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 company views as the linchpin to its survival. Yellow alleges that union interference has harmed the company to the tune of $137.3 million (“and counting”) in lost adjusted earnings before interest, taxes, depreciation and amortization as well as at least $1.5 billion for a loss in enterprise value that the company “is sustaining and will sustain.”
Yellow’s enterprise value — market capitalization plus net debt — consists mostly of its debt. Yellow’s market cap has plummeted since the end of 2021 as its share price has fallen from more than $14 to roughly $1.
“We do not take this action lightly, but the Union’s leadership has left us with no choice,” Yellow’s management stated in a news release. “For many months, we have made good faith efforts to meet with the IBT to propose a path forward that works for all parties, but they refuse even to meet, let alone engage in honest talks.”
The carrier is seeking to push through a second phase of operational changes as part of a companywide overhaul called “One Yellow.”
The plan includes the consolidation of its four LTL operating companies, closing excess terminals and redefining work rules for some drivers, among other items. The union has rejected the latest proposal after acquiescing to a similar change last year in the western part of Yellow’s network.
The union has been adamant that the latest 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 form of wage, benefits and pension concessions in the past and that it will not bail out the company again. It plans to honor the current contract in place, which expires next year.
“The company is misleading our members and the public,” said Fred Zuckerman, Teamsters general secretary-treasurer, in a news release. “We have a contract with Yellow that expires March 31, 2024, and Teamsters are living up to it. … This lawsuit is a desperate, last-ditch attempt to save face.”
But Yellow says the Teamsters have no 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 close terminals, and the Union cannot interfere with those entrepreneurial decisions — its involvement is limited 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 allow it to compete with nonunion carriers, which have less cumbersome rules and often combine the roles of driving and freight handling. The lawsuit said recent market share losses — roughly a 33% decline in tonnage over the last two years — are directly associated with the way it is required to operate.
The company asserts that 1,000 road drivers in total would be required to work the docks. Roughly 400 are already performing the dual functions and the remaining 600 utility positions would be filled by employees with the least seniority.
The complaint 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 but it’s O’Brien’s “militant approach” that has stalled the implementation.
“Now, however, the Union has reversed course and without any justification refuses to comply with its contractual obligations to cooperate with and not 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 company’s demise,” referring to some 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 meet and negotiate, and its repeated offers to accommodate the Union’s purported demands, Mr. O’Brien has refused to permit any cooperation or negotiations, choosing instead to direct profanities at Yellow and its executives and even to gloat at Yellow’s impending demise.”
Yellow alleges the union has breached the collective-bargaining agreement by rejecting the proposed changes and not agreeing to schedule a required hearing on the matter. It says union leadership is blocking the request as a means 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. Instead, Yellow claims union officials insisted the NMFA would have to be reopened to proceed with any changes and that Yellow would have to “come up 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 a company that loves to cry poor, Yellow’s executives seem to have no problem paying a team of high-priced lawyers to wage a public relations battle — all in a failed attempt to mask their incompetence.”
Yellow just weeks away from running out of cash
The lawsuit said Yellow could run out of cash as soon as mid-July, at which time its creditors “will likely force the Company into liquidation.”
The company reported total liquidity of $168 million at the end of the first quarter, which was down $109 million from the year-ago period. However, that change included a $98 million reduction in debt. Cash flow from operations was $13 million in 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 first 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 company in July 2020. That made the U.S. government the largest shareholder in Yellow as it now holds 30.1% of its outstanding stock. That loan matures Sept. 30, 2024.
The company recently asked to defer health and welfare and pension contribution payments for the months of July and August to preserve cash. However, there has been 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 protect Yellow’s economic interests.”
“The lawsuit by Yellow Corp. is a blatant attempt to undermine the rights of workers 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 compared to the S&P 500, which was up 0.3%. Shares of other LTL carriers were up between 3% and 7% at the time as investors contemplated Yellow’s potential demise.
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Joe
Lotta good ol boys toeing following their marching orders…
Another Giant killed by unions, silver lining is unemployed union thugs
Sage
I worked in the office for Yellow for 24 years. Like most companies I saw wasteful spending and management that was incompetent . The last 12 years at Yellow I became a Teamster which was ok with me. If Yellow closes it will be a very sad time for many people.
Carol Toops
I worked at the corporate office and started seeing the corporate world go down hill when they started hiring managers that had no idea what they were doing so they micro managed to try and look good. My last manager actually gave me a bad review, (my only bad review after 16 excellent reviews) her reason… because she didn’t know my job! Best decision I ever made was to leave!
Mark Chapman
This has nothing to do with Union/Non-Union. It has everything to do with management without a clue, stuffing their own pockets over and over again. The shell game of Preston to Yellow, Roadway to Yellow, YRC to Yellow. All the time the executives followed, while draining the life out of every Company, and filling their pockets, at the cost of wages, pension contributions and the viability of each company. ABF is making profits, Holland was profitable, Red Star was profitable, UPS is making Billions. All Union companies.
Now they want to defer pension contributions again. Defer my a**. Why don’t they tell the truth. If allowed to defer you will never see the payments. This after cuts in contributions.
I wager a bet that executives will walk away with millions in their pockets when this is all over. Greed.
John Kelder
Having retired from Yellow after 31 years there , the companies demise Is long overdue . Union members lost pension credits, saw future pension credit value slashed , pay cuts of 5 and the 10 percent and company leadership still collecting bonuses. Yellow’s shell game should end sooner , not later . Honor the last 9 months of the current contract in place. Though the corporate executives do not know the meaning of honor , so good luck with that.
dave
unions have been out of line for many years, they are the ones forcing business to close, then the union guys will be out of work… so be it.
Jason Mehr
As a former Reddaway/Yellow driver this is squarely on management or lack there of. If only the smartest guys in the room (management) had actually listened to the resistance of ALL employees they could have pushed their inevitable demise out a little further.
Truth is Yellow would have closed their doors in the summer of 2020 but insteps the US taxpayer under the direction of Donald Trump and the republican controlled senate to give Yellow a gift. The taxpayer paid $700 million dollars (never mind multiple DOD lawsuits) to a company with a market cap of $70 million, and what did the US taxpayer get in return for paying 10x what the deeply indebted company was worth? 30% ownership of a failed company in bankruptcy. This is the master deal maker I’ve heard so much about?
If God forbid Trump becomes the president of my beloved country again he can probably recruit for his cabinet from Yellow management…they’ll be looking for work!