Hastings Law Journal


Barry Winograd


In June 1983, the San Jose Unified School District filed for bankruptcy under Chapter 9 of the federal Bankruptcy Code. In conjunction with this filing, the school district unilaterally withheld bargained-for wage increases and subsequently obtained a bankruptcy court order permitting it to reject entirely its union collective bargaining agreements. Ultimate settlement in the San Jose case saved the school district an estimated four million dollars over its prebankruptcy contractual obligations. This Article reviews the development of the law regarding bargaining agreement rejection in public and private sector Chapter 9 proceedings. The Article presents an analytical framework for reconciling the conflict between federal bankruptcy law and state labor laws requiring collective bargaining before unilateral contract modification, focusing particularly on the public sector. The Article concludes that bankruptcy court ratification of unilateral action dramatically alters the balance of bargaining power between labor and management, and thus creates instability. For these reasons, public employers who file for bankruptcy should be required to maintain the terms of the bargaining agreement. After the court approves contract rejection, the parties should be required to renegotiate, and unilateral modification of bargaining agreements should be permitted only when the parties reach an impasse or when a state of financial emergency exists.

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