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United Airlines Sued Over Unpaid Furlough Policy

By Lou Whiteman – May 14, 2020 at 10:33AM

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Workers believe United is violating the terms of the government bailout.

A shift manager at United Airlines Holdings' (UAL -4.01%) Chicago hub has filed suit against the airline, arguing that the company's requirement that nonunion and admin workers take 20 unpaid days off this summer violates the terms of the CARES Act government stimulus plan.

Last Month, United accepted nearly $5 billion in government funds designed to support payroll during the COVID-19 pandemic. Airlines have been hard-hit during quarantine, which has caused travel demand to fall to near-zero. The government responded with $50 billion in aid for the industry, but the funds came with the stipulation that carriers would do no layoffs until the end of September.

A United Airlines 787 exits the hanger.

Image source: United Airlines.

Since March, United has been candid with workers that it expects to cut its workforce once those restrictions expire. The suit, filed in U.S. District Court, alleges that the airline is bending the Treasury Department's rules by reducing the hours worked ahead of the Sept. 30 target date.

The suit is seeking class action status, and the attorneys involved are seeking an injunction to force United not to proceed with the forced time off.

United says the suit is without merit since the airline continues to employ its full workforce. The suit is similar to one filed by the International Association of Machinists arguing that United's decision to cut union mechanic hours violates the Treasury guidelines.

Airlines are in a tough place, since the bailout funds do not fully cover payroll costs and the companies currently need fewer workers, with schedules cut by 80% or more. United's attempt to cut costs and remain in compliance with the guidelines is understandable.

Nevertheless, the controversy adds additional risk to United shares. The airline has a long history of battles with labor groups, and if United emerges as a hotbed of worker unrest, it is going to make it more difficult for the airline to recover coming out of the pandemic.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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