Protecting Employees and Retirees in Business Bankruptcies Act of 2025
- Sponsor
- Sen. Durbin, Richard J. [D-IL]
- Committees
- Judiciary Committee (primary)
- Last action
- Apr 9, 2025
Bottom line
The bill fundamentally shifts the balance of power in business bankruptcies, prioritizing employee and retiree claims and benefits over executive compensation and, in some cases, secured creditor recoveries.
What it actually does
This bill significantly amends the U.S. Bankruptcy Code to enhance protections for employees and retirees in business bankruptcies. It increases the priority of wage and benefit claims, creates new claims for pension and stock value losses, makes it harder for debtors to reject collective bargaining agreements and modify retiree benefits, and imposes strict limitations on executive compensation before and during bankruptcy proceedings. The bill also introduces new criteria for asset sales and plan confirmations, prioritizing job preservation and benefit maintenance.
Proponents argue
Proponents argue that the bill is urgently needed to address the erosion of protections for employees and retirees in an era of increasing and complex business bankruptcies. They contend that current law allows management compensation plans to escape adequate scrutiny while workers lose their jobs, pensions, and healthcare. This bill aims to restore fairness, ensure job preservation, and protect retirement security by giving workers and retirees a stronger voice and higher priority in bankruptcy proceedings.
Opponents contend
Opponents might contend that while employee and retiree protections are important, this bill could make business reorganizations more difficult, costly, and less likely to succeed. They may argue that increasing employee claims and restricting executive compensation could deter necessary debtor-in-possession financing, reduce the value of assets for secured creditors, and ultimately lead to more liquidations rather than successful reorganizations, harming all stakeholders including employees in the long run.
The bill is moderately lengthy and makes extensive, technical amendments to existing bankruptcy law. An informed reader would require substantial time to understand its full implications beyond a quick scan.
Sec. 101, Section 507(a) of title 11
Increased Wage and Benefit Priority
This provision increases the priority for employee wage claims in bankruptcy from $10,000 to $20,000 and removes the 180-day look-back period, making all earned wages a priority claim. It also clarifies that severance pay is deemed earned in full upon layoff or termination, and increases the priority for contributions to employee benefit plans to $20,000 per employee, also removing the 180-day limit.
Supporters argue
Supporters argue that increasing the wage priority ensures that employees, who are often the most vulnerable stakeholders, receive a more equitable share of the bankruptcy estate, especially after losing their jobs and benefits. Removing the 180-day limit simplifies the process and ensures all earned wages are protected.
Critics contend
Critics might argue that significantly increasing the priority of employee claims could reduce the funds available for other creditors, potentially making it harder for businesses to secure financing during reorganization or leading to lower returns for other stakeholders, which could indirectly harm the overall economy.
Tradeoffs
This provision balances the protection of employee livelihoods against the interests of other creditors, particularly secured lenders and general unsecured creditors, who may see their recoveries diminished.
Sec. 102, Section 101(5) of title 11
New Claim for Stock Value Losses in Defined Contribution Plans
This section creates a new type of 'claim' in bankruptcy for non-insider employees who lose value in employer equity securities held in their defined contribution plans (like 401(k)s), if the loss was due to fraud or breach of duty by the employer or plan sponsor. This allows these losses to be treated as a claim against the bankruptcy estate.
Sec. 201, Section 1113 of title 11
Stricter Standards for Rejecting Collective Bargaining Agreements (CBAs)
This section significantly overhauls the process for rejecting collective bargaining agreements in bankruptcy. It requires the trustee to timely pay all monetary obligations under the CBA, which are treated as administrative expenses. It sets stringent conditions for modification proposals, requiring them to be part of a broader cost-savings program, limited to minimum savings essential for exiting bankruptcy, and not disproportionate or overly burdensome to employees. The court must find clear and convincing evidence that these conditions are met, and that rejection will not cause material diminution in purchasing power, adversely affect workforce retention, or impair labor relations. It also creates a presumption against rejection if executive incentive pay programs were implemented within 180 days of filing.
Sec. 203, Section 363 and 1129(a) of title 11
Protection of Employee Benefits in Asset Sales and Plans
This provision requires bankruptcy courts, when approving asset sales or chapter 11 plans, to give substantial weight to offers that preserve jobs, maintain terms and conditions of employment, and assume or match pension and health benefit obligations for retirees. If there are multiple offers, the court must approve the one that best carries out these actions. For plans involving the sale of substantially all assets, the plan must require the purchaser to meet these criteria.
