Ohio Construction Company Cleared of $5M Pension Liability Claim

Stevens Engineers & Constructors, Inc. doesn’t owe withdrawal liability to the Iron Workers Local 17 Pension Fund because the work identified by the union did not fall with the jurisdiction of their previous collective bargaining agreement.

The decision is a blow for the distressed Iron Workers pension fund, which is severely underfunded with a deficit of over $170 million. The Cleveland-based pension plan was the first to receive approval from the Treasury Department to cut participant benefits.

An employer that participates in a multi-employer pension plan and withdraws from the plan is liable for its share of any underfunded benefits, a scheme also known as withdrawal liability. A special rule applies to employers in the construction industry. These employers are not subject to liability if they completely withdraw from work in the jurisdiction of the CBA of the type for which contributions were previously required.

The parties’ dispute started when the union assessed pension liability against Stevens, claiming that certain activities in a construction project that commenced after the company withdrew from the plan, involved work within the jurisdiction of their previous CBA.

The three-judge panel said the power rigging work, which the fund disputed, was not work within the jurisdiction of the CBA because the agreement allowed Stevens to assign this work to another union. The fund could not use the power rigging work as a basis for assessing liability because the job’s assignment to certain workers meant it was within their jurisdiction rather than the iron workers.

Matt Austin owns Austin Legal, LLC, a boutique law firm based in Ohio that limits its representation to employers dealing with labor, employment, and OSHA matters. You can reach Matt by calling him at (614) 843-3041 or emailing him at Matt@MattAustinLaborLaw.com.

Unionized Companies Mistakenly Believe No More Union Means No More Pension Plan

Employers often assume that when their employees decertify a union, that every obligation an employer had under the collective bargaining agreement disappears. They are wrong.

In 2013, employees in three separate bargaining units (all with the International Union of Operating Engineers) of one Company voted to decertify. At that time, the Union and Company were party to a five-year collective bargaining agreement that expired in 2015. The Company assumed that the decertification of the union ended its obligation to pay into the union’s multi-employer welfare and pension fund. As a result, the Company stopped paying into the Pension Funds.

On appeal, the Seventh Circuit held that the collective bargaining agreements were unenforceable as to the Union, but found that the pension fund had a right under ERISA to bring a suit for delinquent contributions. This is because when the Funds promised to provide a level of benefits to the employees (presumably by allowing the employer to participate in the funds under the terms of the CBA), 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.

But there is a competing view. The Ninth Circuit has recognized that when a bargaining unit ceases to exist, be it by decertification or contract repudiation of a one person bargaining unit, any existing contract becomes void, not voidable, ending the employer’s obligation to continue to pay into employee benefit plans. Oddly, the Seventh Circuit did not discuss the Ninth Circuit’s precedence.

The takeaways are: 1) Employers whose employees decertify prior to the contract expiration cannot assume their obligations to the funds end at that time; and because of this split, I expect a petition to the United States Supreme Court will be filed so that it can provide clarity to the rest of the country on whether pension fund obligations survive the elimination of a union.

Matt Austin owns Austin Legal, LLC, a boutique law firm based in Ohio that limits its representation to employers dealing with labor, employment, and OSHA matters. You can call Matt at (614) 285-5342 or email him at Matt@MattAustinLaborLaw.com.

Union Pension Fund Sues Yahoo, Claims Internet Company is Really an Unregistered Investment Company

Lead plaintiff in a shareholders’ federal class action, UFCW Local 1500 Pension Fund, claims Yahoo’s board of directors and top executives are violating the Investment Company Act of 1940. According to the suit, Yahoo’s investment securities make up 90% of the company’s value, so it must register as an investment company. The pension fund wants Yahoo to fire its executive officers, including CEO Marissa Mayer, and its entire board.

According to the pension fund, income from yahoo’s operations for 2013 was only 32.7% of its total net income, while income from investments accounted for 67.3%. The numbers were supposedly even more “shocking” in 2014, with 1.2% coming from operations income, compared to a “staggering” 98.8% for investment income, according to the complaint. Of course, the devil is in the details. Yahoo owns 2 billion shares of Yahoo Japan common stock, valued at $7.4 billion, representing about 25% of Yahoo’s market capitalization and almost 20% of Yahoo’s assets. Yahoo Japan is a joint venture with Softbank Corp., which was established in 1994. In 2005, Yahoo bought about 46% of Alibaba.com Corp., China’s biggest online marketplace and payment system. This amounts to about $27 billion, representing 89% of Yahoo’s market capitalization and 70% of its assets. Thus according to the complaint, Yahoo’s assets are primarily invested in publicly traded securities, and Yahoo is an investment company.

