Legal Opinions - U.S. District Court, Maryland: September 2, 2008

Daily Record, The (Baltimore), Sep 2, 2008

Labor & Employment

Employees ownership of claims under a CBA and WARN

BOTTOM LINE: Employees of company filing bankruptcy legally transferred their claims arising under existing collective bargaining agreement and Worker Adjustment and Retraining Notification Act.

CASE: Preston Trucking Co., Inc. v. Liquidity Solutions, Inc. et al, USDMD No. 01-5293-JS, Teamsters National Freight Industry Negotiating Committee, et al, USDMD No. L-05-1298 (decided Aug. 18, 2008) (Judge Legg).

FACTS: During Preston Trucking Company Inc.'s Chapter 11 bankruptcy proceedings, Liquidity Solutions, Inc., purported to purchase from certain Preston employees their claims against Preston arising under an existing collective bargaining agreement and under the Worker Adjustment and Retraining Notification Act (the WARN Act). The bankruptcy judge ruled that the employees had legally transferred their claims to Liquidity.

Here, the Teamsters National Freight Industry Negotiating Committee and a number of Teamster Local Unions affiliated with the International Brotherhood of Teamsters (collectively the Teamsters) appealed that ruling, contending that the Teamsters owned the claims because they litigated them in Preston's bankruptcy proceeding, thus the employees had no right to assign the claims to Liquidity. The Teamsters also contended that, even if the employees could assign their claims, the specific assignments in the instant case were invalid.

The district court found that the employees had the right to receive the proceeds of the litigation that the Teamsters pursued on their behalf. Furthermore, the court determined that those rights are assignable, and the employees properly assigned them to Liquidity. Accordingly, the court affirmed the bankruptcy court's decision.

LAW: The first issue concerned the parties' dispute over who "owned" the employees' claims under the collective bargaining agreement and under the WARN Act. The claims that the employees purported to assign to Liquidity fell into two categories: (i) claims for wages under the collective bargaining agreement brought pursuant to [section]301 of the Labor Management Relations Act (the LMRA), 29 U.S.C. [section]185, and (ii) claims under the WARN Act.

While the Teamsters litigated the individual employees' claims, the employees retained the right to receive any recovery from that litigation. It was those rights that the employees transferred to Liquidity. Although the result was the same, the analysis with respect to each type of claim varied slightly.

The WARN Act, 29 U.S.C. [section]2101, et. seq., requires that employers covered by the act provide 60-days notice of a plant closing or mass layoff to statutorily-defined employees. See 29 U.S.C. [section][section]2102(a)(1), (a)(5). An employer who fails to provide the required notice is liable to "each aggrieved employee who suffers an employment loss as a result of such plant closing or layoff." 29 U.S.C. [section]2104(a)(1).

As the bankruptcy court noted, the structure of the statute demonstrates that while a union may bring a WARN Act claim, any recovery is ultimately owed to its individual members. The WARN Act provides that the employer is liable to the individual "aggrieved employee." See 29 U.S.C. [section]2104(a)(1). It goes on to state that either the aggrieved employee or its "representative" may sue to recover the amounts owed under the statute. See 29 U.S.C. [section]2104 (a)(5). The WARN Act defines "representative" as the "exclusive representative" of the employees under 29 U.S.C. [section]159, i.e. the employees' union. 29 U.S.C. [section]2101(a)(4).

Taken together, those sections show that either a union or an individual union member may bring a WARN Act claim, but the individual member retains the right to receive any recovery.

The claims brought under Preston's collective bargaining agreement posed a closer question because they implicated principles of federal labor law. Nevertheless, like the employees' claims under the WARN Act, the employees retained the right to receive any recovery that the Teamsters garnered on their behalf, and could assign that right to Liquidity.

The Teamsters argued that under labor law a union has the exclusive right to represent its member employees during labor negotiations and to litigate any claim for breach of a collective bargaining agreement. By extension, they argued, the union has exclusive control over who receives the funds it recovers through litigation against the employer. The court disagreed.

An action to collect damages under a collective bargaining agreement is governed by [section]301 of the LMRA. A union, as a party to the collective bargaining agreement, may always bring suit against an employer for a violation of the agreement. See UAW v. Hoosier Cardinal Corp., 383 U.S. 696, 699-700 (1966). On the other hand, an individual employee cannot bring a claim directly against his employer unless he also claims that the union has failed to adequately represent him. See Chauffers, Teamsters, and Helpers, Local No. 391 v. Terry, 494 U.S. 558, 568 (1990).