An Early Version of the CARES Act Prevented Airlines From Reducing Workers From Full-time to Part-Time

But that provision did not make the final bill.

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The CARES Act provided subsidies to airlines, on the condition that they not furlough workers, or reduce their rates of pay through September 30. However, the statute as enacted has a significant loophole. Gary Leff from View from the Wing explains:

Now United has realized they can switch employees from full time to part time and pay them less. That's not a furlough, and while it reduces pay it does this through reduced hours not reduced pay rate.

In other words, the federal government has paid United Airlines on the assumption that their employees would work 40 hours per week. But United is only paying their employees for working 30 hours a week. United is pocketing the difference.

The International Association of Machinists and Aerospace Workers union has threatened to sue:

"IAM District 141, consequently, advised United management that we are prepared to sue them in federal court if they take this action because we believe that any type of furlough or reduction in pay and/or benefits before September 30, 2020, is a violation of the CARES Act.

American Airlines CEO Doug Parker has complained that United is violating the CARES Act:

"Some airlines think it is OK to go and cut employees' hours," Parker said, according to notes and recollections from two people who listened to the meeting but asked not to be named.

"One [airline] is cutting full-time from 40 hours to 30, a 25% cut in pay," Parker said. "I was there when we were working on CARES and that wasn't the intent or meaning of it.

Parker is right, in part. An early House version of the CARES Act would have ensured that airline workers would be paid 100% of their wages:

But that text was stripped from the final version of the bill. The CARES Act, as enacted, leaves this loophole wide open. There is no restriction on reducing hours, so long as the hourly-wage remains the same.

Leff writes:

My sense though is that the airline bailout language, pushed so hard and so quickly by industry lobbyists with the public pleading of unions wasn't well enough drafted – although from the perspective of those advocating the language this was a feature, not a bug.

Welcome to the world of rent seeking and legislative history, Mr. Parker.

Disclosure: I have United elite status which, at the moment, is basically worthless.

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  1. 1. Typical sleazy behavior by United.
    2. Given that the provision (preventing this) was in the language and then deliberately stripped away; I think United has a strong argument that this sort of money-grubbing behavior is implicitly authorized. If I were a judge, I’d think to myself, “If there had never been any language in the legislation, then maybe this is an oversight and I need to look at intention. But, no; here, the legislators/executive branch specifically removed this type of worker protection. I can’t substitute my judgment in, or allow my revulsion to override the language that is (and is not!!!) in there.”

    1. “1. Typical sleazy behavior by United.”

      Typical government waste.

    2. 1. Employers are trying to stay afloat. It’s difficult to pay workers wages when no one is paying for flying. The longer United stays afloat, the longer it can pay its workers something

      2. That’s how laws work. Personally, I think the unemployment payouts that pay people MORE than what they were previously earning are very problematic, and should be revised. Especially when you’re trying to get some people to go back to work. Some workers are asking to be furloughed, so they can make more money in UE. Maximum unemployment in Washington State is currently $72,280 a year (annualized). Well above median income.

  2. United Breaks Guitars.

    1. I’ve flown United since I was a teenager. They are an excellent airline. My heart is broken for everyone in this industry, which allowed me to see the country and the world at reasonable cost.

  3. Most airlines, United among them, least most of their fleets. Those leases come with regular lease payments. Perhaps it would be best for all if the airline employees found that they have ended up working for an airline with no airplanes.

    1. I imagine the airplane owners would have tried to accommodate the airlines one way or another; after all, who else would lease the damn things if they had been repossessed? And banks or some other institution would have tried to accommodate the airplane owners. It is to no one’s benefit to follow the letter of the contract in cases like these.

  4. Talking with my kids who are in their twenties and thirties about stuff like this. They see this as a typical feature of capitalism and are likely among those young people who say they prefer socialism when asked for polls. The welfare state was introduced in 19th century England and Germany, in large part to curb such excess and to take the air out of a growing socialist balloon. I see some parallels.

    1. This!

      And this article proves it since the author is ok with it. Hence his lack of outrage.

  5. Why are the employees continuing to pay for their union when they aren’t actually getting anything from it?

    Maybe we need some sort of union union to represent the interests of the employees against their union.

