Less-than-truckload carrier Yellow Corp. announced Tuesday that it has filed a $137 million breach of contract lawsuit against the International Brotherhood of Teamsters for blocking proposed changes to modernize how the carrier operates.
Yellow (NASDAQ: YELL) said the union doesn’t have the authority to stop a proposed change of operations, which the corporate views because the linchpin to its survival. Yellow alleges that union interference has harmed the corporate to the tune of $137.3 million (“and counting”) in lost adjusted earnings before interest, taxes, depreciation and amortization in addition to not less than $1.5 billion for a loss in enterprise value that the corporate “is sustaining and can sustain.”
Yellow’s enterprise value — market capitalization plus net debt — consists mostly of its debt. Yellow’s market cap has plummeted because the end of 2021 as its share price has fallen from greater than $14 to roughly $1.
“We don’t take this motion evenly, however the Union’s leadership has left us with no selection,” Yellow’s management stated in a news release. “For a lot of months, we have now made good faith efforts to fulfill with the IBT to propose a path forward that works for all parties, but they refuse even to fulfill, let alone engage in honest talks.”
The carrier is looking for to push through a second phase of operational changes as a part of a companywide overhaul called “One Yellow.”
The plan includes the consolidation of its 4 LTL operating firms, closing excess terminals and redefining work rules for some drivers, amongst other items. The union has rejected the most recent proposal after acquiescing to the same change last yr within the western a part of Yellow’s network.
The union has been adamant that the most recent proposal would require too many utility positions, which require drivers to work freight on the docks at various locations. It says its member employees at Yellow have given billions in the shape of wage, advantages and pension concessions previously and that it would not bail out the corporate again. It plans to honor the present contract in place, which expires next yr.
“The corporate is misleading our members and the general public,” said Fred Zuckerman, Teamsters general secretary-treasurer, in a news release. “We now have a contract with Yellow that expires March 31, 2024, and Teamsters reside as much as it. … This lawsuit is a desperate, last-ditch attempt to save lots of face.”
But Yellow says the Teamsters haven’t any right to interfere with the changes it seeks.
“Under the NMFA [National Master Freight Agreement], Yellow has the exclusive right to run its business, effect mergers, consolidate operations, open and shut terminals, and the Union cannot interfere with those entrepreneurial decisions — its involvement is proscribed to determining and resolving the seniority of those Union employees affected by the change,” the lawsuit read.
Yellow contends the changes are required to lower its cost structure and permit it to compete with nonunion carriers, which have less cumbersome rules and infrequently mix the roles of driving and freight handling. The lawsuit said recent market share losses — roughly a 33% decline in tonnage during the last two years — are directly related to the way in which it’s required to operate.
The corporate asserts that 1,000 road drivers in total could be required to work the docks. Roughly 400 are already performing the twin functions and the remaining 600 utility positions could be filled by employees with the least seniority.
The grievance alleges Sean O’Brien, Teamsters general president, “has prevented Yellow from meeting with IBT leadership.” Yellow contends that the union has been onboard with Yellow’s restructuring plan however it’s O’Brien’s “militant approach” that has stalled the implementation.
“Now, nevertheless, the Union has reversed course and with none justification refuses to comply with its contractual obligations to cooperate with and never impede the implementation of the remaining phases of One Yellow,” the lawsuit said.
Yellow accuses O’Brien of assuming “the role of public agitator for the corporate’s demise,” referring to a few of his social media posts, which it describes as “false, unconstructive and irresponsible.”
“Notwithstanding Yellow’s repeated approaches to the Union and Mr. O’Brien to fulfill and negotiate, and its repeated offers to accommodate the Union’s purported demands, Mr. O’Brien has refused to allow any cooperation or negotiations, selecting as an alternative to direct profanities at Yellow and its executives and even to brag at Yellow’s impending demise.”
Yellow alleges the union has breached the collective-bargaining agreement by rejecting the proposed changes and never agreeing to schedule a required hearing on the matter. It says union leadership is obstructing the request as a way to “extract wage increases” and that it “had no right to require wage increases from Yellow as a condition of approving CHOPS [a change of operations proposal].”
Yellow said it agreed to “serial extra-contractual demands” throughout the negotiating process, including the union’s demand for a vote by membership, which Yellow said was later refused by union leadership. As a substitute, Yellow claims union officials insisted the NMFA would need to be reopened to proceed with any changes and that Yellow would need to “provide you with sufficient financial improvements” in those negotiations.
“Yellow Corp.’s claims of breach of contract by the Teamsters are unfounded and without merit,” O’Brien said in a news release. “For an organization that likes to cry poor, Yellow’s executives appear to haven’t any problem paying a team of high-priced lawyers to wage a public relations battle — all in a failed try and mask their incompetence.”
Yellow just weeks away from running out of money
The lawsuit said Yellow could run out of money as soon as mid-July, at which period its creditors “will likely force the Company into liquidation.”
The corporate reported total liquidity of $168 million at the top of the primary quarter, which was down $109 million from the year-ago period. Nonetheless, that change included a $98 million reduction in debt. Money flow from operations was $13 million within the period.
Yellow continues to record net losses and booked a 100.8% operating ratio (operating expenses expressed as a percentage of revenue) in the primary quarter.
It has $1.3 billion in debt that comes due in 2024, with total obligations of $1.5 billion outstanding when including lease financing obligations.
The lawsuit showed Yellow also reached out to the White House and Sen. Bernie Sanders “to no avail” in efforts to broker a deal.
The U.S. Treasury made a $700 million COVID-relief loan to the corporate in July 2020. That made the U.S. government the most important shareholder in Yellow because it now holds 30.1% of its outstanding stock. That loan matures Sept. 30, 2024.
The corporate recently asked to defer health and welfare and pension contribution payments for the months of July and August to preserve money. Nonetheless, there was no update on that request.
“By stonewalling Yellow’s implementation of Phase 2, the Union has knowingly and intentionally triggered a death spiral for Yellow,” the lawsuit said. “The harm it has caused and continues to cause Yellow was foreseeable and serious, and the Union has failed and continues to fail to take any reasonable precautions to guard Yellow’s economic interests.”
“The lawsuit by Yellow Corp. is a blatant try and undermine the rights of staff and discredit the Teamsters. The Teamsters are fully prepared to defend the union’s position vigorously and utilize all available legal resources to challenge the meritless accusations put forth by Yellow Corp.,” the Teamsters notice said.
Shares of YELL were down 28% at 11:13 a.m. on Tuesday in comparison with the S&P 500, which was up 0.3%. Shares of other LTL carriers were up between 3% and seven% on the time as investors contemplated Yellow’s potential demise.
Reefer rejection rates spike to five.36%