More Ways to be Tagged with Withdrawal Liability
I have written a number of posts (here, here, and here) on employers and business owners who have been held responsible for the multiemployer plan withdrawal liability of a different employer. In some cases, the liability comes from common ownership. In other cases, the liability comes because a new business is held to be a successor of the prior business. Board of Trustees of the Automobile Mechanics’ Local No. 701 Union and Industry Pension Fund v. Full Circle Group, Inc. is one such case.
The decision is from the Seventh Circuit and involves a company that contributed to a multiemployer pension plan, withdrew, became insolvent, and failed to pay the withdrawal liability. At the time of the withdrawal, the son of the president of the company had formed a new company and had purchased some of the assets and hired some of the employees. That new company participated in the plan for a short period of time while it tried to negotiate a new collective bargaining agreement with the union. Ultimately, a new agreement was not negotiated and the workers voted to decertify. In the meantime, the multiemployer pension plan sought to hold the son’s company liable for the withdrawal liability of the company from which the assets were purchased on the theory that it was a successor employer. The district court granted summary judgment to the son’s company, finding that the new employer could not be a successor because the new company did not hire all of the employees of the old company and there was no evidence that the new company knew of the withdrawal liability that the old company had.
The Seventh Circuit overturned the decision and sent the case back to the district court, finding that summary judgment was premature. Summary judgment is available only if the facts alleged by the party who loses summary judgment, even if true, are not sufficient to allow that party to win the lawsuit. The Seventh Circuit found that it was common knowledge that many multiemployer pension funds are underfunded and therefore have withdrawal liability. Because the son had been active in the father’s business, the son would know about the collective bargaining agreement and the obligation to contribute to the pension fund. Therefore, the son would have had at least constructive knowledge of the underfunding. Consequently, the court of appeals refused to uphold a decision of the district court that the son necessarily had no knowledge of the withdrawal liability. According to the Seventh Circuit, knowledge of that liability is important to holding a successor responsible for the liability.
The case now goes back to the district court, presumably for a trial on what the son knew and did not know at the time that he purchased the assets.
From the perspective of the purchaser of a business, it is troublesome that the Seventh Circuit was willing to base successor liability on the fact that there was some continuation of the business and that the purchaser was aware or should have been aware of the withdrawal liability. A purchaser may be more reluctant to purchase assets from a company that has contributed to a multiemployer plan because of concerns about becoming a successor employer for withdrawal liability purposes. That also makes it more difficult for companies that contribute to underfunded multiemployer pension plans to sell the business buyers who wish not to join the multiemployer plan will be concerned about successor liability.
Even asset purchasers not assuming collective bargaining agreements must be cognizant of withdrawal liability risks.
Contact Benefits Notes for more information.