• Union Indemnifies Employer for Pension Withdrawal Liability
  • December 10, 2009 | Author: Michael Robert Lied
  • Law Firm: Howard & Howard Attorneys PLLC - Peoria Office
  • Pittsburgh Mack Sales & Service, Inc. v. International Union of Operating Engineers, Local Union No. 66, 580 F.3d 185 (3d Cir. 2990) involved the unusual situation in which a union agreed to partially indemnify the employer for pension contributions.

    At issue were two Collective Bargaining Agreements (“CBAs”) between Pittsburgh Mack and the International Union of Operating Engineers Local Union No. 66.  The CBAs provided that Pittsburgh Mack would make specific contributions to the Operating Engineer Construction Industry and Miscellaneous Pension Fund, but that the Union would hold Pittsburgh Mack harmless for liability to the Fund in excess of its specified contribution. Specifically, the CBAs (“Section 1”) provided:

    During the term of this Agreement, the employer agrees to contribute to [the Fund] for each man hour paid [] to the Employees covered by this Agreement.  $1.65.

    The Union will hold [Pittsburgh Mack] harmless for any liability to the Fund for any amounts claimed over and above this hourly contribution.

    Pittsburgh Mack made all of the hourly contributions to the Fund required under Section 1 of the CBAs. The CBAs also contained a “successor clause,” which provided that the contract would be binding on a new owner if Pittsburgh Mack was purchased by an outside third party.

    Pittsburgh Mack executed a letter of intent to sell substantially all of its assets to Allentown Mack.  The Union bargained with Allentown Mack.  The parties eliminated CBA provisions requiring hourly contributions to the Fund on behalf of the bargaining unit employees.

    Pittsburgh Mack and Allentown Mack entered into an Asset Purchase Agreement.  The Fund advised Pittsburgh Mack of its determination that Pittsburgh Mack had incurred a complete withdrawal from the Plan on December 31, 2005, and made a demand on Pittsburgh Mack for the resulting withdrawal liability in the amount of $413,389 plus interest.

    Pittsburgh Mack notified the Union of the Fund’s demand and demanded that the Union indemnify or otherwise hold it harmless for the withdrawal liability.  Pittsburgh Mack ultimately sued for a determination that the Union was obligated to indemnify it or hold it harmless against claims for withdrawal liability by the Fund.

    The District Court granted the Union’s motion to dismiss. The District Court determined that Section 1 of the CBAs was “unenforceable as contrary to the public policy manifested in ERISA and the MPPAA.”  Pittsburgh Mack brought an appeal.

    The Multiemployer Pension Plan Amendments Act (“MPPAA”) is an amendment to the Employee Retirement Income Security Act (“ERISA”). The MPPAA was enacted and was designed (1) to protect the interests of participants and beneficiaries in financially distressed multiemployer plans, and (2) to encourage the growth and maintenance of multiemployer plans in order to ensure benefit security to plan participants.

    To accomplish these goals, the MPPAA requires that a withdrawing employer pay its share of the plan’s unfunded liability, which “insures that the financial burden will not be shifted to the remaining employers” in the fund.

    The appellate court held that there were not enough “definite indications” of public policy in ERISA or the MPPAA to preclude an indemnification agreement between an employer and a third party for the employer’s withdrawal liability, where the employer agrees that it will always remain primarily liable for the liability.

    The court could discern no well defined and dominant public policy that would justify invalidating Section 1 of the CBAs. The court held that the District Court erred in granting the motion to dismiss.