Skip to main content

US bankruptcy court rules in favour of Patriot Coal Corp. in battle with union

World Coal,

A US bankruptcy court has ruled in favour of proposals by Patriot Coal Corp., to eliminate its collective bargaining agreements and cut off retiree healthcare.

Patriot filed for bankruptcy in July 2012, citing a decreasing demand for coal and obligations to pay US$ 1.6 billion in lifetime healthcare for its 8100 retirees. Bankruptcy rules give companies leverage to abandon union labour contracts. They can repeal deals if it can be shown concessions are necessary for the company’s survival and that they have made a good-faith effort to reach these concessions by mutual agreement with the affected union.

Judges ruling

In her ruling, Judge Kathy Surratt-States noted that responsibility must be shared between both the unions and the mining corporation: “There is likely some responsibility to be absorbed for demanding benefits that the employer cannot realistically fund in perpetuity.”

The news was welcomed by Patriot, as it looks to restructure its business as part of its recovery efforts. “This ruling represents a major step forward for Patriot, allowing the company to achieve savings that are critical to reorganisation and the preservation of more than 4000 jobs,” the company said in a statement.

The United Mineworkers of America (UMWA), however, has reacted to the ruling with disappointment. International president of the UMWA, Cecil Roberts, said: “Patriot is using a temporary liquidity problem to achieve permanent changes that will significantly reduce the living standards of thousands of active and retired miners and their families.”

Presidential authority

The union asserts that coal industry workers are entitled to lifetime benefits, a position that has been held since 1946, when President Harry Truman took control of the nation’s coal mines during a strike. His administration signed an agreement with the UMWA, establishing an industry wide pension and healthcare programme. It is this programme that union members now fear is under threat.

Patriot claims that modifications to collective bargaining agreements are necessary to prevent the company facing liquidation in the near future – a claim the union disputes. The UMWA has said it has made specific proposals to the company, “using Patriot’s own numbers and future projections,” on how the company could get through its current financial difficulties without modifying the bargaining agreements.

Strike action

The union has threatened strike action but Patriot has warned that this would only exacerbate the situation, increasing the chances of liquidation. About 4000 jobs and benefits to more than 23,000 employees, retirees and their dependents would be threatened in the event of liquidation, according to the company.

Patriot requires approximately US$ 150 million in annual savings from its UMWA employees and retirees in order to survive. These savings are in addition to US$ 170 million in annual savings already identified by Patriot, which include capital reductions and renegotiation or rejection of contracts in non-union and salaried employee and retiree wages and benefits.


Patriot has said it will not impose the cuts without first trying to negotiate a resolution. The company has rejected some media reports that suggest its proposal aims to discontinue union retiree medical benefits. According to the company, it will continue to directly provide healthcare to approximately 13,000 active employees, Coal Act retirees, Black Lung benefit recipients and their dependents.

Patriot’s current proposal would cease pension contributions and convert healthcare to a voluntary employee’s beneficiary association, or VEBA, funded by US$ 15 million in up-front cash and US$ 300 million in profit sharing contributions. The union would receive a 35% equity stake in post-bankruptcy Patriot. The company’s proposal would also reduce wages and decrease paid time-off.

Meanwhile, Patriot has confirmed reports that the company has proposed incentive compensation plans in order to motivate key employees to remain with the company during this transitional period.

‘Set up to fail’

Patriot was first created in 2007 in a spin off from Peabody Energy. Though Patriot was initially successful, the company has been badly affected by the downturn of coal prices since 2010.

The UMWA is now suing Peabody, accusing the company of creating Patriot as a means to dispose unprofitable assets, thereby setting it up to fail. The UMWA said Peabody gave Patriot 16% of its assets and 40% of its retiree liability.

Patriot acquired further retiree liabilities when the company bought Magnum Coal in 2008. Magnum had been born in similar circumstances to Patriot, having been created by Arch Coal in 2005 in move which saw Arch transfer 12% of its assets and 97% of its liabilities to Magnum, the UMWA said in court papers.

Patriot has more than three times as many retirees as miners and 90% of its retirees have never worked for Patriot. The company has said in court papers that it is considering whether the 2007 transaction that created it “constituted an actual or constructive fraudulent transfer” that could recoup money to be shared among all its creditors. It says the spin-off removed US$ 600 million in healthcare and environmental liabilities from Peabody’s accounts. Meanwhile, the union suggested that, while Peabody remains profitable, it should remain liable for providing healthcare to workers.

In a “fact sheet” released by Patriot in early April, the company stated that it filed a lawsuit against Peabody on 14 March 2013, in an effort to ensure that Peabody continues to fund its obligations to certain retirees in full. But in court, Judge Surratt-States acknowledged that Peabody had already assumed healthcare costs for a portion of the retirees and denied Patriot’s request. Peabody said in a statement that it will “continue to meet its obligations, as confirmed by [the court’s] rulings.”

The ruling comes at a moment of tension in the US coal industry as coal demand dropped substantially last year on the back of ultra-low gas prices and tightening environment regulations. In a February report, Fitch Ratings claimed the industry was “ripe for defaults” and that a “deep commodity price trough” and falling demand “could lead to more bankruptcy filings.”

Written by Sam Dodson

Read the article online at:

You might also like


Embed article link: (copy the HTML code below):