Judge denies Hostess’ bid to reject Teamsters contracts

15-May-2012 - Last updated on 16-May-2012 at 11:18 GMT

Bankruptcy Judge Robert Drain has denied Hostess Brands’ bid to scrap labor contracts for members of its largest union, the Teamsters, in a move that leaves Hostess having to rethink its options for exiting bankruptcy.

Earlier this month, Judge Drain granted a motion to allow the company to reject the labor contracts of its second biggest union, the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (BCTGM). The Teamsters’ union, which represents about 7,500 workers, said that the decision to block Hostess’ motion to reject its contracts shows that it had good cause to fight the company’s terms.

According to a Dow Jones report, Drain’s decision was based on problems with Hostess’ latest offer to the union, including a 1% difference between pretax earnings projected by the company, compared to those projected in the union’s proposal, and a proposal to only move existing employees into more stable multiemployer pension plans. Drain said new hires should also be moved into multiemployer pension plans, and the company should increase its contributions to the pension plans to close the 1% gap between its proposal and the union’s proposal.

Teamsters general secretary-treasurer Ken Hall said in a statement: “While we agree with most of Judge Drain’s ruling, we recognize that it doesn’t solve Hostess’ problems. Unfortunately we’ve been bogged down in this legal process instead of trying to reach a resolution that all parties could support. We remain committed to finding a solution and urge the company and its lenders to do the same.”

The company has said that it could be forced to liquidate if it is unable to cut its pension costs, and has sent letters to its about 18,500 employees warning that it could liquidate within the next two months.

Hostess Brands filed for Chapter 11 bankruptcy in January, citing pension and medical benefit obligations, restrictive work rules, a continuing difficult economic climate, and a more difficult competitive landscape.

It said at that time that it would seek to reach an agreement with unions over labor agreements, as employee costs had squeezed the company, in addition to higher ingredient prices, and a more competitive US bakery sector.

However, unions have blamed “ineffective executives” for the company’s problems.