabody Ener­gy with 42 per­cent of Peabody’s lia­bil­i­ties, but only 11 per­cent of its assets.

How­ev­er, Judge Kathy Sur­ratt-States of the U.S. Bank­rupt­cy Court of the East­ern Dis­trict of Mis­souri ruled that Patri­ot can stop pay­ments to the union pen­sion fund as soon as July 1 and no longer has to cov­er the full cost of retiree health­care plans, instead pay­ing a fixed amount into a health­care fund admin­is­tered by the union. 

In her 102-page deci­sion, Sur­ratt-States wrote:

Unions gen­er­al­ly try to bar­gain for the best deal for their mem­bers, how­ev­er, there is like­ly some respon­si­bil­i­ty to be absorbed for demand­ing ben­e­fits that the employ­er can­not real­is­ti­cal­ly fund in per­pe­tu­ity, par­tic­u­lar­ly giv­en the avail­abil­i­ty of sophis­ti­cat­ed actu­ar­i­al ana­lysts and cost trend experts.

The com­pa­ny cheered the rul­ing, which is expect­ed to save it $150 mil­lion a year in labor costs.

This rul­ing rep­re­sents a major step for­ward for Patri­ot, allow­ing our com­pa­ny to achieve sav­ings that are crit­i­cal to our reor­ga­ni­za­tion and the preser­va­tion of more than 4,000 jobs,” said Patri­ot Pres­i­dent and Chief Exec­u­tive Offi­cer Ben­nett K. Hat­field in a state­ment released by the com­pa­ny. The sav­ings con­tem­plat­ed by this rul­ing, togeth­er with oth­er cost reduc­tions imple­ment­ed across our com­pa­ny, will put Patri­ot on course to becom­ing a viable business.”

The UMWA and its sup­port­ers imme­di­ate­ly blast­ed the decision.

The UMWA pre­sent­ed a very clear pic­ture in court of what Patri­ot actu­al­ly need­ed to come out of bank­rupt­cy,” said UMWA Pres­i­dent Cecil Roberts in a state­ment. Patri­ot can sur­vive as a viable and prof­itable com­pa­ny well into the future with­out inflict­ing the lev­el of pain on active and retired min­ers and their fam­i­lies it seeks. Patri­ot is using a tem­po­rary liq­uid­i­ty prob­lem to achieve per­ma­nent changes that will sig­nif­i­cant­ly reduce the liv­ing stan­dards of thou­sands of active and retired min­ers and their fam­i­lies.”

I join the thou­sands of min­ers in our state who are deeply dis­ap­point­ed with today’s rul­ing,” said Sen. Jay Rock­e­feller (D‑W.Va.) in a state­ment. Once again we are see­ing how the bank­rupt­cy sys­tem is stacked against the Amer­i­can work­er. I will con­tin­ue fight­ing to put work­ers and employ­ers on a lev­el play­ing field by clos­ing the legal loop­holes that allow com­pa­nies to pad their prof­its while abus­ing the legal sys­tem to escape from the promis­es they made. It’s trag­ic to watch how some indus­tries treat their work­ers after they’ve giv­en much of their lives to these companies.”

The union plans to appeal the deci­sion in Fed­er­al Dis­trict Court. In the mean­time, although Patri­ot is at lib­er­ty to leave the bar­gain­ing table, both the union and the com­pa­ny say they will con­tin­ue negotiations.

While the Court has giv­en Patri­ot the author­i­ty to impose these crit­i­cal changes to the col­lec­tive bar­gain­ing agree­ments, and our finan­cial needs man­date imple­men­ta­tion by July 1, we con­tin­ue to believe that a con­sen­su­al res­o­lu­tion is the best pos­si­ble out­come for all par­ties,” Hat­field­’s state­ment read.

Unless the par­ties come to anoth­er agree­ment, the rul­ing means that Patri­ot Coal’s health­care oblig­a­tions will be turned over to the Vol­un­tary Employ­ees Ben­e­fits Asso­ci­a­tion (VEBA), a fund that would be admin­is­tered by the union. Accord­ing to the UMWA, Patri­ot will only guar­an­tee to pay in a total of $15 mil­lion, plus $0.20 per ton of coal mined, which the UMWA cal­cu­lates will cov­er only $5 mil­lion a year in retiree ben­e­fits. Retiree health­care for Patri­ot Coal’s 20,000 ben­e­fi­cia­ries cur­rent­ly costs $7 mil­lion a month, the union says.

Accord­ing to the UMWA, Patri­ot Coal has offered the union a 35 per­cent stake in the com­pa­ny that the union can choose to sell in order to bet­ter fund the VEBA. The union, how­ev­er, says that since the cur­rent and future val­ue of the com­pa­ny is unknown, there is no way of know­ing how much mon­ey this could pro­vide for health­care ben­e­fits or when such fund­ing would be avail­able.” The com­pa­ny has also pro­posed a prof­it-shar­ing mech­a­nism to help fund VEBA, the UMWA says, but it esti­mates the plan would pro­vide only an addi­tion­al $2 mil­lion a year.

We will con­tin­ue to meet with the com­pa­ny this week to see if there is a way for­ward,” Roberts said. We have long acknowl­edged that Patri­ot is in trou­ble, because it can no longer pay Peabody and Arch’s bills. 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 we’re going to share in that pain, then we have every right to share in the company’s gain when it becomes prof­itable again.”

With the col­lec­tive bar­gain­ing agree­ments can­celed, the union, which rep­re­sents 1,700 cur­rent work­ers at Patri­ot Coal in addi­tion to the 20,000 ben­e­fi­cia­ries, is now legal­ly free to declare a strike at any time.

The union says it is keep­ing that pos­si­bil­i­ty on the table. No option has been ruled out,” UMWA Com­mu­ni­ca­tion Direc­tor Phil Smith wrote in an email to Work­ing In These Times. We are in talks with the com­pa­ny to see if there is an agree­ment that can be reached that is more rea­son­able than what the judge ruled. We’ll see what the future brings.”

Mike Elk wrote for In These Times and its labor blog, Work­ing In These Times, from 2010 to 2014. He is cur­rent­ly a labor reporter at Politico.
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