Fans of Hostess snack products were surprised to learn that the company filed for Chapter 11 bankruptcy protection and announced plans to cease operations last week. The company also filed for bankruptcy in 2004 but emerged from restructuring in 2009 and appeared healthy to most observers. Last week’s decision comes on the heels of a contentious, union-backed strike that company executives now blame for Hostess’ bankruptcy and possible closure.
On the afternoon of Monday, November 19, a bankruptcy judge convinced the company and the union representing bakers to enter mediation. The move is an effort to save thousands of jobs and prevent the closure of the beloved bakery company. With tensions running high, even the most experienced Chapter 11 bankruptcy attorney would be at a loss to predict the outcome of mediation sessions.
Hostess executives claim that striking workers represented by the Bakery, Confectionary, Tobacco and Grain Millers International Union forced the shutdown of Hostess by refusing to accept new contract terms. The proposed contract reduced employee salaries and cut both pension and healthcare contributions on the part of the company.
Though members of the International Brotherhood of Teamsters union voted to approve the new contract in September, bakery employees would not budge. Hostess executives said last week that the prolonged labor strike had caused the company to fall into financial ruin. While this has been widely reported in the media, new information about executive bonuses raises questions about the company’s struggles.
This Monday, Hostess executives asked a bankruptcy judge to approve the payment of some $1.75 million in executive bonuses. The workers’ union argued against the bonuses, noting that it is irresponsible for the company to blame workers for the shutdown when executives are still raking in compensation above and beyond their salaries. Teamsters remain optimistic that closure can be prevented by the upcoming mediation and a possible reduction in executive bonuses.