Tenth Circuit Expands Withdrawal Liability of Construction Industry Employer
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 v. Centennial State Carpenters Pension Trust, Nos. 15-1021, 15-1190 (10th Cir. May 3, 2016), should be paid close heed by unionized construction companies.
The employer was a signatory to a collective bargaining agreement 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 ERISA’s mandatory arbitration regime, the arbitrator (and subsequently the district court) found for the employer.
An employer who 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 5 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 (a “control group”) are treated as a single employer. The question before the Court 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 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. The 10th Circuit, however, reversed.
The Court’s holding was rooted in several factors, including: (i) the definition of “employer”, which the Court found included both present and future control group members; (ii) 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 (iii) 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). The Court also drew upon recent decisions in the First and Seventh Circuits which construed the term “employer” broadly.
Unionized construction employers should now closely scrutinize acquisitions within jurisdictions where the employer had previously contributed to a MEP: non-contributory work performed by an after-acquired entity will (at least within Oklahoma, Kansas, New Mexico, Colorado, Wyoming, and Utah) likely trigger withdrawal liability.