Judge convinces union to mediate with Hostess

November 20, 2012

According to the Associated Press, Hostess Brands Inc. and its second largest union are in mediation to try and resolve their differences, meaning the company won’t go out of business just yet. The news came Nov. 19, after Hostess moved to liquidate and sell off its assets in bankruptcy court citing a crippling strike last week.

The bankruptcy judge hearing the case said that the parties haven’t gone through the critical step of mediation and asked the lawyer for the Bakery, Confectionery, Tobacco Workers, and Grain Millers International Union (BCTGM), which has been on strike since Nov. 9, to ask his client if the union would agree to participate.

The judge noted that the bakery union, which represents about 30% of Hostess workers, went on strike after rejecting the company’s latest contract offer, even though it never filed an objection to it. “Many people, me included, have serious questions as to the logic behind this strike,” said Judge Robert Drain, who heard the case in the U.S. Bankruptcy Court in the Southern District of New York in White Plains, N.Y. “Not to have gone through that step leaves a huge question mark in this case.”

Hostess and the union agreed to mediation talks, which are expected to begin the process on Nov. 20. Hostess CEO Gregory Rayburn said that the two parties will have to agree to contract terms within 24 hrs since it is costing $1 million a day in overhead costs to wind down operations. But even if a contract agreement is reached, it is not clear if all 33 Hostess plants will go back to being operational.

Hostess, weighed down by debt, management turmoil, rising labor costs and the changing tastes of America, decided on Nov. 16, that it no longer could make it through a conventional Chapter 11 bankruptcy restructuring. Instead, the company, which is based in Irving, Texas, asked the court for permission to sell assets and go out of business.

When Hostess filed for bankruptcy in January, it said that it was saddled with costs related to its unionized workforce. The company, which had been contributing $100 million a year in pension costs for workers, offered workers a new contract that would’ve slashed that to $25 million a year, in addition to wage cuts and a 17% reduction in health benefits. But the bakery union decided to strike. Rayburn said that Hostess was already operating on razor thin margins and that the strike was the final blow.

AP article