Patriot, Peabody, Bankruptcy, and the Relentless Drive to Exploit Workers

In June of 2012, Patriot Coal filed for Chapter 11 bankruptcy. This could potentially lead to liquidation and the shedding of responsibilities for health care for about 22,000 retirees—including family members of former employees—who have contracts with Patriot and rely on their benefits to survive. In a period of sustained economic crisis such as we are living through today, these life-shattering bankruptcies are not out of the ordinary; there is no sure way of ensuring financial security for workers on the basis of capitalism, which is an inherently unstable system. What makes this particular bankruptcy noteworthy, however, is the particularly brazen way in which the company has used the courts to destroy the lives of its workers.

Patriot Coal was established in 2007 as a split from Peabody Coal, based in St. Louis, Missouri, near the extensive coal mining fields of southern Illinois. The four-year-old company, which has approximately 4,500 current employees, is contractually obligated to provide healthcare for 10,000 retired employees and their families. The math does not add up; how could such a relatively young and small company have contracts with so many retirees?

It turns out that over 90% of the retired workers who have a contract with Patriot never worked a single day for that company. These contracts were originally signed with Peabody Coal, or Arch Coal, which is based in West Virginia (Arch Coal had a similar split into a company called Magnum Coal, which then merged with Patriot). What is a company with 4,500 employees going to do with a $1.5 billion pension and retirement health care obligation? The answer Patriot came up with was to take out loans to stay afloat long enough to be able to shed these contracts without Peabody bearing financial responsibility, then claim bankruptcy. In 2007, the CEO of Peabody said of the creation of Patriot, “We’re reducing our legacy liabilities roughly $1 billion, and reducing our expense and cash spending in the neighborhood of $100 million as well.” So Peabody Coal is now making hundreds of millions of dollars in profits while its obligations to retired workers are being shed by a puppet company, which was created with the intention of failing.

UMWA and Peabody

The retirees’ pension and health care plans are in effect deferred wages, which the company agreed to pay the workers upon retirement. However, these benefits were not granted out of the blue by the kind-hearted and benevolent overseers at the coal company. These gains were fought for by the United Mine Workers Association, which represents these workers. In 1946, in response to a wave of strikes, and in an effort to secure class peace after World War II, President Harry Truman seized the mines and oversaw a deal signed by the United States Department of the Interior and the UMWA called the Krug-Lewis Agreement, which established the UMWA Health and Retirement funds. This established a trust, set up by the federal government, and maintained by the union, which is financed by legally required contributions from the coal companies.

In 1974, the UMWA won a pension program, which requires the coal companies to pay $5.50 per hour worked into the pension. The pension was lower than it could have been, because coal mining is particularly hard on a person’s health, so the workers often opted for better health benefits rather than higher wages or pensions (though they should and could have fought for and won increases across the board). Even this paltry fund, however, on which retirees still struggle to get by financially, will be in trouble if Patriot were to be liquidated. Due to the “legacy costs” gifted to them by Peabody, the liquidation of Patriot Coal would withdraw approximately $830 million from this already insubstantial fund.

In 1993, many workers found themselves in a similar situation, with their companies going out of business. Such is the logic of capitalism; a hundred coal companies become fifty; then fifty become ten. This process left thousands of coal workers without health benefits, which they had paid for by their labor. So a plan was established through the UMWA into which coal companies must pay $1.10 per hour, which contributes to the healthcare of these “orphan” retirees. The problem is that since Patriot owns the contracts of 10,000 former Peabody employees, instead of these workers getting benefits from a major corporation still making millions in profits, they are going to be thrown into this plan by a company they never worked for and which is designed to fail. The result of this influx of 10,000 newly “orphaned” retirees, is that this fund will be instantly insolvent and even more workers will be completely without healthcare benefits.

UMWA must fight back

Patriot Coal declares bankruptcy, and in the twisted magic of capitalism, retirees of Peabody Coal may lose their health benefits. The logic is absurd, but unfortunately logic cannot be commodified, so big business and the capitalist state do not give it precedence. The UMWA, which is the only body representing these thousands of workers, is attempting to fight a legal battle to protect its members by launching a public campaign for support (which can be found at www.fairnessatpatriot.org), trying to move the hearing for bankruptcy from New York to West Virginia, where most of the affected miners live. Their aim is for Peabody to be declared legally responsible for the contracts if Patriot were to be liquidated.

Relying on the capitalist-controlled courts is a losing strategy. The bosses are united and will not relent until the unions are gutted and workers’ wages and conditions are driven back 100 years. The only way to fight for the UMWA’s retirees is for the leadership to mobilize the entire membership of the UMWA, both active and retired, and to threaten and carry through mass occupations and strike action if necessary.

Furthermore, the UMWA leadership must reach out to the entire labor movement for support and solidarity actions, even if it means violating Taft-Hartley. AFL-CIO President Richard Trumka, a former UMWA leader himself, should be at the forefront of this struggle. An injury to one is an injury to all!

A symptom of the class struggle

It is tempting to single out the bosses at Peabody Coal and call them “evil” for using such methods to steal the retirement and health benefits paid for through their employees’ labor. It may also be tempting to point out that Irl Engelhardt and Richard Whiting, who were founding board members of Patriot Coal, still have strong ties to Peabody and will certainly not lose out on their bonuses and retirement packages.

However, the bosses of Peabody Coal are no more nefarious than any others. This is simply the way capitalism operates. The price of coal has been falling and the crisis of capitalism is making long-term pension programs more costly to maintain. Those companies that are the most ruthless in extracting profits out of their employees are in a better position to out-compete the others in the market. The profit motive of capitalism is the real enemy behind the plight of the retired coal miners. Even if the UMWA were to win their legal case against Patriot, similar attacks will continue.

The attack on the coal workers by Peabody and Patriot is just another concrete expression of the class war. The class war is waged both at the workplace and in the political arena. The tragic irony is that unions such as the UMWA, who were big supporters of the effort to build a labor party in the 1990s, campaign for Democrats, who are certainly not on their side.

In fact, during a dispute in Washington State in 2012, President Obama was prepared to use the Coast Guard to escort scab grain ships in the face of fierce resistant by ILWU workers. This is the same administration that could not pass a pro-union bill as straightforward as the Employee Free Choice Act, even when it had a majority in both houses of Congress. It is not until the unions have a political voice of their own that workers can begin dictating the grounds on which companies like Peabody Coal can maneuver. This is why the unions must fight for a labor party, which can be their voice in Washington and in all towns and cities, both great and small.

For example, the formation of the Labour Party in England and the NDP in Canada led to the setting up of universal and comprehensive health care systems. If such a system existed in the United States, there would be no need for this particular battle with Patriot, because health care would already be a right and available to all.

Of course, on the basis of capitalism, even these victories are subject to being rolled back, as we see across Europe and around the world. The long term answer is therefore clear: we must replace the profit motive with a democratically and comprehensively planned economy, which can only be achieved through socialism.