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Northwest OH Legal Blog

Wednesday, June 1, 2016

Court of Appeals Expands Withdrawal Liability Rules for Construction Employers

In a case of first impression, the United States Circuit Court of Appeals for the Tenth Circuit held that work performed by a non-union company acquired after a construction industry employer ceased contributing to a multiemployer pension plan (“MEP”) triggered withdrawal liability.  The case, Ceco Concrete Construction, LLC v. Centennial State Carpenters Pension Trust, Nos. 15-1021, 15-1190 (10th Cir. May 3, 2016), signals a potential expansion of withdrawal liability rules applicable to construction industry employers that participate in MEPs.

Background.  In Ceco, the employer was a signatory to a collective bargaining agreement (“CBA”) obligating the company to make contributions to a MEP.  This obligation ceased when the CBA expired on April 30, 2010.  The company then acquired a non-union construction company and resumed operations in the CBA’s jurisdiction on a non-contributory basis.

The MEP determined that this resumption triggered withdrawal liability. Under the mandatory arbitration regime prescribed by the Employee Retirement Income Security Act of 1974 (“ERISA”), the arbitrator (and subsequently the district court) found for the employer.

Under ERISA, an employer that withdraws from a MEP is liable for its allocable share of underfunding (“withdrawal liability”).  Withdrawal generally occurs when an employer permanently ceases to have a contribution obligation or permanently ceases covered operations.  Under a special rule applicable to “building and construction industry” employers, however, withdrawal does not occur unless such employer continues to perform on a non-contributory basis (or resumes within five years) work in the collective bargaining agreement’s jurisdiction for which contributions were previously required.

Under the applicable definition of “employer”, all trades or businesses which are under common control (“control group”) are treated as a single employer. The question before the Court of Appeals in Ceco was whether the control group must be determined— 

  • when the employer ceased its obligation to contribute (April 2010), or
  • when the control group triggers withdrawal liability by resuming covered work (October 2010, following the acquisition of the non-union company).

Both the arbitrator and the district court held that the control group was determined on the date the employer’s obligation to contribute to the plan ceased, and that the non-contributory work performed by the after-acquired non-union company did not therefore trigger withdrawal liability.

Reversal of Lower Court’s Ruling by Court of Appeals.  On appeal, the Court of Appeals reversed, citing several factors, including the following: 

  • ERISA’s definition of the term “employer,” which the court found included both present and future control group members;
  • statutory language indicating that the control group must be determined when a withdrawal is triggered, which occurs upon the resumption of CBA-covered work on a non-contributory basis; and
  • the remedial purposes of the withdrawal liability rules (to protect pension beneficiaries) and the definition of “employer” (to prevent employers from avoiding their withdrawal liability obligations by fractionalizing operations between entities).

In support of its holding, the Court of Appeals also drew upon recent decisions in the First and Seventh Circuit Courts of Appeals which construed the term “employer” broadly.  In its holding, the Court of Appeals observed that determining common control at the time the obligation to contribute ceases would allow an employer to circumvent the requirements of the Multiemployer Pension Plan Amendments Act of 1980 (“MPPAA”).  The court noted:

Like the common-control group here, a group would avoid liability by terminating its obligation to contribute and then acquiring a nonunion business that resumes covered work. The common-control group would then escape any liability because the newly acquired entity would not have been under common control on the date of cessation. This would run contrary to the MPPAA’s aim of protecting pension funds from the adverse effects of employer withdrawals and of imposing withdrawal liability on common-control groups regardless of corporate form.

Takeaways.  Based on the court’s decision in Ceco, it is prudent for the trustees of a multiemployer pension plan covering union members who work in the construction industry to monitor the corporate acquisitions and mergers of a withdrawn employer during the five years following the employer’s withdrawal from the plan.  Non-contributory work performed by an after-acquired entity within five years after the employer’s withdrawal will likely trigger withdrawal liability in jurisdictions that follow the court’s decision in Ceco.


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