Jinx: Third Circuit Rules in Favor of Teamsters in Withdrawal Case

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.

Withdrawal Liability? Read your CBA

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.

What the $42 Billion Multi-Employer Pension Fund Deficit Means for the Construction Industry

On November 17, 2014, the federal Pension Benefit Guaranty Corp released a dire report for multi-employer pension funds – they are chronically underfunded to the tune of $42.2 billion.  As ENR reports, nearly 4 million workers in the construction industry are covered by multi-employer plans and the construction industry accounted for 55% of all multi-employer plans.

These facts will have two major consequences for employers participating in multi-employer pension plans. First, union trustees will become increasingly aggressive toward delinquent employers. I have already seen an uptick in collection claims brought against union construction firms, including against firms that are solvent, that have a strong payment history into the funds, and are otherwise dedicated to employing union labor.

Second, ERISA withdrawal liability will continue to be a big issue for employers that decide to rescind their collective bargaining agreement, merge with a non-signatory firm, or simply go out of business.

Under ERISA. an employer who completely withdraws from a multi-employer plan may be liable to the plan for vested, yet unfunded, benefits for its employees. For construction industry employers, a complete withdrawal occurs only if an employer “ceases to have an obligation to contribute under the plan,” and the employer “(i) continues to perform work in the jurisdiction of the collective bargaining agreement … or (ii) resumes such work within 5 years … and does not renew the obligation at the time of the resumption.”

Withdrawal liability can be significant especially for contractors that have been in business for many years and, thus, share a portion of vested benefits.  Withdrawal liability can follow through to a successor corporation or personally to the individual shareholders and officers of the withdrawing corporation.

The take away:  stay current on your benefit contributions and assess potential withdrawal liability before ending operations or merging with a new firm.