Protecting Employees and Retirees in Business Bankruptcies Act of 2025

Bill Number

S. 1381

Origin Chamber

Senate

Congress

119th Congress, Session 1

Policy Area

Finance and Financial Sector

Status

Introduced

Latest Action

2025-04-09: Read twice and referred to the Committee on the Judiciary. (text: CR S2523-2527)

Last Updated

2026-05-14T11:03:27Z

AI-Generated Summary

Purpose of the Legislation

The Protecting Employees and Retirees in Business Bankruptcies Act of 2025 aims to strengthen safeguards for workers and retirees during business bankruptcies under Chapter 11 of the U.S. Bankruptcy Code (Title 11, U.S. Code). It addresses the rise in large-scale bankruptcies, the erosion of existing employee protections, and the growing use of bankruptcy by businesses, while curbing excessive executive compensation that disadvantages non-management workers. The goal is to prioritize job preservation, retirement security, and fair recoveries for employees, ensuring bankruptcies focus on reorganization rather than liquidation where possible.

Key Provisions

The bill is divided into four titles, amending various sections of the Bankruptcy Code to enhance employee and retiree rights.

Title I: Improving Recoveries for Employees and Retirees

• Increased Wage Priority (Sec. 101): Raises the priority claim limit for unpaid wages, salaries, and commissions from $10,000 to $20,000 per employee, with no time limit restriction (previously 180 days before filing). Severance pay is deemed fully earned upon layoff or termination.
• Claim for Stock Value Losses in Defined Contribution Plans (Sec. 102): Allows claims for losses in 401(k)-style plans if the employer committed fraud or breached duties leading to stock value drops in company equity held in the plan (excluding insiders, senior executives, or top 20 compensated non-insiders).
• Priority for Severance Pay and Employee Benefit Contributions (Sec. 103): Grants administrative priority (paid ahead of most other claims) for severance owed under general plans or collective bargaining agreements (CBAs) after filing, and for contributions to employee benefit plans due post-filing (excluding high-level executives and managers).
• Financial Returns for Employees and Retirees (Sec. 104): Requires bankruptcy reorganization plans to continue retiree benefits at pre-filing levels (or modified levels if negotiated) and provide negotiated financial returns or recoveries for benefit modifications or CBA rejections.
• Priority for WARN Act Damages (Sec. 105): Elevates damages, back pay, and penalties under the Worker Adjustment and Retraining Notification (WARN) Act (which requires advance notice of mass layoffs) to administrative priority status.

Title II: Reducing Employees' and Retirees' Losses

• Rejection of Collective Bargaining Agreements (Sec. 201): Overhauls rules for rejecting or modifying CBAs, requiring good-faith negotiations with unions based on a reorganization business plan. Court approval needs "clear and convincing evidence" that modifications are minimal, essential for reorganization, and do not disproportionately burden workers. Allows unions to seek post-rejection adjustments and permits economic self-help (e.g., strikes) upon rejection. Covers union fees as administrative expenses.
• Payment of Insurance Benefits to Retired Employees (Sec. 202): Strengthens protections for retiree health and life benefits, mandating good-faith negotiations for modifications with similar court standards as CBAs. Limits interim changes to 14 days and presumes unfairness if executives receive bonuses during cuts.
• Protection of Employee Benefits in a Sale of Assets (Sec. 203): In asset sales or leases, courts must prioritize buyers who preserve jobs, maintain employment terms, and assume retiree pensions/health benefits. Reorganization plans selling most assets must include these protections.
• Claim for Pension Losses (Sec. 204): Permits claims for shortfalls in terminated defined benefit pensions (beyond what the Pension Benefit Guaranty Corporation recovers) and for defined contribution plan stock losses.
• Payments by Secured Lender (Sec. 205): Allows recovery of unpaid post-filing wages, vacation, severance, or benefit contributions from secured creditors' collateral as "reasonable costs" of preserving the business.
• Preservation of Jobs and Benefits (Sec. 206): Adds a new purpose statement for Chapter 11 cases emphasizing job and business preservation. Reorganization plans must demonstrate maximum value preservation and job retention; courts favor plans doing so, with union settlements presumed superior.
• Termination of Exclusivity (Sec. 207): Shortens the debtor's exclusive period to file a plan if a union proposes a viable alternative or CBA rejection motion is filed.
• Claim for Withdrawal Liability (Sec. 208): Grants priority for multiemployer pension withdrawal liabilities accrued post-filing.

Title III: Restricting Executive Compensation Programs

• Executive Compensation Upon Exit from Bankruptcy (Sec. 301): Prohibits reorganization plans from providing special payments to insiders, senior executives, top 20 compensated employees, managers, or consultants unless part of a general employee program and capped relative to non-management pay. Court must approve post-bankruptcy executive pay as reasonable and not excessive compared to industry norms and worker losses.
• Limitations on Executive Compensation Enhancements (Sec. 302): Tightens caps on retention, severance, or incentive payments to executives/managers during bankruptcy, requiring them to be broadly applicable and limited (e.g., retention bonuses capped at 2 months' pay for top earners, down from 10).
• Prohibition Against Special Compensation Payments (Sec. 303): Bars approval of executive pay programs if the company cut non-management severance within the prior year.
• Assumption of Executive Benefit Plans (Sec. 304): Prevents assumption (continuation) of executive deferred compensation or retiree benefits if employee pensions were terminated or worker/retiree benefits cut in the prior year.
• Recovery of Executive Compensation (Sec. 305): Allows clawback of pre-filing executive/board pay (proportional to benefit cuts) if CBAs or retiree benefits are reduced or pensions terminated. Any party can pursue if trustee/committee does not; bars post-filing pay to reimburse clawed-back amounts.
• Preferential Compensation Transfer (Sec. 306): Enables avoidance (recovery) of pre-bankruptcy transfers or obligations to executives/consultants made in anticipation of filing within one year prior, overriding typical defenses.

