Employers must arbitrate “sham” mass withdrawal claim

Employers that had previously withdrawn from a multiemployer plan must arbitrate their contention that a subsequent mass withdrawal of all remaining employers from the plan was a sham designed to reap $12 million in reallocation liability payments from the previously withdrawn employers, the U.S. Court of Appeals in Cincinnati (CA-6) has ruled. In case of a mass withdrawal, employers that have previously withdrawn from the plan within three years of the date of mass withdrawal may be required to make additional withdrawal liability payments known as “reallocation liability.”

Zipper clauses

Three employers assessed with $12 million in reallocation liability asserted the union and other contributing employers orchestrated the mass withdrawal by inserting “zipper clauses” into their collective bargaining agreements. These clauses gave the employers the right to withdraw from the plan if all other contributors also withdrew.

At first the complaining employers commenced arbitration proceedings as required by ERISA Sec. 4221(a)(1) but later filed suit in district court, claiming the mass withdrawal was invalid. The district court determined the employers must arbitrate the claim.

“Evade or avoid” determinations

Affirming the district court’s arbitration order, the appellate court noted the employers’ argument turns on whether the purpose of the mass withdrawal was to “evade or avoid” liability such that the transaction could be disregarded under ERISA §4212(c). ERISA§4221(a)(1) requires that such “evade or avoid” determinations be submitted to arbitration, the court explained. In addition, the court rejected the employers’ suggestion that a judicial exception to the arbitration rule be created for disputes regarding mass withdrawal determinations.

Source: Knall Beverage, Inc. v. Teamsers Local Union No. 293 Pension Plan (CA-6).