    1. Actually, although Im no union fan, they did sue United in federal court for an injunction…

      https://iam141.org/machinists-union-withdraws-united-lawsuit/

      The lawsuit was filed in EDNY if you want to go look it up.

  6. It seem like the bailout was done pretty badly. Businesses can get paycheck protection loans, and keep them if they don’t fire anybody during the pandemic. This is true even if their business wasn’t affected by the pandemic.

    1. That was also a feature, not a bug. The stated purpose of the bailout was to help small businesses. The real purpose was to transfer trillions of debt and printed money to Wall Street and other large corporations.

      1. “That was also a feature, not a bug. The stated purpose of the bailout was to help small businesses. The real purpose was to transfer trillions of debt and printed money to Wall Street and other large corporations.”

        Yup. A typical government program.

  7. I recently saw that the CARES act will cost $20,000 per household.

    If we’re going to hand out this much money, why don’t we just give it to everybody? It’d be more equitable, and stop doing asinine things like flying empty airliners around.

    1. Couldn’t agree more.

    2. Arnold Kling (I believe) had a pretty sensible and simple idea: extend a federal checking overdraft plan to all checking accounts, whether personal or business, based on how much was deposited in January and February. Whatever is borrowed against that credit line is owed to the IRS over several years.

      Self-selecting; if you don’t need it, you don’t borrow it. Self-defining: you borrow as much as you need. Self-funding: those who borrow pay it back.

      Covers Boeing, United, workers, and everybody. Simplicity itself.

      1. Would this debt be dischargable in bankruptcy?

        1. First thing I thought of.

          And while the IRS can pursue natural persons, how would they ever be able to pursue a bankrupt corporation?

        2. I don’t remember if his proposal covered that. I got the impression it would be considered taxes owed to the IRS. Can taxes be dischargable in bankruptcy?

          1. According to the IRS, “In a chapter 7 case, eighth priority taxes may be paid out of the assets of the bankruptcy estate to the extent assets remain after paying the claims of secured creditors and other creditors with higher priority claims. See: https://www.irs.gov/pub/irs-pdf/p908.pdf

            And in the case of a dissolved corporation, I don’t see what nondischargable debt there possibly could be as the artificial person no longer exists.

            1. As an aside, Bankrupt (Ch 11) hospitals are not permitted to get Paycheck Protection loans. See: https://www.seacoastonline.com/news/20200429/rural-maine-hospitals-face-closure-as-pandemic-stretches-on

    3. Because that would actually cause consumer inflation (even more so than the government’s fraudulent numbers show). Transferring trillions to the rich doesn’t.

  8. Because of the bailout the airlines essentially have cheap or free labor until Oct 1. Would seem to me they should be using that to clear off backlogs of projects, perhaps deferred maintenance, or even launch that new reservation system they continuously back benched due to the complex technical challenge it presents. I don’t know when else (other then perhaps another 9/11 style event) air traffic is going to be so low they could invest time and R&D into their infrastructure.

    1. You can’t just reposition the baggage handlers into designing and programming a new reservation system. It doesn’t quite work that way.

      1. I’ve seen UMass do something similar….

      2. And their handful of programmers probably aren’t furloughed, and are working from home.

  9. “But that text was stripped from the final version of the bill.”

    By whom? Seems a pretty important bit of information.

    1. Important enough that Congress makes damned sure we’ll never know.

  10. Basically, the IAMAW sued United in federal court (EDNY) for violating the CARES act and for breaking the Union CBA. All of a sudden, United backed down.

    Right now, changes are occurring so fast the employees heads are spinning. One day United takes position A and communicates it to the employees. Then the Union steps in. Next day its position B. yada, yada, yada, rinse, lather repeat.

    https://iam141.org/congressman-to-united-airlines-future-furloughs-before-october-would-be-bad-faith-violation-of-the-cares-act/

  11. This just shows that bailing out the airlines was a mistake. Instead of bailing out companies (where the benefits are shifted towards management and shareholders) we should directly aid workers.

    One way to do that is with wage subsidies.

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