Pension & Benefits News Union may have breached fair representation duty by failing to fund pensions as promised
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Thursday, April 30, 2020

Union may have breached fair representation duty by failing to fund pensions as promised

By Pension and Benefits Editorial Staff

Two communications from a union to flight attendants that emphasized improved pension benefits secured during negotiations, made during a time when the union was attempting to get a collective bargaining agreement ratified, could be enough for a jury to conclude the union represented it would ensure there was sufficient pension funding to cover past service credits, ruled a federal district court in New York. Years later, after the airline filed for bankruptcy and had its withdrawal liability discharged, the union cancelled past service credits because of a projected shortfall in the fund. Denying the union’s motion for summary judgment against the employees’ Railway Labor Act duty of fair representation claim, the court found they presented sufficient evidence as to whether the union’s representations caused their injuries.

The plaintiffs in this action are former employees of a now-defunct airline, World Airways. In 1996, the employees transferred their membership to Teamsters Local 210, and the union began negotiating with the employer for a CBA with the airline. Among other issues, the flight attendants were dissatisfied with the employer’s pension plan and wanted to switch to a “defined benefit” plan. The union’s bargaining committee ultimately proposed that the employer become a contributor to the Local 210 Pension Plan.

On June 17, 1996, Local 210 members received a flyer from a Teamsters representative describing the bargaining committee’s position on various issues, including retirement. With respect to the issue of retirement plans, the letter stated, among other things, that the union had designed a federally insured, 100% funded, defined benefit plan to which the employer would provide monthly contributions with a 100% past service credit after a five-year vesting period.

Contract ratification. On June 27, 1996, Local 210 and the airline reached a tentative CBA, which provided for a 10% wage increase on ratification and a 3% wage increase each year thereafter, and provided that the airline would begin making contributions to the Local 210 Pension Plan on behalf of the flight attendants.

On July 9, 1996, after the CBA was finalized but before union members voted on it, Local 210’s business agent sent a letter to union members encouraging them to ratify the agreement. The letter listed a number of areas in which the negotiating team had obtained improvements in the new contract, including that the new contract gave members pension credit back to their date of hire after vesting. It stated that after five more years of work, an employee would receive $600 per month for life. The letter also stated that the pension plan would cost the union over $700,000.

Service credits cancelled. The flight attendants then voted to ratify the CBA. Following ratification, the pension plan trustees voted to admit the airline as a contributing employer and to provide past service credits to the flight attendants after a five-year vesting period.

In 1996, the pension plan agreement did not allow past service credits to be cancelled once awarded. But in 2008, the agreement was amended to allow the trustees to cancel past service credits to preserve the actuarial soundness of the fund. In 2012, the airline filed for bankruptcy and ceased operations. The pension plan assessed the airline $18,000,000 in withdrawal liability. After that liability was discharged in bankruptcy, the plan faced a shortfall. Consequently, in December 2012, the trustees voted to cancel the past service credits provided to the flight attendants.

The trustees asserted that the plan had never received contributions from the airline for the past service credits, and that the trustees had authority to cancel the credits under the plan’s governing documents.

The cancellation of credits reduced the monthly pension benefits available to the employees. Thereafter, they filed this action against the union alleging fraud and breach of contract. Specifically, the employees alleged that the union in fact (a) never obtained an agreement from the airline to fully fund the past service credits, or obtained an agreement but failed to enforce the obligation incurred by the airline, and (b) that the union never contributed the $700,000 of its own assets it had promised to contribute to the plan.

ERISA preemption. In February 2016, the court dismissed the complaint, finding the employees’ claims were preempted by the Railway Labor Act (RLA) and that any RLA claim was barred by a six-month statute of limitations. On appeal, the Second Circuit held that the district court should have borrowed the three-year statute of limitations from ERISA. On remand, the district court found the employees’ complaint stated a claim under the RLA for breach of the duty of fair representation because it was plausible that union members voted to approve the agreement based on union assurances to fund their pensions.

Moving for summary judgment, the union asserted that (1) the employees failed to produce evidence it had represented it would fund or guarantee past service credits, and (2) the employees failed to produce evidence showing the alleged misrepresentations had caused their injuries.

Bad faith. The employees alleged that the union acted deceitfully or dishonestly in leading them to believe that it—and not the plan, a separate entity—would put forward the money to guarantee their past service credits. They pointed to the flyer and letter of June 17 and July 19, respectively, as written communications from the union that encouraged that belief. Taken together, the court concluded that the evidence could be sufficient for a jury to find the union represented it would ensure there was sufficient funding to cover past service credits.

Statements in the communications suggested the union and its members, not another entity, would undertake to provide sufficient funds to guarantee past service credits. Although the flyer mentioned the plan, it also repeatedly referred to the union and its members as the actors who would “protect” the airline employees. Further, the July 9 letter bolstered the employees’ case. That letter emphasized the depth of commitment the local had for its new members, suggested that the union was taking on an obligation, and stated that the union created a new pension plan for airline employees.

Additionally, the union presented deposition testimony from three flight attendants that union officers told them in personal conversations that the union would ensure adequate funding of past service credits. Accordingly, the union’s motion for summary judgment was denied on the issue of bad faith.

Causation. The next question was whether the employees could show the union’s misrepresentations caused the loss of their past service credits. Showing that the union’s statements caused ratification of the CBA was a necessary component of their claim, because but for the agreement, they would not have been part of the plan. Thus, in addition to providing that the union acted arbitrarily and in bad faith, the employees had to demonstrate that any alleged misconduct had an effect on the outcome of the ratification vote.

Here, the court determined that the employees had produced substantial evidence that pension funding, and specifically funding for past service credits, was a critical voting issue for a large bloc of flight attendants. Moreover, funding of past service credits was clearly a major component of the union’s campaign in favor of the agreement. The court concluded that if this issue was important enough to be highlighted by the union’s senior leaders in both written and personal communication in support of the agreement, then a jury could reasonably infer that it was important enough to affect a majority of members’ votes. Because the employees had produced sufficient evidence of whether the union’s representations led to ratification of the CBA, the union’s motion for summary judgment on the issue of causation was denied.

Source: Pruter v. Local 210, International Brotherhood of Teamsters (DC NY).

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