Patriot Coal Bankruptcy Deal Draws Criticism From Miners Union

A Missouri court on Wednesday approved Patriot Coal’s plan to lift itself from bankruptcy by cutting $150 million in annual labor costs, drawing heavy criticism from a miners union, which called the plan “wrong” and “unfair.”

In a statement, the United Mine Workers of America (UMWA) said the plan inflicts suffering on thousands of current and former coal miners and their families.

“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,” said UMWA international president Cecil Roberts.

But Patriot (PCXCQ) argued that the “temporary liquidity problem” is a much more serious matter. Court documents estimate that Patriot Coal is liable for over $1.6 billion in benefits for retired miners and their dependents.

Cuts to pay, vacation and overtime for about 1,700 unionized Patriot miners are among the labor cuts that Patriot won approval for, according to the Wall Street Journal.

“There is no doubt that for Debtors’ [Patriot Coal] survival, concessions are necessary,” wrote Judge Kathy Surratt-States in her May 29 ruling. She noted that Patriot Coal’s obligation to pay retiree benefits burdens the firm’s revenues twice as much as similar burdens for competitors.

The UMWA intends to appeal Surratt-States’ ruling in federal court. The court’s decision is a heavy blow to the union, which contends that alternative cost-cutting measures could hold union employees harmless.

The union negotiated with Patriot Coal throughout the bankruptcy proceedings, which date from July 2012. Negotiations will continue in the coming weeks, even as the union threatens a general strike and plans a protest in Kentucky next week.

Nonetheless, the union indicated its willingness to take “painful steps” to help Patriot emerge from bankruptcy. Surratt-States said in her ruling that a strike would almost certainly lead to Patriot’s liquidation and warned against it.

About 40 percent of Patriot’s miners are unionized, reported the Wall Street Journal. A UMWA campaign website about the bankruptcy says that about 2,000 UMWA members work for Patriot, and that more than 10,000 retirees and dependents receive health care from Patriot.

In a statement, Patriot CEO Ben Hatfield hailed the court’s approval as a “major step forward for Patriot,” preserving more than 4,000 jobs and allowing the firm a viable future.

According to Patriot, wages, benefits and work rules for union workers can now be set at standards shared by the regional labor market.

Patriot’s current proposal ceases pension payments and creates a $315 million trust for health care costs, known as a voluntary employees’ beneficiary association (VEBA), according to Reuters.

The union blasted the plan, arguing that only about $20 million would be available within a year, as current health care costs for retirees average about $7 million per month.

Bankruptcy law allows changes to collectively bargained contracts if the changes are “essential” to the survival of the company. Judge Surratt-States wrote that Patriot’s labor reforms were preferable to the firm’s total shutdown.

She called that the “worst scenario,” which would merely add to the “numerous” miners already left unemployed by recent bankruptcies in the mining industry.

The court gave Patriot authority to impose these labor cuts unilaterally after July 1 if no alternative settlement between the union and the company is reached.

According to Patriot’s website, it maintains 11 active mining complexes in the eastern U.S. and controls about 1.8 billion tons in coal reserves. According to its latest quarterly Securities and Exchange Commission filing, Patriot earned $343 million in total revenues in the first quarter of 2013.