United Airlines Uses CARES Act Loophole To Reduce Employee Pay, Keep Bailout Money For Itself

The CARES Act contained two separate tranches of funds for U.S. commercial airlines: payroll protection funds to ensure employees continue to get paid, and subsidized loans to help airlines avoid bankruptcy.

Major airlines jumped at the payroll grants, which requires that they:

  1. Do not furlough any employees through September 30
  2. Do not reduce the rates of pay of employees either

In addition there are restrictions on executive pay, share buybacks, and dividends and airlines must continue to serve the cities they flew to before the panedmic (unless they obtain specific exemptions from the Department of Transportation, which ave been limited).

Airlines get a majority of their payroll covered by grants (even aside from the portion of payroll protection funds being provided in loans) but they weren’t going to furlough a majority of employees immediately, especially since the largest airlines have convinced as much as a third of their staff to take temporary leaves. They’re pocketing the difference.

That’s all consistent with the design of the airline subsidy legislation. However some of the airlines have figured out loopholes that let them keep money that was intended for their employees.

  • First JetBlue figured out that if they required support and salaried employees to take unpaid time off that this was neither a furlough nor a reduction in rate of pay.

  • Now United has realized they can switch employees from full time to part time and pay them less. That’s not a furlough, and while it reduces pay it does this through reduced hours not reduced pay rate.

Live and Let’s Fly reports on a note to employees on Friday outlining their change.

[E]ffective May 24, 2020, and in full compliance with the provisions of the CBA and the CARES Act, all full-time employees covered by the Passenger Service Employees Agreement and the Fleet Service Employees Agreement will be reduced to part-time status.

While our contract allows for a reduction of full-time employees all the way to 20 hours, we will commit to an equivalent number of 30 hour bid lines. We are making similar changes for our management personnel and those changes will be announced Monday.

The International Association of Machinists is threatening to sue. My sense though is that the airline bailout language, pushed so hard and so quickly by industry lobbyists with the public pleading of unions wasn’t well enough drafted – although from the perspective of those advocating the language this was a feature, not a bug.

Clearly the intention of the grants was that the money would go to employees, whose pay would not be reduced. And clearly United, like JetBlue, is reducing the amount they’re paying employees and using the savings to bolster the position of their shareholders. The airline’s argument is that they need the money which is the same argument they deployed trying to deny refunds to customers for flights they cancelled.

One is theft from taxpayers, the other theft from customers. And employees don’t get what was promised. Instead all three groups get Kirby’ed while outgoing CEO Oscar Munoz, who claimed to make employees his priority, silently exits stage left.

For those of you who favored the bailout when will you ever learn?

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. This makes me so irrationally angry.

    We have social systems already in place to deal with layoffs: unemployment and Medicaid and COBRA.

    Why not fund those? Oh, because it’s easier to distort capitalism into something it’s not meant to be by funding private entities with public dollars? How’s that working out for you, corporate socialists?

  2. @JamesB2147, same thinking here. Ridiculous.

    I don’t care what they say, this is a Socialist economy–for Corporations. Corporate Socialism. Because, Corporations are people, too!

  3. When will we learn what? I was not all in favor of the bailout, but this seems to show that REGULATION is required, and that businesses will act in their OWN self interest before that of the nation/employee/etc. Thus, to ME, it proves that regulation is 100% required, now and when times are normal.

  4. I’d suggest Congress change the law. Retroactive changes can be made to civil law. It’s happened many times with tax law changes.
    This is grotesque.
    Meanwhile half the small business people I talk to are SCARED to apply for PPP because they think they might slip up and get charges with a crime.

  5. I saw shareholder now has 1/3 of their $$$ left and no sign of a boost… maybe the CXxxxxxO should get pay cut. I don’t hold airlines stock 😀

  6. Gary – regardless of your view regarding what is “fair” or “right” (or that of any other person on here) if an airline is compliant with the requirements in the law that is all that can be asked. Just like there are ways to use (and some would say abuse) the tax code there are ways around these requirements. Unless Congress passes an amendment or the FAA issues a clarification (which may or may not pass legal scrutiny) the airlines are empowered to take this action. Sorry but that is reality and all the whining and hand wringing in the world won’t change it!

  7. The kleptomaniac gangbangers running most of the US airline industry need to be stopped.
    Repeal the Airline Deregulation Act of 1978!

