Employer required to maintain contributions under multiemployer plan’s rehabilitation schedule following expiration of CBA

An employer that bargained to impasse remained a bargaining party to an expired collective bargaining agreement and was, thus, required to make contributions for existing and new employees under the applicable rehabilitation schedule of a critical status multiemployer plan, according to the U.S Court of Appeals in Richmond (CA-4). In a case of first impression, the court ruled that the employer could not exercise its collective bargaining right, following impasse, to unilaterally impose its last, best negotiating proposal, as that would contravene its obligation under ERISA (as amended by the Pension Protection Act) to follow the terms of the rehabilitation plan schedule.

Contribution under rehabilitation plan of critical status multiemployer plan

Just Born (JB) (the maker of “Peeps”) and the Bakery, Confectionary and Tobacco Workers International Union (Union) were parties to a collective bargain agreement (CBA) that required the employer to make contributions to a multiemployer pension fund. While the CBA was in effect, the fund’s actuaries certified it to be in critical status. Pursuant to ERISA Sec. 305 (as implemented by the Pension Protection Act of 2006 (P.L. 109-280), the plan sponsor then adopted a rehabilitation plan which included revised schedules, reducing benefits and increasing employer contributions. Pursuant to the rehabilitation plan, JB was required to increase its contributions to the fund by five percent each year and make contributions for every hour or portion of an hour, beginning on the first day of employment, a person worked in a job covered by the CBA.

JB continued to contribute to the fund under the revised schedule. However, in negotiations for a new CBA, JB demanded terms that would relieve it of the obligation to make contributions for newly hired employees (i.e., employees hired after the expiration of the CBA). Citing concerns regarding the plan’s solvency, JB alternatively proposed maintaining contributions to the fund under the rehabilitation plan schedule for existing employees, but making contributions to a separate 401(k) plan for newly hired employees.

The union rejected the proposal and JB declared a good-faith impasse. Relying on established labor law precedent, JB then unilaterally implemented the terms of its “last, best offer” to the union, attempting to restrict contributions under the rehabilitation plan to existing employees.

The pension fund subsequently filed suit in federal court, seeking to compel JB to make contributions under the rehabilitation plan for all employees, including any new hires. According to the fund, ERISA Sec. 305(e)(3)(C)(ii) and the CBA, the agreed-to rehabilitation plan’s revised schedules required JB to continue maintaining contributions for all employees, including those hired after impasse.

JB countered that once the CBA expired, it was no longer a bargaining party and, therefore, was not subject to the requirements of ERISA Sec. 305(e). In addition, JB asserted affirmative defenses that essentially charged that the fund had defrauded and deceived the employer into accepting the critical status designation and its consequences.

The trial court ruled that JB was liable for contributions to the funds for its newly hired employees. JB remained a bargaining party with respect to the expired CBA and, thus, subject to the requirement under ERISA Sec. 305 to make payments consistent with the previously adopted rehabilitation plan and schedules. In addition, the employer failed to plead its affirmative defenses with the particularity required under Federal Rules of Civil Procedure (FRCP) Rule 9(b) for fraud-based allegations.

Contributions required of bargaining party after expiration of CBA

On appeal, JB averred that it was not a bargaining party subject to ERISA Sec. 305, with respect to newly hired employees, in the absence of an operative CBA. In rejecting the employer’s argument, the appeals court initially explained that, under ERISA Sec. 305(e)(3)(C), in the event a CBA providing for contributions under a rehabilitation plan expires while the plan is in critical status, and the bargaining parties fail to adopt a contribution schedule with terms consistent with the updated rehabilitation plan, the “the contribution schedule applicable under the expired collective bargaining agreement, as updated and in effect on the date the collective bargaining agreement expires, shall be implemented by the plan sponsor” beginning 180 days after the collective bargaining agreement expires. Thus, under a plain reading of the statute, the expiration of the CBA did not alter JB’s status as a bargaining party to the CBA.

As all the preconditions of ERISA Sec. 305(e)(3)(C)(ii) were met, the court held that JB was strictly required under the statute to continue contributions according the revised schedule in effect at the time the CBA expired. JB countered that the strict interpretation of ERISA Sec. 305 put it in a “Hotel California” conundrum from which it could check out any time it wanted, but could never leave (Eagles, Hotel California (Asylum 1976)). Specifically, JB maintained that the ruling required employers to maintain contributions to a plan in critical status in perpetuity once the governing CBA has expired. In addition to relying on the Eagles, JB argued that the Second Circuit, in Trustees of the Local 138 Pension Trust Fund v. F.W. Honerkamp Co. (692 F.3d 127 (2012)), established that employers have a statutory right to withdraw from a critical status multiemployer plan and thereby avoid contributions that would be required under ERISA Sec. 305.

In distinguishing Honerkamp, the Fourth Circuit noted that, although not precluded from doing so by ERISA Sec. 305, JB never sought to actually withdraw from the fund. As JB did not exercise its option to withdraw from the fund, ERISA Sec. 305 continued to apply.

JB finally maintained that the court’s interpretation of ERISA Sec. 305 further undermined its right under federal labor law to enforce its last, best proposal when the CBA negotiations reached impasse. The court, however, stated that an employer’s collective bargaining rights do not negate its obligations under ERISA. JB could have implemented it last best offer, but only if it thereby did not contravene its duties under ERISA (as amended by the PPA). Essentially, JB needed to withdraw from the fund. It could not remain in the fund on terms of its own choosing that were not consistent with the existing rehabilitation plan.

Source: Bakery & Confectionary Union & Industry International Pension Fund v. Just Born II, Inc. (CA-4).
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