Union Can be Liable for Employer's Withdrawal Liability
If you are an employer participating in a multiemployer pension fund, the last few months have probably brought up discussions about underfunding or withdrawal liability. Briefly, withdrawal liability is the amount of unfunded liability that an employer has to pay when they cease being a contributing employer to a pension fund. If you are familiar with it, this case might interest you.
In Pittsburgh Mack Sales v. IUOE Local No. 66 (Case No. 07-3938, 2009), the Third Circuit Court of Appeals found that a union's agreement to indemnify an employer for withdrawal liability to a pension plan was valid and enforceable, vacating the lower court decision that the agreement would violate "public policy." Factually, the collective bargaining agreements between the company and the union contained a provision that provided that the union would hold the employer harmless for any liability to the fund in excess of specified contributions.
The company sold its assets to another entity and the pension fund assessed $413,000 in withdrawal liability. The company demanded that the union hold it harmless and litigation ensued. The District Court ruled in favor of the union under a theory that the indemnity provision was contrary to public policy and that ERISA laws governing withdrawal liability could not be defeated by contract. The Third Circuit disagreed, stating there was no "well-defined and dominant" public policy that would justify overriding the contract provisions and that the parties could contract away responsibility for withdrawal liability.
This decision is interesting primarily because the tradition view of withdrawal liability under the Multiemployer Pension Plan Arbitration Act (MEPPA) is that the withdrawing employer is liable by statute, and payment is due under the terms of that statutory framework. However, this decision appears to give rise to the possibility that, while the liability cannot be avoided by contract, a contract can be created that indemnifies employers for that withdrawal liability. In other words, you cannot contract away the liability, but you can contract for someone else to pay the company back for the loss.
So next time you are in collective bargaining, consider asking for a similar provision. This case says it might be worth asking.
