NLRB v. Bildisco & Bildisco - 465 U.S. 513, 104 S. Ct. 1188 (1984)

Rule:

A debtor-in-possession does not commit an unfair labor practice when, after the filing of a bankruptcy petition but before court-approved rejection of the collective-bargaining agreement, it unilaterally modifies or terminates one or more provisions of the agreement.

Facts:

A debtor in possession requested permission from the Bankruptcy Court, pursuant to 11 USCS 365(a), to reject its collective bargaining agreement with a labor union. The Bankruptcy Court granted permission to reject the agreement, and the District Court upheld the Bankruptcy Court order. The labor union filed unfair labor practice charges and the National Labor Relations Board found that the debtor violated 8(a)(5) and 8(a)(1) of the National Labor Relations Act (29 USCS 158(a)(5) and 158(a)(1)) by unilaterally changing the terms of the collective bargaining agreement and by refusing to negotiate with the union. The United States Court of Appeals for the Third Circuit held that the collective bargaining agreement was subject to rejection if the debtor could show that the agreement was burdensome to the estate and if the equities balanced in favor of rejection, and the court refused to enforce the Board's order. The Board challenged the decision. 

Issue:

Could the Board find a debtor-in-possession guilty of an unfair labor practice for unilaterally terminating a collective-bargaining agreement before rejection was approved by the bankruptcy court? 

Answer:

No.

Conclusion:

The court held that "executory contract" in 11 U.S.C.S. § 365(a) of the Bankruptcy Code included collective bargaining agreements subject to the National Labor Relations Act, and a bankruptcy court should permit rejection of such contracts if the debtor can show that the agreement burdens the estate and that the equities balance in favor of rejection. The court also held that the debtor in possession did not commit an unfair labor practice when, after the filing of a bankruptcy petition but before court-approved rejection of a collective bargaining agreement, it unilaterally modified or terminated one or more provisions of the agreement. Accordingly, the court affirmed the lower court's judgment.