Withdrawal liability is a huge issue facing unionized employers. According to Bloomberg, 93% of the Top 200 largest pension plans are underfunded by a combined $382 billion. Contractors that withdraw from a multi-employer pension plan can face hundreds of thousands or millions of dollars in assessed withdrawal liability. However, employers may be able to avoid that liability, plus the legal and consulting fees to fight it, by simply reading their collective bargaining agreement.
In Laborers’ Pension Fund v. W.R. Weis Co., Inc., 879 F.3d 760, 762 (7th Cir. 2018), a contractor escaped an over $600,000 withdrawal liability assessment based on a common ambiguity found in a CBA. In that case, W.R. Weis was a party to a CBA with the local Laborers Union that required it to contribute to a multi-employer pension plan for each hour worked by Laborers union members. Gradually, W.R. Weis started assigning work that the Laborers traditionally performed to marble setters, who were covered by a collective bargaining agreement with the Bricklayers Union. Finally, in 2012, W.R. Weis stopped using Laborers totally and formally terminated its CBA with the Laborers, thereby triggering withdrawal liability.
After the Laborers Union assessed liability, W.R. Weis challenged it under the construction industry exception. Under that rule, a construction industry employer is liable for withdrawal liability only if “it continues to perform work in the jurisdiction of the collective bargaining agreement of the type for which contributions were previously required,” or resumes works within five (5) years after ceasing to do so.
The Union argued that the collective-bargaining agreement required pension-fund contributions for all “employees doing covered work.” Thus, it did not matter if the employee performing covered work was a Laborers Union member. In the Union’s eyes, if the work was covered by the CBA a contribution was owed. Conversely, Weis argued that the CBA required contributions only for “hours worked by Laborers [union members]”
The CBA required the Weis to “make a pension contribution of $8.57 per hour for each hour worked by all Employees covered by this Agreement in addition to the wages and welfare payments herein stipulated.” However, the CBA also stated that Weis “agree[d] to be bound by the Agreements and Declarations of Trust establishing the Laborers’ Pension Fund, as well as any amendments thereto, and agree[d] to be bound by all actions taken by the Trustees of that fund pursuant to the Agreements and Declarations of Trust.”
The Fund trust agreement defined “Employee” “(1) any person “covered by a Collective Bargaining Agreement between an Employer and the Union or any of its local affiliates who is engaged in employment with respect to which the Employer is obligated by the Collective Bargaining Agreement to make contributions to the Pension Fund”; or (2) any person “employed by an Employer who performs work within the jurisdiction of the Union as said jurisdiction is set forth in any applicable Collective Bargaining Agreement or by any custom or practice in the geographic area within which the Employer operates and his Employees perform work.”
The Court explained, the term “Employee” in the collective-bargaining agreement implies that “Fund contributions are only required for employees who are laborers[ ] because the agreement is between [the] employer[ ] and the General Laborer’s District Council of Chicago and Vicinity.” On the other hand, the Fund documents acknowledges that “Employees” for whom pension-fund contributions are made may well be workers covered by the agreement and anyone who performs work within the jurisdiction covered by the agreement. The Court concluded this created an ambiguity requiring evidence of the course of dealing between the parties to clarify it.
The Union admitted during trial that the Fund does not collect contributions from an employer who has already contributed to another union’s pension fund for the same work. Thus, although the Bricklayers members were performing work that was within the work jurisdiction of the Laborers, historical practice showed that the Laborers treated the CBA narrowly and required contributions only for work actually performed by Laborers members. The arbitrator concluded that contributions for work within the gamut of the CBA were not required because the Laborers Union had not “previously required” contributions for work performed by members of a different union.
The Takeaway
Weis escaped an over $600,000 withdrawal liability not with expensive actuaries and consultants, but by arguing a common ambiguity found in collective bargaining agreements and trust fund documents. So, whether it be a withdrawal liability assessment or just a demand for fringe benefit contributions, examine your CBA and trust documents first.
Wally Zimolong
Wally represents contractors (and subcontractors) and developers. His clients build and develop residential, commercial, and industrial properties nationwide. Wally enjoys working with the owners of the businesses he represents because they tend to be entrepreneurs and all around interesting people.
