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Tuesday, February 14, 2017

Seventh Circuit Court of Appeals Rules That Decertification of Union Does Not End Employer Contribution Obligations to Multiemployer Funds

The Seventh Circuit Court of appeals has ruled that an employer is still obligated to contribute to benefit funds for the life of the CBA even though the employees decertified the union.  The case is Midwest Operating Engineers Welfare Fund et al. v. Cleveland Quarry et al., Case Nos. 15-2628, -3221, -3861, 16-1870, 2016 WL 7367826 (7th Cir. Dec. 20, 2016),

In this case, employees of Cleveland Quarry and two other subsidiaries of RiverStone Group, Inc. (“the Company”) in three separate International Union of Operating Engineers (IUOE) bargaining units of the Company voted to decertify the Union in 2013. At the time, the Union and the Company were party to five year collective bargaining agreements expiring in 2015. The Company took the position that decertification of the Union, which allowed it to set its own terms and conditions of employment, ended any contractual obligation to contribute to the multiemployer welfare and pension funds ("Funds").

However, the Funds sued for the unpaid contributions. They prevailed in the District Court in three separate cases involving the three different subsidiaries before three separate Federal District Judges. The Company then appealed all three rulings. The Seventh Circuit Court of Appeals found that the parent, RiverStone, was the actual Defendant and  recognized that the collective bargaining agreements were unenforceable as to the Union, but nevertheless found that the Funds had the right under ERISA to bring a suit for delinquent contributions under 29 U.S.C. § 1145.

The Court based its decision on the theory that when the Funds promised to provide a level of benefits to the employees, by allowing the employer to participate in the Funds under the terms of the CBAs, that created a binding contractual promise. The Court also recognized that the Funds were third-party beneficiaries to the CBAs and thus entitled to enforce them even if the Union could no longer do so. The Court found that after the decertification, RiverStone's employees were no longer working “under the terms of” the collective bargaining agreement.  This meant RiverStone could pay them lower wages or otherwise change the terms of their employment from what the collective bargaining agreement had provided. However, the Court also ruled that "so far as benefit law is concerned the employees were still working 'under the terms of' the collective bargaining agreement."

The Court referenced  its prior Central States, Southeast & Southwest Areas Pension Fund v. Schilli Corp., 420 F.3d 663, 669 (7th Cir. 2005), in finding that “the union is not the only party with standing to enforce” an employer's obligation to contribute to an employee welfare plan, and noted that the Multiemployer Pension Plan Amendments Act “authorizes multiemployer plans to sue for delinquent contributions owed ‘under the terms of the plan or under the terms of a collectively bargained agreement.’ ” 420 F.3d at 670.

The Seventh Circuit is not the only circuit finding that an employer's contractual obligations to participate in multiemployer funds can survive decertification, withdrawals of recognition, and disclaimers of interest. However, there is a split among the circuits. The Ninth Circuit has found  that when a bargaining unit ceases to exist, whether  by decertification or contract repudiation given the existence of a one person bargaining unit, any existing contract becomes void, not voidable, ending the employer's obligation to contribute to employee benefit plans. Conflicting cases decided in the Ninth Circuit include Laborers Health & Welfare Trust Fund v. Westlake Development, 53 F.3d 979 (9th Cir. 1995) (contract repudiation); Sheet Metal Workers' Int'l Ass'n v. West Coast Sheet Metal Co., 954 F.2d 1506 (9th Cir. 1992) (decertification case in which the court held "that the renewal contract became void prospectively as of the decertification of the Union"). The Seventh Circuit did not address the Circuit split.

Given the split among the circuits, the U.S. Supreme Court will probably ultimately resolve the issue at some point in the future.  In the meantime, employers and trustees of employee fringe benefit funds in situations where employees decertify prior to contract expiration cannot assume the obligations to the funds necessarily end. The parties should consult legal counsel when these situations arise. 


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