An Employment Practice That Saves Jobs, Storied Companies And Entire Towns

Tuesday, November 2, 2010 - 00:00

Editor: Can you please tell our readers about your firm's employment law practice?

Baer: The firm provides the full gamut of labor and employment litigation and counseling services in a variety of areas, including traditional labor relations, equal employment opportunity ("EEO"), wage and hour, WARN Act, and other statutory compliance matters. In addition, we prepare and negotiate executive employment agreements and have a very significant and growing ERISA litigation practice. Recently, we prevailed in a motion denying class certification on behalf of Merrill Lynch in a nationwide race discrimination class action. While large-scale EEO and wage and hour class action litigation has become a focus of the practice, traditional labor relations is a cornerstone of the practice and remains a significant component of my own practice.

Editor: How significant are union relationships to the operation of a business?

Baer: Extremely. Obviously, the terms and conditions of employment of a business's workforce is a major component of the overall cost structure. While relative economic strength at a particular point in time will be an important driver of the outcome of collective bargaining - thus, a significant determinant of labor cost - an employer's relationship with a union representing its employees also will be a strong contributing factor in the outcome of negotiations. Further, during the term of a contract, as disputes arise, an employer's relationship with the union representing its employees often will dictate whether issues will be resolved smoothly and inexpensively or with acrimony, at significant cost. One unique aspect of traditional labor relations, in contrast to litigation, is the long-term, ongoing relationship between the parties. In the context of every negotiation and dispute, an employer must ask itself what the resolution it is presently seeking will mean for the business down the road, particularly when the parties' relative economic strength may shift in the future.

Editor: Tell us about how you have applied your experience in dealing with unions in working with your firm's bankruptcy lawyers to save companies and jobs.

Baer: Recently, my traditional labor relations practice has focused on working with our bankruptcy or business restructuring practice, which, of course, is a marquee practice of our firm. Currently, we represent old GM in bankruptcy, Lehman Brothers, Washington Mutual, and Blockbuster. In the past, we have represented Enron, Worldcom, Texaco, Eastern Airlines, and Macy's in bankruptcy. I was there on the first day of the bankruptcy at Enron and at Lehman Brothers. I performed triage and dealt with the myriad questions that immediately come up in bankruptcy, including questions regarding payments owed or promised to current and former employees, layoffs, facility closings, severance, retention, and the degree to which pre-existing contractual obligations, including collective bargaining agreements, must be honored in bankruptcy. Significantly, we have done quite a few bankruptcies in the industrial and manufacturing sectors, which are heavily unionized. Those bankruptcies have included Bethlehem Steel Corp., Republic Steel, and, recently, Aleris International, Inc., which is a large aluminum alloy company.

Editor: Please describe a traditional labor relations matter you handled in a recent bankruptcy.

Baer: My most recent foray into traditional labor relations was in a bankruptcy context. We represented and continue to represent a private equity firm called the Gores Group, which has approximately three billion dollars under management. It recently purchased the assets of National Envelope Corporation, the nation's largest envelope producer, out of bankruptcy. In connection with that matter, our client was designated by the debtor and bankruptcy court as the "stalking-horse" bidder prior to obtaining bankruptcy court approval of the purchase.

Editor: What is a "stalking-horse" bidder?

Essentially, it means that the Gores bid was the bid to beat. In general, the bankruptcy court will designate a stalking-horse bidder, conditionally approving a sale to that bidder, subject to higher and better offers. Thereafter, a bankruptcy-court-supervised auction will take place utilizing certain sales procedures required by the court. Those procedures will, among other things, be used to identify qualified bidders. One cannot simply walk in off the street and bid. In this case, there were three qualified bidders, two in addition to our client. Following initial bids, there was a 15-hour bankruptcy-court-supervised auction.

Editor: How important were the unions in this matter?

Baer: The unions were a game changer in this auction. We were the only bidder entering the auction who had deals with the labor unions, subject to a bankruptcy court order approving our client as the successful bidder and closing on the transaction. National Envelope had collective bargaining relationships with the United Steelworkers, the International Brotherhood of Teamsters, and UNITE/ HERE. Collectively, they represented about 1,400 of the company's 4,000 employees.

We went in with an aggressive strategy to approach the unions and provide assurances of sustained levels of employment of their members and the maintenance of many provisions of their collective bargaining agreements in exchange for certain important modifications. For example, we reached agreement to eliminate the defined benefit pension plans, impose either temporary or longer-term wage freezes and reduce scheduled pay increases - increases that had already been agreed to by the debtor company. My client and I traveled up and down the east coast a couple of times speaking with various union representatives and negotiating these agreements, subject to our successful acquisition of the company.

