Human Resource & Labor News
www.agc.orgFebruary 1, 2011 / Issue No . 1-11
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On the Inside
Labor Relations
President Submits Nominations to Fill NLRB General Counsel and Board Member Vacancies
NLRB Embarks on Rulemaking; Proposes Mandatory Posting of Employee Rights
Collective Bargaining Yields Lowest Increases in 25 Years
Open Shop Contractors to Meet During AGC Convention
Carpenters and Operating Engineers General Presidents to Speak at AGC Convention
Construction Union Density and Weekly Earnings Both Decline in 2010
A Company May be Liable for Delinquent Benefit Fund Contributions and Withdrawal Liability of Another Company Under Certain Circumstances
Immigration
USCIS Issues New I-9 Handbook Following AGC-Attended Meeting on I-9 Usability
Enforcement
Labor Departmentís Wage and Hour Division to Refer Claims for Investigation to Private Attorneys
Professional Development
Improve Your Team with Executive Coaching
Extraordinary Leadership: Moving Managers from Good to Great
AGCís 2011 HR Professionals Conference and Training, Education & Development Conference to be Co-Located in Kansas City, Missouri
AGC Provides Davis-Bacon Training
A Company May be Liable for Delinquent Benefit Fund Contributions and Withdrawal Liability of Another Company Under Certain Circumstances
 

In unrelated cases, two federal courts of appeals recently held that one construction company could be liable for the debts owed by a separate company to multiemployer fringe benefit funds.  In the first case, Resilient Floor Covering Pension Fund v. M&M Installation, Inc., the U.S. Court of Appeals for the Ninth Circuit (AK, AZ, CA, ID, MT, NV, OR, WA, HI, Guam) addressed whether the open-shop company of a double-breasted operation could be held liable for withdrawal liability incurred by the union company.  In the second case, Einhorn v. M.L. Ruberton Constr. Co., the U.S. Court of Appeals for the Third Circuit (DE, NJ, PA, Virgin Islands) addressed whether the purchaser of assets could be held liable for the delinquent benefit fund contributions of the seller of those assets.

In M&M Installation, one of three cousins who owned Simas Floor, a nonunion residential and commercial flooring contractor, formed a new company called M&M Installation, a union flooring contractor, to enable Simas Floor to bid on union jobs by subcontracting the work to M&M Installation.  In addition to some common ownership, the companies had the same directors, chief financial officer, human resources manager, and main address.  After 10 years of operating under a collective bargaining agreement (CBA) covering M&M Installation’s flooring installers, the parties had a dispute over coverage of Simas Floor’s employees that lead to a strike and ultimately the company’s repudiation of the CBA.  M&M then stopped making contributions to the pension fund, prompting the fund to assess withdrawal liability of over $2 million.  M&M Installation made quarterly payments to the fund for over three years, but then went out of business and stopped making payments.  The pension fund then sued both M&M Installation and Simas Floor to collect withdrawal liability.  The fund claimed that the two companies were alter egos or that Simas Floor was the successor to M&M Installation, and that M&M Installation wound up its business for the unlawful purpose of avoiding withdrawal liability.

The court first had to decide what is the correct test for determining whether the companies were alter egos in the present context.  The court decided that an adapted version of the test set forth in Nor-Cal Plumbing – which is normally used to determine whether one company is constrained by the collective bargaining obligations, rather than the withdrawal liability, of another company as its alter ego – should apply.  The test requires proof (1) that the two companies have “common ownership, management, operations, and labor relations,” and (2) that the non-union firm is used “in a sham effort to avoid collective bargaining obligations.”  The fact that this case involves a “reverse alter ego” theory – because the union company was formed so the nonunion company could avoid future collective bargaining obligations rather than the traditional situation of a nonunion company being formed so the union company can avoid existing collective bargaining obligations – did not matter to the court.  The court concluded that “assuming it is possible to be responsible on an alter ego theory, the non-union company may be liable when there is commonality between the union and nonunion firms and an abuse of the double-breasted structure to avoid payment of withdrawal liability.”  It remanded the case to the district court to determine whether alter ego liability is available and, if so, to apply the proper test.

The second case arose out of a purchase of assets of struggling highway contractor Statewide Hi-Way Safety (Statewide) by general contractor M.L. Ruberton Construction (Ruberton).  Ruberton was a non-union contractor, while Statewide was a union contractor and was already delinquent in contributions to its employees’ Taft-Hartley pension and welfare funds.  When the administrator of the funds learned that the companies were in negotiations, it obtained a temporary restraining order to enjoin the sale.  Ruberton and the union then entered into an agreement providing that Ruberton would hire, subject to its work needs, Statewide’s current workers covered by the existing CBA, that the CBA would govern that employment on an interim basis, and that a newly negotiated CBA would cover all Ruberton employees. The parties did not address whether Ruberton would be liable for the delinquent contributions.  After the sale of assets took place, the administrator sued both companies to recover the delinquent contributions.  In a settlement agreement, Statewide agreed to pay the debt in a series of installments.  After Statewide breached that agreement, the administrator sued again.

The court noted that, while successor liability for delinquent ERISA fund contributions in the context of a merger is well-settled in the circuit, it is not so settled in the context of a sale of assets.  The court decided to follow the approach established by the Seventh Circuit and adopted by several other circuit and district courts, holding that a successor purchaser of assets may be liable for the seller's delinquent ERISA fund contributions where the buyer had notice of the liability prior to the sale and where there was sufficient evidence of “continuity of operations” between the buyer and seller.  The primary rationale was the “central policy goal” underlying ERISA of protecting plan participants and their beneficiaries.  “Statewide's failure to pay contributions caused harm to plan beneficiaries and changed the nature of the employment relationship,” the court stated.  “Absent imposition of successor liability on Ruberton, other employers will be forced to make up the difference to ensure that workers receive their entitled benefits.  If these outcomes were permitted, it would contravene congressional policy for multiemployer pension funds.”  The court remanded the case to the district court to apply the test to determine whether Ruberton is liable for Statewide's delinquencies to the funds.
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