Judge postpones ruling on Hostess’ motion to terminate Teamster contract

Update: The Teamsters on May 1 reported that a federal bankruptcy judge granted Hostess’ motion to delay until May 11 the judge’s ruling on the company’s Section 1113 filing to set aside its contracts with the Teamsters. May 11 is only two days after the deadline for investors to submit proposals to buy Hostess.

The Teamsters had urged the judge to delay his ruling until May 17, so that all parties to the bankruptcy filing would have sufficient time to review the proposals.

The judge granted Hostess’ Section 1113 filing to set aside its contracts with BCTGM, which represents about 5,000 Hostess workers. BCTGM did not object to the company’s request. The judge’s ruling does not require the company to set aside its BCTGM contract but rather authorizes it to do so. It is now up to the company to decide if and when it will set aside the contracts.

A federal bankruptcy judge on April 19 postponed until May 1 a ruling on a motion by Hostess Brands to eliminated its collective bargaining agreement with the Teamsters. The company filed a Bankruptcy Code Section 1113 motion asking the court to terminate its contract with the Teamsters to help it emerge from bankruptcy. Hostess, the maker of Wonder Bread, Twinkies, and other snack foods, filed for bankruptcy in January, the second time in a little more than three years.

The bankruptcy judge urged both parties to continue negotiating a new collective bargaining agreement.

At the hearing on Hostess’ motion, Teamsters’ expert witnesses testified that worker wages and benefits were not the cause of the company’s bankruptcy, pointing out that in 2009 the union made $110 million worth of concessions to help the company get back on its feet after the initial bankruptcy filing. Teamster members also said if sacrifices were needed, they should be shared equally by all stakeholders including management.

About a week earlier, the company’s creditors informed the court that last July, Hostess’ top four executives, Gary Wandschneider, John Stewart, David Loesser, and Richard Seban received raises ranging from 75 percent to 80 percent even as the company was preparing to file for bankruptcy.

Ken Hall, Teamster general secretary-treasurer called the executives’ big pay raises, “outrageous” and said that the raises were further evidence that the company wants its workers to make all the sacrifices to keep the company afloat.

Hostess CEO Gregory Rayburn reacted quickly to the news about the raises by announcing that the four executives had agreed to work for an annual salary of $1 until Hostess emerges from bankruptcy or December 31, whichever comes first. He didn’t say whether the executives would refund their raises to the company.

Hostess has been demanding that its workers accept steep cuts to their health care and pension benefits, work rule changes that will make employees work longer and harder for less money, and more outsourcing of company work.

The Teamsters, who represent about 7,500 Hostess workers, presented a counter offer last Sunday that includes $150 million worth of concessions but demands meaningful sacrifices by management. “Executives, as well as all stakeholders, . . . (must) share equally in all the financial sacrifices necessary for Hostess to emerge from bankruptcy instead of paying lip service to it,” Hall said.

The Teamster counter offer includes a language to rescind all executive pay increases and for those receiving the raises to repay them to the company.

During the hearing, Dr. Michael Belzer, a labor economist at Wayne State University and a Teamster expert witness, testified that worker pay and benefits didn’t cause Hostess’ bankruptcy. A report he wrote and submitted to the court says that an apples-to-apples comparison of Hostess’ workers to comparable workers in comparable regions shows that Hostess workers’ compensation is slightly less than that of its competitors.

Harry Wilson, CEO of MAEVA Group, a boutique financial services firm focused on corporate turnarounds and restructuring, also testified as a Teamster expert witness. A report he wrote and submitted to the court says that Hostess’ financial difficulties were “the result of a number of problems largely of its own making.”

Some of the problems he cites include underinvestment in products, facilities, and equipment; a hollowing out of a distribution system that once gave the company a competitive advantage; failure to innovate; management missteps that went uncorrected by the board; and excessive debt.

Hall said that the best outcome would be for the company and Teamsters to reach an agreement that would make a judge’s ruling unnecessary but warned that if the court terminates the agreement as requested by Hostess, Teamsters would go on strike. In March, 90 percent of Hostess Teamster members approved a strike if the contract is terminated.

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