Sec. 301, 302, 303, 304, 305, 306 of title 11
Restrictions and Recovery of Executive Compensation
This title introduces a suite of provisions to restrict executive compensation. It limits payments to insiders and highly compensated employees upon exiting bankruptcy unless part of a generally applicable program and not exceeding certain compensation limits. It tightens rules for incentive pay and bonuses during bankruptcy, disallowing them if the debtor discontinued or reduced severance pay for the nonmanagement workforce within one year prior to filing. It prohibits assumption of executive deferred compensation or retiree benefit plans if employee pension plans were terminated or retiree/active employee health benefits were reduced. Finally, it creates a mechanism for the estate to recover executive compensation if employee/retiree benefits were reduced or pension plans terminated, and allows trustees to avoid preferential transfers to insiders/executives made in anticipation of bankruptcy.
Sec. 206, Chapter 11 of title 11
Statement of Purpose and Confirmation Criteria for Job Preservation
This section adds a new statement of purpose to Chapter 11, declaring that its principal purpose for non-individual debtors is to reorganize to preserve going concern value through productive asset use and job preservation. It also amends plan confirmation criteria, requiring proponents to demonstrate that the plan preserves going concern value and jobs to the maximum extent possible. When multiple plans meet criteria, the court must confirm the plan that better serves these interests, with plans incorporating labor organization settlements presumptively satisfying this requirement.
This amendment makes unpaid post-petition wages, accrued vacation, severance, or employee benefit plan contributions automatically recoverable from property securing an allowed secured claim, even if the trustee or debtor waived such provisions in an agreement with the secured lender.
Sec. 205, Section 506(c) of title 11
Why it matters:This is a highly technical amendment that directly impacts the rights of secured creditors, a powerful group in bankruptcy. Placing it within an existing, complex section of the code might obscure its significant implications for those not deeply familiar with bankruptcy finance.
Case for: Supporters argue this ensures that employees who continue to work for a debtor post-petition, or whose benefits accrue during this period, are paid for their services, recognizing that their labor often benefits the secured creditor by preserving the value of the collateral.
Case against: Critics would argue this provision fundamentally alters the established hierarchy of creditor rights, potentially making secured lending riskier and more expensive for distressed companies, thereby reducing access to crucial debtor-in-possession financing.
Estimated impact: This could shift millions of dollars in post-petition employee claims from general unsecured status to being recoverable from secured collateral, significantly impacting secured lenders' recoveries.
This amendment adds specific 'cause' for reducing the debtor's exclusive periods for filing and soliciting a reorganization plan. These causes include the filing of a motion to reject a collective bargaining agreement (CBA) if an alternative plan by a labor organization is likely to be confirmed, or the proposed filing of a plan by another proponent that incorporates a settlement with a labor organization and is likely to be confirmed.
Sec. 207, Section 1121(d) of title 11
Why it matters:The exclusivity period is a critical strategic advantage for debtors, allowing them to control the reorganization process. Modifying it to favor labor organizations is a significant shift in power, which might be obscured by its placement in a procedural section.
Case for: Supporters argue this provision empowers labor organizations to propose alternative reorganization plans that prioritize employee interests, especially when a debtor seeks to reject a CBA. It creates leverage for workers and encourages more equitable settlements.
Case against: Critics might argue that shortening exclusivity periods based on labor disputes could destabilize the reorganization process, encourage competing plans, and make it harder for debtors to negotiate a consensual plan, potentially leading to more protracted and costly bankruptcies.
Estimated impact: This could significantly alter the dynamics of Chapter 11 cases involving unionized workforces, potentially leading to more frequent challenges to debtor exclusivity and increased influence for labor organizations in plan formulation.
This amendment adds a new subsection (m) to Section 103, explicitly stating that neither the court nor the trustee may change wages, working conditions, or retirement benefits established by a collective bargaining agreement subject to the Railway Labor Act (RLA), except in accordance with Section 6 of the RLA.
Sec. 403, Section 103 of title 11
Why it matters:This provision carves out a specific industry (railway and airline) from the general bankruptcy rules regarding CBAs, maintaining a distinct legal framework. Its placement in a general section might make it less obvious to readers focused on the main CBA provisions.
Case for: Supporters argue this maintains the unique and well-established labor relations framework of the RLA, which has its own detailed procedures for modifying agreements, preventing bankruptcy from undermining these specific protections for railway and airline employees.
Case against: Critics might argue that this creates an inconsistent application of bankruptcy law, potentially making it harder to reorganize RLA-covered debtors compared to other industries, and could be seen as a special carve-out for a specific sector.
Estimated impact: This provision ensures that the unique labor protections under the RLA remain paramount for railway and airline bankruptcies, preventing the more flexible (though now stricter) bankruptcy code provisions from overriding RLA processes.