More Ways to be Hit With Withdrawal Liability
I have blogged (here, here, here and here) in the past about situations where employers unexpectedly found themselves liable for withdrawal liability imposed by a multiemployer plan. We can add a recent case from the Seventh Circuit Court of Appeals to that list. Tsareff v. Manweb Services, Inc. involved a multiemployer pension plan and an asset sale. Old Company sold the assets of its business to Manweb, which generally continued the business without the obligation to contribute to the multiemployer plan. As a result of the sale, the Old Company ceased participating in the multiemployer plan and the plan assessed withdrawal liability. Old Company did not challenge the assessment, but also did not pay it. When Old Company failed to pay, the multiemployer plan sued Manweb, the purchaser of Old Company’s assets, claiming that Manweb was a successor employer and responsible for the withdrawal liability.
In most situations where successor liability is imposed, the liability arose before the successor employer has purchased the assets of the original business. Relying on those principles, Manweb claimed that it could not be responsible for Old Company’s obligation because the withdrawal liability did not arise until after the sale was completed. The Seventh Circuit noted that the doctrine of successor liability is one developed under federal common law to protect federal rights and to effectuate federal policies. The court concluded that the federal policy in this case was to provide protection to multiemployer plans in the event an employer withdraws. Although Manweb did not have notice of the exact amount of the withdrawal liability since that could not be assessed until after the withdrawal occurred, Manweb was aware that there was likely to be withdrawal liability. According to the court, Manweb could have protected itself by obtaining indemnification from Old Company or by negotiating a lower purchase price. The court observed that the purchase agreement included indemnification with respect to losses relating to excluded liabilities, one of which was withdrawal liability. Therefore, under federal common law, Manweb was a successor employer, responsible for Old Company’s withdrawal liability.
Old Company had failed to seek arbitration of the withdrawal liability assessment, the only method provided under the federal law for challenging such an assessment. At this point, Manweb also cannot arbitrate the assessment because the time limits for requesting arbitration have expired. Therefore, Manweb seems to be left with no defenses to the assessment and must instead try to collect on its indemnification with Old Company.
The multiemployer withdrawal liability rules contain provisions that allow buyers to assume the obligation to contribute to the multiemployer plan, thereby allowing sellers to avoid having to pay withdrawal liability when the assets of a business are sold. Courts have strictly enforced the requirements of those provisions against sellers wanting relief from withdrawal liability on a sale. In this case, the parties did not attempt to take advantage of that provision. Therefore, the seller should have expected the withdrawal liability assessment. However, the purchaser – who did not expect to have to pay the assessment – is the entity actually paying the liability.
Like many of the cases in this area about which I have blogged, this decision also highlights the need for employers to proceed with their eyes open when buying a business that has been participating in a multiemployer pension plan.
Contact Benefits Notes for more information.