PORTLAND (AP) – A federal bankruptcy judge has ordered 7.5 percent wage cuts, effective June 30, for the 555 unionized workers at Eastern Pulp and Paper Co.’s mills in Lincoln and Brewer.

Eastern Pulp turned to the court after workers twice rejected identical wage reductions that the company said it needed to cut costs in light of deteriorating market conditions for paper.

The parent of Lincoln Pulp and Paper Co. in Lincoln and Eastern Fine Paper Co. in Brewer has been operating under Chapter 11 bankruptcy protection for nearly three years.

The ruling Wednesday by U.S. Bankruptcy Chief Judge James B. Haines Jr. was called a partial victory for both the company and the unions.

Eastern Pulp had sought a 10 percent pay cut, 2.5 percent more than what it proposed in negotiations. It also wanted to freeze a 4 percent wage increase planned for Aug. 1 at the Lincoln mill.

Haines said the 7.5 percent wage cut and the elimination of the raise at Lincoln were adequate for now.

Asserting that collective bargaining agreements were “more sacred” than a company’s contracts with suppliers, Haines said that if business picks up, employees should be the first to reap the benefits.

Haines ordered that the PACE unions at the two mills receive regular updates on their financial standing. He said the unions could seek a reversal of Wednesday’s ruling if financial conditions improve.

George Marcus, a Portland attorney representing the paper company, said Eastern needed the wage reductions because it had exhausted every other cost-cutting option.

The wage cuts still would leave the mills in the red, but the company is seeking loans from outside sources to cover the remaining deficit.

Last Friday, Eastern Pulp and Paper said that it would have to lay off 25 people in Lincoln because paper market conditions have deteriorated so much that a 7.5 percent union wage reduction would not have been enough, said Douglas Walsh, vice president of operations for the mills.

Eastern also cut salary wages by 10 percent and nonunion hourly wages by 7.5 percent on June 1.

“We’re in a position where we’re running out of cash,” Walsh said. “Consequently, it has to be done.”

Haines, in his ruling, said Eastern Pulp and Paper “showed to me that the pain is being shared” by suppliers as well as employees. But, he added, “there’s certainly a real red flag here in terms of the financial viability of the company.”

So far this month, the Lincoln mill has been shut down 15 days “because of market-related conditions,” Walsh said. “That exceeds all the down time in May. We didn’t have the orders.”

Duane Lugdon, PACE’s international representative, expressed regret at the wage cuts. “Now it’s time to go back home and turn this business around. We certainly don’t want to lose these jobs,” he said.

AP-ES-06-19-03 0217EDT