It became hugely significant at the auction that we were the only bidder who had deals with the unions. The United Steelworkers Union, which represented 1,000 of the 1,400 union-represented employees, actually appeared at the auction and spoke on the record. It advised all interested constituencies that it had deals only with our client. While it certainly was willing to talk to the other bidders, the union advised the interested parties attending the auction that there would be no interruption in production if our client were to be deemed the successful bidder. The Steelworkers Union continued that, due to the uncertainty surrounding its arrangements, if any, with the other bidders, it could not make similar assurances were the bid to be awarded to another bidder. That was a huge leg up for us. Ultimately, my client advised me that union support, together with the savings we achieved through negotiation, enabled it to come away from that auction with the company. We are now representing the newly acquired company in labor relations matters.

Editor: What is unique about a labor/bankruptcy practice?

Baer: Labor issues come up a lot in the context of bankruptcy. After all, labor cost is often a company's highest fixed cost. Labor/bankruptcy issues are unique issues and there are very few specialists in the area. There are provisions under the bankruptcy code permitting a debtor to restructure its collective bargaining agreement that are not otherwise available to an employer outside of bankruptcy. The same is true with respect to certain post-employment obligations like retiree medical or retiree life insurance. I have developed a niche specialty. I have spoken at conferences on the crossover issues between bankruptcy and labor and will be participating in an upcoming seminar entitled: "Bankruptcy Boot Camp: Understanding The Key Issues Labor Lawyers Face When Their Company or Client is Forced to Restructure."

Editor: Tell us about how you helped save 20,000 jobs.

Baer: I negotiated a shutdown agreement enabling Bethlehem Steel to sell its assets out of bankruptcy to International Steel Group (ISG), a company that was owned at the time by a very well-known investor in distressed assets. This investor was pursuing a strategy of acquiring various bankrupt steel companies and rationalizing labor costs in order to make them profitable. On behalf of Bethlehem, I obtained a release that ensured that ISG would be relieved of Bethlehem's obligations under its collective bargaining agreements and retiree medical plans. This permitted the purchaser, ISG, to take Bethlehem's assets free and clear of any claims against them. The value of that release was estimated to be between three and four billion dollars. In the absence of the release and shutdown agreement, the sale would not have gone forward. The nice thing about that matter was it prevented total liquidation of the company and saved 20,000 jobs - not temporary jobs, but skilled steel workers' jobs, whose positions would have been lost had that transaction not been completed.

While the employment terms were modified, the key achievement was that valuable jobs were preserved and a storied company's assets were continued in productive use.

Editor: Is there one matter that stands out as being particularly dramatic?

Baer: Yes, there is one that stands out. It involved another, smaller steel company, Republic Steel. Again, I negotiated with the United Steelworkers a shutdown agreement that enabled our client to sell its assets, keep them in productive use, and preserve jobs. However, at the time the Republic deal was cut, we had no buyer. In a creative moment, born out of necessity, I suggested to the client that its best option was to attract a white knight to save the company. The problem was there was no white knight in the picture. In the absence of a white knight, I suggested that we get a horse, saddle it up, shine the armor - make it look attractive - and then go out and find a white knight. Essentially, that is what we did by negotiating with the union a pre-packaged successor labor agreement, which contained terms favorable to a prospective buyer, and which the union agreed to enter if the company sold its assets in bankruptcy. That agreement also contained a shutdown agreement, like the one in Bethlehem, which relieved the debtor and the purchaser of certain employee and retiree-related obligations under then-existing agreements.

The union built into that arrangement some protection for itself by allowing two weeks in which to negotiate changes with the actual prospective employer - the white knight - once it appeared. In that case, the strategy worked, and we saved approximately 2,500 jobs. We had an unforgettable experience in the Akron, Ohio bankruptcy court getting this deal approved and the assets sold. Because entire towns were threatened by the potential closure of this company, we had overflow crowds into the hallway, television news crews, and a very vocal employee population present. The bank was threatening to immediately cut off the flow of funds to keep the company running, and the court hearing ran until 3 a.m. because we were out of time with the banks. It was very dramatic, very interesting, and very rewarding. That transaction would not have been possible without the labor deal.

Editor: Larry, a practice that has enabled you to save jobs, storied companies, and entire towns must give you a lot of personal satisfaction.

Baer: I really enjoy what I do. It's important to stop and think about that now and again.

Please email the interviewee at lawrence.baer@weil.com with questions about this interview.