Hostess bankruptcy judge rules in favor of Teamsters

When Hostess, maker of Twinkies, Wonder Bread, and other bakery products, filed for bankruptcy in January, the mainstream and business press blamed the bankruptcy on high labor costs. Unions representing Hostess workers disputed this claim, citing mismanagement as the cause.

A federal bankruptcy judge recently sided with one of the unions, and in a highly unusual move ruled against a motion by Hostess to terminate its contracts with the Teamsters.

In an earlier ruling, the judge approved a motion by the company to terminate its contracts with locals of the Bakery, Confectionary, Tobacco Workers, and Grain Millers (BCTGM) whose contracts have not expired. The judge ruled in favor of the company because BCTGM did not oppose the motion. The judge’s ruling authorizes the company to terminate its BCTGM contracts that have not expired but doesn’t require it to do so. So far, BCTGM contracts have remained in effect.

Ken Hall, Teamster general secretary-treasurer, called the judge’s ruling most recent ruling a victory for all Hostess workers.

“It’s a rare day when a bankruptcy judge denies a company’s request to reject its union contracts, and I attribute it to the resolve of our members and the team we assembled to fight the company’s . . .  motion,” Hall said.

In February, more than 90 percent of Teamster members who work for Hostess voted to strike if the bankruptcy court ruled against the workers, and the company tried to terminate its union contracts.

BCTGM said that all of its Hostess locals have taken strike votes, and if the company tries to terminate its contracts, workers will strike at least 33 Hostess production bakeries. He said that locals have been making strike preparations.

A strike by Hostess workers would make it much more difficult for investors to recover their investment or minimize their losses.

As Hall said, it’s rare for a bankruptcy court to side with a union, but in this case, the Teamsters and their experts presented a strong case showing that Hostess’ financial problems were caused by management missteps rather than high labor costs.

For one thing, some of Hostess’ competitors have union contracts equal to or better than the Hostess contracts, yet they’ve managed to remain profitable.

For another, the company’s management made some poor decisions. Harry Wilson, a financial expert hired by the Teamsters to review Hostess’ business practices, told the court that the company’s high debt load, its failure to innovate and keep up with customer preferences, its lack of capital investment, and its failure to maintain its once dominant distribution system were the main reason’s that the company lost money.

In a letter to members, BCTGM President Hurt noted the differences in the way Hostess treated its workers and its it executives. Last year as Hostess’ troubles mounted, the company stopped making payments totaling $4 million a month in to the workers’ pension fund.

A few month later, Hostess gave its then CEO a 300 percent raise from $750,000 a year to $2.5 million a year. Nine other executives received raises of from 35 percent to 80 percent.

Despite the judge’s ruling, Hostess workers are not out of the woods yet. The judge did not require the company to pay back the money it has been withholding from the workers’ pension fund, and the judge said that he would consider another motion to terminate Teamster contracts if the company presented a better plan for emerging from bankruptcy.

Both the Teamsters and BCTGM remain willing to negotiate a new contract that would allow the company to emerge from bankruptcy. Hurt said that any such contract must guarantee that workers will be adequately reimbursed for any concessions they make now when the company returns to profitability. It must also contain an airtight successor clause that guarantees that union contracts remain in place should the company be sold.

The sale of the company remains a distinct possibility. May 9 was the deadline for submitting proposals to buy the company, and those offers are being evaluated.

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