Protecting Employees and Retirees in Business Bankruptcies Act of 2025
The Protecting Employees and Retirees in Business Bankruptcies Act of 2025 would significantly tighten protections for workers and retirees in Chapter 11 reorganizations. By reforming priority rules, modifying how collective bargaining is handled, and imposing new constraints on executive compensation and plan assumptions, the bill aims to preserve jobs, protect earned benefits, and ensure that employee and retiree interests are treated more favorably during bankruptcy proceedings. It also adds new tools for retirees and active workers to recover losses from pension plans and defined contribution plans, and it emphasizes preserving going-concern value and employee benefits in asset sales. The bill was introduced in the Senate on April 9, 2025, led by Sen. Durbin and joined by several other senators. In short, the bill increases how much workers are owed upfront, expands the types of employee and retiree losses that can be claims, strengthens the bargaining and negotiation framework with unions or employee representatives, and imposes tighter controls on executive pay and benefit plans during and after bankruptcy. It could raise the cost and complexity of corporate restructurings and alter how debtors, lenders, and buyers approach bankruptcy and asset sales.
Key Points
- 1Increased wage and employee-related priorities and protections (Sec. 101-105):
- 2- Wage priority rises to $20,000 per covered employee, and severance pay is deemed earned in full when laid off.
- 3- Defined contribution plans can have priority claims for stock value losses under specific conditions, with protections targeted at non-insider employees.
- 4- Severance pay and post-petition contributions to employee benefit plans receive enhanced priority, including amounts due on or after filing.
- 5Expanded protections for retirees and pension losses (Sec. 102, 104, 204, 202, 208):
- 6- Retiree benefits must be paid at their previously promised level during the plan’s effective period, with the plan providing for recovery of damages for retiree-related modifications negotiated within the plan.
- 7- Active and retired participants in defined benefit and defined contribution plans can bring claims for losses, measured against pre- and post-termination values, with specific rules to determine the amount recoverable.
- 8- New rules govern the treatment of pension losses and withdrawal liabilities in bankruptcy.
- 9Reformed collective bargaining and employee benefits in bankruptcy (Sec. 201, 202, 203):
- 10- Modifications to collective bargaining agreements must follow a structured process: good-faith negotiations, a written initial proposal, and a plan-bound, limited set of modifications based on a business plan.
- 11- Courts assess whether modifications meet strict standards and are essential to exit bankruptcy; the process includes protective orders to balance transparency with competitive concerns.
- 12- Courts must weigh whether asset sales or reorganizations preserve jobs, terms of employment, and pension/health obligations, and must favor offers that best preserve those obligations.
- 13Strengthened protections around asset sales and going-concern value (Sec. 203, 206):
- 14- Courts must give substantial weight to whether a buyer will preserve jobs and maintain employment terms and retiree obligations when approving sales.
- 15- Plans involving the sale of substantially all assets must require the purchaser to carry out job and benefit protections.
- 16Executive compensation restraints and recovery (Sec. 301-306):
- 17- Executives and certain high-compensation employees face limits on payments or distributions unless the arrangements meet broader criteria applicable to all employees and do not exceed specified limits.
- 18- Provisions tighten incentives and bonuses, restrict special compensation payments, and require court oversight for certain senior-level compensation transfers.
- 19- The act creates a mechanism to recover a portion of executive compensation if reductions in labor or retiree benefit obligations were granted, tying recovery to a measured diminution in value.
- 20Additional changes aimed at fairness and oversight (Sec. 205, 207, 208; Title IV provisions):
- 21- Unpaid wages and benefits owed post-petition by the debtor can be treated as necessary costs for preserving assets, enabling recovery by the employee benefit plan.
- 22- Exclusivity periods for plan development may be shortened or adjusted to accelerate possible confirmations if labor settlements are reasonably likely to be confirmed.
- 23- Provisions for union-proof of claims, automatic stay exemptions, and alignment with Railway Labor Act considerations are included to address union and multi-employer plan dynamics.