  8. @Michael Hope Oscar is doing ok though. He has several risk factors.

    Chief among them is his lack of honesty, empathy and just basic concern. Ultimately, United will be his personal Coronavirus. For now, he can go back home and shovel more sand on to his property, while forgetting all the employees he screwed!

  9. I have really lost respect for United and JetBlue because of their behaviour during this crisis. They are now at the bottom of airline choice list due to their lack of ethics.

  10. @Sal, what about Delta who cut all workers pay 25% right before they took Cares funds and haven’t put those wages back? They’re in the exact same boat.

  11. I think is crap they got a payroll grant when 30 million Americans are out of work. Where’s their grant? Lay them off like the rest of Americans. These pilots continue to bring in 15k-30k a month curtesy of the tax payer while the rest of us stand in line a the food. Airlines should file BK and go through the process like everyone else. Especially when they spent profits irresponsibly in buybacks.

  12. Where is the Congress that created this nightmare scenario? Where is their concern evidenced from being yet again on leave back home?

    What stops Treasury/Congress from accepting their error end demand a clawback of the funds these airlines have stolen from the taxpayer?

    As the railroads figured out earlier, how many airlines do we really need?

  13. As usual, Delta implemented this trick first and now the rest of the airlines are copying it. Unfortunately most media outlets are also ignoring it.

    @Gary why don’t your report on how Delta cut hours by 25%?

  14. I guess in addition to the one you surely did on Delta, I must have missed the story you did on darling Emirates cutting pay 25-50%. So nice to have honest and balanced perspectives shared… lol… right.

  15. Govt should just cancel the loan forgiveness, since they are violating the intended requirements. F*** the airlines greed, who needs them.

  16. @joelfreak

    Businesses are supposed to act in their self interest. The responsibility is to their shareholders who invested capital. The bailout for airlines wasn’t actually a bailout for airlines but a bailout for union employees who get to keep their excessive pay. Flight attendants of the big 3 are rated the worst so they don’t get much sympathy for me. They often treat customers poorly and damage the airline brand. Airline management should have just let everyone go and not taken government assistance with strings attached. Of course they are trying to lessen the enormous burden placed on the, by paying for employees they don’t need and flying planes that are 20-50% full that lose money every flight. You’re right that management needs to go because they didn’t look out for the shareholders and should have not taken government assistance when all it does is fill pockets of flight attendants and rich pilots. There will be plenty of labor available when there is demand for flights.

  17. @john- you are wrong when you say taking government salary grants hurts shareholder value. Since United, Jet Blue, Delta (and presumably American) all got over 100% salary grants (after payroll cuts), that excess free money contributes to shareholder value.

    At a minimum, a grant clawback equivalent to any excess vs salary expense through the end of Sept is warranted. Also claw back money from airports granted funds in excess of the annual operating costs. Nothing wrong with amending legislation if the original rushed bill had loopholes.

  18. @Brian- I missed the article where Emirates got billions of dollars in US aid in return for keeping full employment of cabin crew- when did that happen? Seems slightly strange given that they are a foreign carrier, but we live in crazy times.

    Oh, no- Emirates raised additional funds by selling more shares to their existing shareholders. Hmmm- why didn’t any of the US carriers do that? Oh, that’s right, they got more than 100% grants instead.

  19. The 25% cut for Delta staff was not a cut in rate of pay, but in hours worked. Paying 30 gate agents to show up 5 days a week when the number of active gates has dropped 60% doesn’t make much sense either. Seemed like a reasonable middle ground to me as a small business owner.

  20. @gary: Daily, and I do appreciate your writing. In my opinion this issue hasn’t gotten attention it deserves (broadly speaking) and Delta has avoided most of the bad press (as it usually does).

  21. Corporations, like United and Jet Blue, that don’t pay income taxes should’ve been disqualified from receiving bailout money.

  22. Problem: Delta Airlines took billions of dollars from the tax payers under the cares act. This was to insure no job cuts, pay decreases or layoffs. Delta then offered time time off for thousands of volunteer employees. Delta filed unemployment benifits for these same employees so they can receive state and federal unemployment (Tax Payer Dollars) once again, to stay at home. This is theft on three different levels! What gives Delta Airlines the right to rob and deceive the tax payers that helped bail them out! This is one terrible Airline and your CEO will be answering a lot of questions.

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