United Airlines service workers' union sues over schedule cuts after carrier got federal aid

Key Points
  • United Airlines baggage handlers' union sued the airline over schedule cuts.
  • A mix of grants and loans earmarked for airlines in the $2.2 trillion CARES Act requires carriers not to lay off or cut pay rates of employees through Sept. 30.
  • Two U.S. senators criticized airlines for cutting workers hours after they received federal coronavirus aid.
A United Airlines plane sits on the tarmac at San Francisco International Airport.
Justin Sullivan | Getty Images

The labor union that represents more than 25,000 United Airlines aircraft and passenger service workers sought an injunction Tuesday against sharp schedule cuts, alleging the airline violated the terms of billions in federal coronavirus aid by cutting employee work schedules.

Airlines last month started receiving portions of $25 billion in grants and loans that were earmarked for the sector in the $2.2 trillion CARES Act, the third federal stimulus package and designed in part to help industries hardest hit by the pandemic. A condition of accepting that federal aid is that airlines do not lay off or cut the pay rates of workers through Sept. 30, though executives at major carriers including United and Delta admit they expect to become smaller airlines.

Last month, United said it reached an agreement with the Treasury Department for about $5 billion in payroll support under the CARES Act.

As air travel demand plunged more than 90% in the U.S., airlines have raced to cut costs, parking thousands of jetliners, slashing routes and urging thousands of employees to take unpaid or partially paid voluntary leaves. But several of them, including United, Delta and JetBlue, have announced or already implemented reduced worker schedules with fewer flights, meaning employee paychecks are smaller, CNBC reported in March.

United last Friday told its fleet and passenger service teams that they would be reduced to part-time status later this month to better match weak travel demand. 

"Travel demand is essentially zero – you see that at our airports and on board our aircraft – and we don't know when it's going to come back," United's chief operations officer, Greg Hart, said last Friday in a staff note, seen by CNBC. "And importantly, even with a federal government grant that covers a portion of our payroll expense through September 30, we anticipate spending BILLIONS of dollars more than we take in for the next several months, while continuing to employ 100% of our workforce. That's not sustainable for any company and that's why we are making difficult decisions across our entire business."

The International Association of Machinists and Aerospace Workers, which represents the fleet service and passenger service workers, filed a lawsuit in federal court in New York on Tuesday to try to stop United from the schedule reductions, saying it violates both the CARES Act and their contracts.

"The lawsuit is meritless," United said in a statement. "Our decision is in full compliance with both the CARES Act and our Collective Bargaining Agreements and importantly, only came after repeated attempts to negotiate a consensual, more favorable agreement with IAM leadership. We continue to employ 100% of our workforce and continue to pay the contractually required pay rates."

The airline added that its "goal remains to preserve as much financial flexibility now so we can not only survive this crisis, but thrive once it is behind us."

At least two U.S. senators have criticized the airlines for reducing the hours of thousands of employees, arguing the carriers are violating the intent of billions set aside for the industry in the CARES Act. Airlines also have access to another $25 billion in low-interest loans but the first batch of aid is dedicated solely to maintaining payroll.

Sen. Sherrod Brown, D-Ohio, is planning to write to the Treasury Department this week urging officials to issue guidance to airlines that says the schedule reductions aren't allowed under the CARES Act rules.

The Treasury Department didn't immediately comment.

"The assistance provided to air carriers in the CARES Act was conditioned on protecting airline workers from layoffs and furloughs," Sen. Brown told CNBC in a statement. "The Administration needs to do more to make sure airlines are using the payroll support funding as intended, and not to cut workers hours and benefits."

On Friday, Sen. Josh Hawley, R-Mo., posted a letter to United's CEO Oscar Munoz about reductions in work schedules that stated: "It was not the intention of Congress that recipients of this taxpayer money would then turn around and disguise pay reductions by cutting hours."