These consolidated appeals present the issue of whether debtors could treat their agreements to participate in an Employee Stock Ownership Plan (ESOP) as an exec-utory contract and reject that contract in bankruptcy (and hence discontinue their participation) pursuant to 11 U.S.C. § 365. The practical effect of rejection in these cases is to allow the debtors to rescind a 15 percent wage reduction they had agreed to as a condition of their eligibility to participate in the ESOP. The bankruptcy court and the district court allowed the debtors to reject their agreements to participate. We disagree with that conclusion and therefore reverse and remand.
In August 1985, after negotiations with its employees’ collective bargaining agеnt, P*I*E Nationwide, Inc. (PIE) established the Ryder/P*I*E Employee Stock Investment Plan (the “SIP”). 1 PIE established the SIP as an Employee Stock Ownership Plan (ESOP) under the Employee Retirement Income Security Act (ERISA), 29 U.S. C. §§ 1001-1461. The SIP was to run from October 7, 1985 through December 1, 1990.
To be eligible to participate in the SIP, an employee had to irrevocably agree to accept a 15 percent wage reduction over the SIP’s life. (Some lower-paid employees were required to accept a smaller wage reduction but this detail is unimportant.) In return, PIE agreed to fund the SIP with common stock. Although the SIP participants had no right to back out of the SIP, PIE could terminate the SIP at any time (while allowing the employees to keep their right to shares they had already earned). If PIE decided to terminate the SIP (an event that, to our knowledgе, has not occurred), the wage reduction would also end.
Participants were to earn stock on a daily basis; in other words, a participant could receive stock only for days he worked. Each participant had a separate account in the SIP. The SIP trustee was to allocate stock annually into each account based on the proportion that each participant’s wage reduction for that year bore to the total wage reduction for all SIP participants. The value of the shares PIE contributed, however, was not directly tied to the amount that employee wages were reduced; in fact, PIE anticipated that the value of the stock it contributed would be substantially less than the value of the wages that the SIP participants relinquished (a fact thаt the parties confirmed at oral argument).
By establishing the SIP, PIE hoped to stanch substantial losses that it had suffered in 1984 and continued to suffer in *596 1985. By requiring employees to accept a wage reduction to participate in the SIP, PIE hoped to reduce substantially its payrоll expenses, and thus reduce its overall operating expenses. PIE’s management also hoped to increase productivity and efficiency by giving employees a stake in the company.
In October 1985, Steven Bruce and Thomas Crippin, PIE employees, elected to accept wage reductions and to participate in the SIP. Both, however, had difficulties making ends meet on their reduced wages. In October 1985, Bruce and his wife (who we shall refer to jointly as Bruce) filed a Chapter 13 bankruptcy petition. See 11 U.S.C. §§ 1301-1330. Crippin was able to hold out longer but in February 1987 he also filed a Chapter 13 petition.
Chapter 13 offers an alternative to liquidation under Chapter 7 by allowing a debt- or with regular income to keep his assets and establish a plan to pay creditors out of his future income. See generally 5 L. King,
Collier on Bankruptcy
¶ 1300.02 (15th ed. 1988). As part of his plan, a debtor may include provisions rejecting ex-ecutory contracts that he entered into before bankruptcy, 11 U.S.C. § 1322(b)(7), subject to 11 U.S.C. § 365, the general Bankruptcy Code provision authorizing rejection. As part of their Chapter 13 plans, Brucе and Crippin sought to reject their participation in the SIP as of the date they filed their bankruptcy petitions. By rejecting their future participation in the SIP, Bruce and Crippin sought to avoid the 15 percent wage reduction they had agreed to and to be paid the wages they would have received had they not agreed to the reduction. Bruce and Crippin maintained that the additional income they sought was necessary to fund their Chapter 13 plans. Despite PIE’s objections, the bankruptcy court and, on appeal, the district court, allowed Bruce and Crippin to reject their future participation in the SIP as an exec-utory contract and ordered PIE to restore Bruce’s and Crippin’s wages to pre-reduction levels. See
In re Bruce,
We must decide whether Bruce and Crippin could reject their participation in the SIP as an executory contract and force PIE to restore their wages to pre-reduction levels. While Congress has provided that debtors may reject executory contracts in bankruptcy, Congress has not defined exactly what an executory contract is. Attempts to frame a precise definition have been somewhat vexing. See, e.g.,
In re Jolly,
Viewed in isolation, the SIP looks like an еxecutory contract under the mutual obligation approach. The bankruptcy and district courts reasoned that it was because performance remains due on both sides. If a participant did not work, he did not receive stock; and, if PIE did not credit a participant with stock, he would not have to continue working at the reduced wage. See
Bruce,
We think, however, that it was error to treat the SIP as simply a contract to buy and sell stock. Instead, the SIP is a part of PIE’s compensation system, and thus an integral part of the entire employment relationship. PIE provides a benefit to Bruce and Crippin by providing them jobs and paying them; Bruce and Crippin in return benefit PIE by working. Although the courts below thought that PIE was required to invest the 15 percent the SIP participants gave up in PIE stock, see id. at 929, 931, the stock’s value bears no direct relationship to the value of wages the employees give. Also, when the SIP participants agreed to reduce their wages, they also agreed to reduce their wage-based fringe benefits — including incentive сompensation, vacation and holiday pay, and short-term disability benefits — because PIE based those benefits on the participants’ reduced wages, not on the wages they would have received if they had elected not to participate in the SIP. These facts indicate that the wage reduction really was a wage reduction and not simply part of a contract to purchase stock through payroll deductions. In other words, the SIP was an alternative form of compensation to straight wages.
Bruce and Crippin сould not reject the SIP while accepting the other benefits their employment provided them. Allowing debtors to reject executory contracts frees them from burdensome future obligations and thus frees up more assets for creditors. See
In re Jolly,
When a debtor rejects a contract he rejects his obligation to perform under the contract and to receive the benеfits that go along with that performance because the burden of performing outweighs the benefits received. Cf.
In re Taylor,
It is true that if PIE terminates the SIP, the wage reduction will end and the SIP participants will receive higher cash wages. But that provision does not make the wage reduction any less a true wage reduction or the SIP any less an alternative compensation system. The termination provision is much like a statement by an employer who has agreed to pay an employee $10 per hour that he might at some time unilaterally decide to pay the employee $12 per hour. The employee in that case could not force the employer to raise his wages; neither may Bruce or Crippin force PIE to compensate them differently by terminating the SIP.
Because participation in the SIP was part of their overall employment relationship that depended upon their continued employment with PIE, Bruce and Crippin could not reject the SIP without rejecting that entire relationship. The bаnkruptcy court’s and district court’s decision to, in effect, allow Bruce and Crippin to unilaterally modify their employment agreement with PIE to change the form of compensation they received was error. 2 Therefore, we reverse those courts’ judgments allowing Bruсe and Crippin to reject the SIP and ordering PIE to pay them higher wages and remand to the bankruptcy court to vacate or modify its orders confirming Bruce’s and Crippin’s Chapter 13 plans consistent with this opinion.
Reversed and Remanded.
Notes
. PIE was known as Ryder/P*I*E Nationwide, Inc. until 1986. For ease of referenсe, we will refer to PIE simply as PIE throughout the period relevant to this case.
. Given our disposition of the case, we need not reach PIE’s contention that the SIP is a spendthrift trust under Illinois law and therefore not part of Bruce’s and Crippin’s bankruptcy estates. See 11 U.S.C. § 541(c)(2) (making non-bankruptcy law restrictions on the transfer of beneficial interests enforceable in bankruptcy cases).