The union pension fund seeks class certification, disgorgement, permission to pursue two of the four counts derivatively, and damages for ICA violations, breach of fiduciary duty, and unjust enrichment.

Matt Austin is a lawyer based in the Columbus, Ohio office of Roetzel & Andress, LPA who limits his practice to representing employers dealing with labor, employment, and OSHA matters. You can call Matt at (614) 723-2010 or email him at maustin@ralaw.com.

Union Pension Payouts are Getting Cut and Retirees Threaten Militant Action

The Teamsters pension plan (Central States Pension Plan), widely criticized as being extremely underfunded and unable to pay a fraction of its obligations to retirees, is set to be cut in the coming weeks. The Central States Pension Plan last year became the first financially troubled pension fund to seek relief with the federal government under the Multiemployer Pension Reform Act that was passed in late 2014. The law was designed to keep multiemployer plans solvent and continue to pay retirees, but at a reduced rate. Without substantial changes, Central States will be insolvent within 10 years.

This reduced benefits amount has employees angry and threatening to “go old-school on their ass,” referring to Congress. Other suggestions from Akron-area retirees included a nationwide strike, blocking or occupying the U.S. Treasury Department building, and, as one member suggested, to “shoot them.”

Most companies I represent get out of the union defined benefit contribution plans because most of them are headed for the same fate as Central States. Workers are then free to invest in company sponsored 401k plans or some other option on their own. I feel bad for the workers who believed the union organizers that promised them a lucrative retirement if they voted for the union and paid into the union’s pension plan. Decades later, after the workers lived up to their end of the bargain, the union broke its promise.

Matt Austin is a lawyer based in the Columbus, Ohio office of Roetzel & Andress, LPA who limits his practice to representing employers dealing with labor, employment, and OSHA matters. You can call Matt at (614) 723-2010 or email him at maustin@ralaw.com.

Court Rules that Company Owes $1.7 Million for Union-Mandated Pension Plan Withdrawal

Pension withdrawal liability continues to be a major, penal factor to unionized companies. A rubber company recently argued that it should not be subject to a $1.7 million withdrawal liability assessment because the withdrawal from a multi-employer pension plan was union-mandated. The Company argued that this withdrawal liability should have been calculated using the Pension Benefit Guaranty Corporation’s (PBGC’s) alternate method for calculating withdrawal liability, which would have reduced its liability to $312,000. The Company lost this argument.

The Company unsuccessfully cited a 1991 PBGC report addressing union-mandated withdrawals. A union-mandated withdrawal occurs when: (1) a union “voluntarily disclaims” its status representing a group of employees, and (2) the pension plan refuses to accept the employer’s continued contributions. The report presented three methods for calculating liability in these instances. However, Congress has not yet acted on the report or amended ERISA to account for union-mandated withdrawals.

The Court found the Company’s insistence that the pension withdrawal was union-mandated unpersuasive. It explained that ERISA has a “comprehensive scheme” for determining withdrawal liability. ERISA includes several specific exceptions that reduce withdrawal liability in certain circumstances, but unfortunately, union-mandated withdrawal is not one of these exceptions.

So, at least for the time being, when a union disclaims interests in representing the workers – essentially kicking the employees out of the union – companies are on the hook to pay withdrawal liability even when the company desires its employees to remain in the union. This ruling opens the door for corruption. Take, for example, a small company whose employees collectively pay $20,000 per year in union dues. But, that company owes $1,000,000 in withdrawal liability. A union is allowed to walk away from representing the workers because it is not cost-effective for the union to represent a small unit with minimal dues revenue, but the company receives no relief from the million-dollar withdrawal liability. In legalese, that’s inequitable. In layman’s terms, that’s not fair.

Matt Austin is a lawyer based in the Columbus, Ohio office of Roetzel & Andress, LPA who limits his practice to representing employers dealing with labor, employment, and OSHA matters. You can call Matt at (614) 723-2010 or email him at maustin@ralaw.com.