Vallejo Set to Emerge From Bankruptcy Following Renegotiation of Union Contract

January 12, 2011 by Beeson Tayer & Bodine

Following the Bankruptcy Court’s 2009 granting of the City of Vallejo’s motion to dismiss its IBEW CBA, the union appealed to US District Court. In June 2010, that court ruled federal bankruptcy laws preempt California public-sector labor laws and concluded a municipality operating under Chapter 9 may reject a CBA if certain requirements are satisfied. The court concluded the IBEW’s CBA “burdened” the City’s ability to reorganize, the equities balanced in favor of rejecting the CBA, the City had negotiated reasonably with the IBEW, and that bargaining was unlikely to lead to a prompt and satisfactory resolution. Therefore, the court ruled, the Bankruptcy Court properly permitted the City to reject its CBA as part of the City’s bankruptcy reorganization.

While the IBEW’s appeal of that decision was pending, the Union reached an agreement with the City resolving the CBA dispute. The 3-year CBA maintains a 10% wage reduction. It also allows the City to implement unpaid furloughs, reduces the amount of sick leave eligible for cash out, reduces the City’s contributions to employee health care plans, and requires increased employee contributions to their pension plans.

On January 18, 2011, the City filed a bankruptcy Plan that provides payment of about 5-20% of the claims of the City’s unsecured creditors (who are mostly former employees with unpaid sick leave and vacation pay claims). The Plan includes reducing pension funds for city workers and scaling down the current employee benefit system, including health-care benefits for the City’s retired workers and their surviving spouses. The City may emerge from bankruptcy this summer if the Bankruptcy Court approves the Plan.

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