Bad omen. Last week, I wrote about a Appeals Court decision that affirmed a contractor’s escape from an over $600,000 withdrawal liability assessment from the Laborers Union.  The next day the Third Circuit (which covers PA, NJ, and DE) handed down a decision affirming a federal court’s decision to assess withdraw liability.  This one shows the dark side of not reading and understanding your CBA.

The belligerents in the litigation were, Penn Jersey, a construction material supplier, and Teamsters Local 676.  Their collective bargaining agreement contained a clause purportedly covering withdrawal liability.  Specifically, the clause stated “should the Employer withdraw from the Agreement in the future, there will be no withdrawal liability.  The CBA expired and Penn Jersey did not renew its agreement with the Teamsters.

The Teamsters Pension Fund later notified Penn Jersey that the company had incurred withdrawal liability amounting to $961,281.59—more than half of which had accrued after Penn Jersey withdrew from the Fund.  The Fund sued Penn Jersey, Penn Jersey sued the Teamsters (the Pension Fund and the Union are separate entities).  Penn Jersey argued that  the CBA absolved the company from making payments to the Fund and that responsibility for doing so shifted to the Local. (Sound familiar).  Importantly, Penn Jersey maintained that the withdrawal liability clause remained operational even after the expiration of the CBA.  Thus, Penn Jersey argued that the clause have it perpetual protection from any withdrawal liability.

The District Court granted summary judgment to the Teamsters and Penn Jersey appealed.  On appeal, the Third Circuit affirmed.  The Court reasoned that ordinary principles of contract interpretation should apply generally to collective-bargaining agreements. The Court then stated “[o]ne traditional principle of contract interpretation is that ‘contractual obligations will cease, in the ordinary course, upon termination of the contract.  The Court held that the Supreme Court noted that “an expired bargaining agreement has by its own terms released all its parties from their respective contractual obligations, except obligations already fixed under the contract but as yet unsatisfied.” 

Against this backdrop, the Court held that the CBA in question did not contain a “survival” clause—a provision which explicitly indicates which duties or obligations will continue beyond the life of a contract, and how long those obligations or duties are to endure.  The Court also ruled that the clause was silent on whether its duties and obligations continued past the life of the agreement.

The Takeaway

You have to feel for Penn Jersey who no doubt thought it was free to walk away from the CBA without recourse.  However, as we saw in last weeks post, the drafting of language of a CBA demands precision.  In this instance, that lack of precision swung in favor of the union.  Sadly, had Penn Jersey insisted on clarity with one additional sentence stating that the clause survived termination it would have save itself $1,000,000.