Title IV: Other Provisions

• Union Proof of Claim (Sec. 401): Explicitly allows labor unions to file claims on behalf of members.
• Exception from Automatic Stay (Sec. 402): Exempts labor grievance, arbitration, or dispute proceedings under CBAs from the automatic stay (which halts most creditor actions upon filing).
• Effect on Collective Bargaining Agreements under the Railway Labor Act (Sec. 403): Preserves railroad and airline CBA protections, preventing bankruptcy courts from altering wages, conditions, or benefits except via the Railway Labor Act's negotiation process.

Significant Changes to Existing Law

• Enhanced Priorities and Claims: Doubles wage claim limits, adds new unsecured claims for pension/stock losses, and elevates labor-related damages (e.g., WARN) to top priority, shifting more recovery to employees over general creditors.
• Stricter CBA and Benefit Modification Rules: Replaces easier rejection processes with mandatory negotiations, 21-day notice, and "clear and convincing evidence" burdens on courts—higher than the current "business judgment" standard—emphasizing minimal, proportionate cuts tied to reorganization viability.
• Job and Benefit Focus in Sales/Plans: Introduces requirements for courts to prioritize job-preserving buyers and plans, altering confirmation criteria to favor worker protections over pure financial maximization.
• Executive Pay Restrictions: Imposes new caps, prohibitions, and clawback mechanisms, expanding beyond current limits on "insiders" to include broader executives/managers, and linking pay to worker sacrifices.
• Procedural Shifts: Shortens exclusivity periods for union alternatives, allows labor self-help post-rejection, and exempts union disputes from stays, empowering labor over debtors.

Potential Impacts

• On Citizens (Employees and Retirees): Likely increases financial recoveries (e.g., higher wage/severance payouts, pension claims) and job retention in bankruptcies, reducing losses from benefit cuts or plant closures. Could stabilize retirement security but may prolong cases, delaying overall resolutions.
• On Businesses and Creditors: Raises costs and hurdles for reorganization, potentially making bankruptcy less attractive or leading to more liquidations if labor demands cannot be met. Secured lenders face greater exposure to employee claims against collateral.
• On Government Agencies: Indirectly affects the Pension Benefit Guaranty Corporation (PBGC), which insures pensions, by allowing additional claims beyond PBGC recoveries, possibly increasing its liabilities or litigation. No direct impact on other agencies.
• On International Relations: Minimal to none; the bill focuses on domestic bankruptcy and labor law without extraterritorial or trade elements.

Main Stakeholders Affected

• Employees and Retirees: Primary beneficiaries through better claims, preserved CBAs/benefits, and job protections; includes union and non-union workers.
• Labor Organizations (Unions): Empowered with negotiation rights, claim-filing ability, and self-help options.
• Business Debtors (Companies in Bankruptcy): Face stricter restructuring rules, higher costs, and limits on executive incentives, potentially complicating reorganizations.
• Executives and Management: Restricted in compensation, with clawback risks tied to worker cuts.
• Creditors (Including Secured Lenders and Shareholders): May receive lower recoveries due to elevated employee priorities; shareholders lose protections for certain stock losses in plans.
• Courts and Bankruptcy Trustees: Increased oversight and evidentiary burdens in approvals, potentially lengthening proceedings.

Notable Legal, Constitutional, or Political Implications

• Legal Implications: Reinforces labor law integration into bankruptcy (e.g., via WARN, ERISA, NLRA references), potentially increasing litigation over negotiations, clawbacks, and plan confirmations. May conflict with creditor priorities under existing Code, inviting appeals on "fairness" standards.
• Constitutional Implications: Could raise due process or takings clause challenges if seen as unduly burdening property rights of executives/creditors to favor labor, though likely upheld as rational economic regulation in bankruptcy context (similar to past reforms like BAPCPA in 2005).
• Political Implications: Bipartisan support (sponsored by Sens. Durbin (D), Hawley (R), and others) highlights cross-aisle concern over corporate accountability and worker protections amid high-profile bankruptcies (e.g., retail, manufacturing). Signals a policy shift toward equity in distress, but may face opposition from business lobbies fearing reduced flexibility for turnarounds.

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Sen. Durbin, Richard J. [D-IL]

Cosponsors (6)

Sen. Hawley, Josh [R-MO], Sen. Schatz, Brian [D-HI], Sen. Duckworth, Tammy [D-IL], Sen. Klobuchar, Amy [D-MN], Sen. Whitehouse, Sheldon [D-RI], Sen. Cortez Masto, Catherine [D-NV]

Recent Actions

• 2025-04-09: Read twice and referred to the Committee on the Judiciary. (text: CR S2523-2527)
• 2025-04-09: Introduced in Senate

Bill Versions

• Protecting Employees and Retirees in Business Bankruptcies Act of 2025 — issued 2025-04-09 — PDF (40 pages)