Third Circuit Rejects Employer Attempt to Shift Withdrawal Liability to Teamsters Union

The Multiemployer Pension Plan Amendments Act of 1980 (MPPAA) imposes an exit charge on employers that stop participating in multiemployer-union defined benefit plans. The exit charge approximates the withdrawing employer’s share of the plan’s total unfunded vested benefits owed to participants, but not yet covered by existing plan assets.

Employers have tried many different ways to avoid withdrawal liability since MPPAA was passed. And this past Summer, the United States Court of Appeals for the Third Circuit issued an important ruling, Einhorn v. Penn Jersey Building Materials, which pushed back on recent efforts by employers to shift their pension withdrawal liability to the unions with which they negotiate.

In this case, Penn Jersey and other affiliated companies participated in the Teamsters Pension Fund for Philadelphia & Vicinity for many years, through contracts they negotiated with Teamsters Local 676. In 2008, Penn Jersey’s final collective bargaining agreement with Teamsters Local 676 expired, and the last of its affiliated companies ceased making contributions to the Teamsters Pension Fund in 2009. The Teamsters Pension Fund assessed Penn Jersey and its affiliates some $1,000,000 in withdrawal liability under MPPAA, which Penn Jersey refused to pay. When the Teamster Pension Fund sued Penn Jersey in 2012 to collect its withdrawal liability, the company argued that language in its last contract with Teamsters Local 676 relieved it of its withdrawal liability, or in the alternative, shifted it to the union.

The clause relied on by Penn Jersey stated: “[S]hould the Employer withdraw from the Agreement in the future there will be no withdraw[sic] liability.” The union argued that this language did not survive the expiration of the collective bargaining agreement in 2008. The union also asserted that there was no clear evidence of any intent to indemnify the company (that is, to assume its obligation) for any withdrawal liability the company might owe to the Teamster Pension Fund.

The Third Circuit agreed with Teamsters Local 676 on both arguments. First, the court noted that collective bargaining agreements are to be interpreted just like other contracts under U.S. Supreme Court precedent. Unless there is a survival clause, the obligations between the parties cease to exist at the end of the contract’s term. Put another way, the Third Circuit held that collective bargaining agreements cannot be interpreted to guarantee post-contract term benefits, absent explicit intent by the parties to the contrary.

Second, the Third Circuit rejected Penn Jersey’s indemnification argument. The court ruled that because indemnification involves taking on an “extraordinary obligation,” the intent to do so must be clearly stated. Since “indemnification” did not appear in word or spirit in the clause relied upon by the company, the Third Circuit refused to read it into the collective bargaining agreement.

The Third Circuit therefore affirmed the District Court’s grant of summary judgment in favor of Teamsters Local 676, and Penn Jersey was responsible for the full withdrawal liability assessment from the Teamsters Pension Fund. Although the Third Circuit reported the decision as non-precedential, it still can be a useful tool to rebut employer attempts to try to make unions responsible for employer-owed withdrawal liability.

Nancy B.G. Lassen and Laurence M. Goodman of Willig, Williams & Davidson successfully represented Teamsters Local 676 in this case. If you have any questions about pensions, benefits, or any other labor and employment matters, please contact a WW&D attorney at 215-656-3600.