By Ronald Miller, J.D.
Despite an employer’s assertion that its withdrawal from a union pension fund was union-mandated, a federal district court properly rejected the employer’s alternate method for calculating its withdrawal liability, ruled the Sixth Circuit. In affirming the lower court, the appeals court declined to create federal common law under ERISA to carve out special liability rules for contributing employers that are forced out of pension funds due to union-mandated withdrawal. Allowing employers to reduce or eliminate their withdrawal liability even when faced with a union-mandated withdrawal is not essential
to the promotion of fundamental
ERISA policies, declared the appeals court (United Food and Commercial Workers Union – Employer Pension Fund v. Rubber Associates, Inc.
, February 4, 2016, Gibbons, J.).
The employer’s employees had been represented by the union since 1973. Pursuant to a series of collective bargaining agreements, the employer made contributions to the union pension fund. Following the 2008 stock market crash and economic downturn, the fund’s assets declined and its finances “went into critical zone or red zone.” In late 2006 or early 2007, the employer and union began negotiations for a new CBA. As was customary, the employer requested an estimate of its withdrawal liability from the fund, and the fund estimated $1,518,872 in withdrawal liability in January 2007.
During negotiations, the employer proposed that it decrease its contributions from 62 cents per hour to 30 cents per hour. The fund rejected the 30-cent proposal. A pension fund actuary suggested that collecting withdrawal liability would result in a better funding status than accepting the reduced pension contributions. Thereafter, the employer withdrew the proposal and agreed to maintain the current contribution rate. Still, negotiations were unsuccessful. In response to the union’s demand for a final offer, the employer proposed a contract that would have largely maintained the status quo
. After negotiations broke down, the parties mediated their dispute. Nonetheless, the union went on strike. The employer responded by hiring temporary replacement workers. The strike lasted 17 months.
On October 30, 2009, the union disclaimed interest in representing any of the employer’s employees. The union acted unilaterally in disclaiming interest without any involvement by the employer. After the union disclaimed interest in representing the company’s employees, the employer was deemed to have withdrawn from the union pension fund, pursuant to the Multiemployer Pension Protection Amendments Act (MPPAA). The pension fund calculated the employer’s withdrawal liability obligation to be $1,713,169. The employer sought arbitration to review the withdrawal liability assessment. Although the arbitrator found that the employer was guilty of no unfair labor practice during bargaining, he nonetheless awarded full withdrawal liability to the fund. The fund then sued the employer in federal district court to enforce the arbitrator’s award. The employer counterclaimed on the basis that because its withdrawal from the fund was union-mandated, its withdrawal liability should be calculated by an alternate method, making its liability only $312,000. However, the counterclaim was dismissed.
ERISA provides four statutory methods for calculating withdrawal liability: (1) the presumptive method, (2) the modified presumptive method, (3) the rolling-5 method, and (4) the direct attribution method, 29 C.F.R. Sec. 4211.1(a). In this instance, the pension fund calculated the employer’s withdrawal liability in accordance with the MPPAA’s presumptive method, and the parties agree that, if the presumptive method was to be applied, the fund accurately calculated the employer’s withdrawal liability.
The parties agreed that a complete withdrawal had happened in this case, and that ERISA and the MPPAA require a contributing employer to pay withdrawal liability upon its exit from a multiemployer pension plan. However, the parties disagreed on whether the appeals court should create federal common law under ERISA to carve out special liability rules for contributing employers that are forced out of pension funds due to union-mandated withdrawal. According to the employer, under such circumstance, the court should calculate its withdrawal liability pursuant to the direct attribution method, which would decrease the employer’s liability from $1,713,169 to $312,000.
ERISA common law.
Although federal courts have some latitude to create federal common law under ERISA, they are restricted to instances in which “(1) ERISA is silent or ambiguous; (2) there is an awkward gap in the statutory scheme; or (3) federal common law is essential to the promotion of fundamental ERISA policies.” Here, the employer first contended that “ERISA is completely silent on the issue of union-mandated withdrawals.” However, the Sixth Circuit pointed out that union-mandated withdrawals fall into the category of complete withdrawals, and that ERISA is not silent or ambiguous on this issue. Thus, the appeals court agreed with the district court that “ERISA contains a comprehensive statutory and regulatory scheme for determining withdrawal liability and is not silent or ambiguous on the subject.”
Next the employer argued that there was an awkward gap in ERISA’s statutory scheme. According to the employer, “failure to remedy a union-mandated withdrawal creates a dangerous imbalance of power between employers, unions and union-dominated pension funds and would actually encourage unions to kick small employers or employers with high employee turnover out of the plan altogether,” such that “pension funds and unions [could] use withdrawal liability as a weapon against contributing employers or as a funding mechanism.” However, the appeals court declared that creating an equitable remedy for union-mandated withdrawals will not close an “awkward gap in the statutory scheme,” because there is no gap to close. The text of ERISA plainly defines withdrawal liability and addresses the issue of withdrawal liability, and there can be no gap where ERISA’s text addresses the issue. Thus, the appeals court affirmed the district court’s dismissal of the employer’s counterclaim.