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Seventh Circuit Finds Requirement to Contribute to Fringe Benefits Funds Can Extend Past Decertification

Authors: Thomas Vasiljevich (Chicago), Grace H. Ristuccia (Washington DC)

Published Date: December 30, 2016

On December 20, 2016, the Seventh Circuit issued an opinion holding that multiemployer benefit funds were entitled to collect contributions required under collective bargaining agreements that were not to expire until 2015, even though the employees had previously decertified the union in 2013.

In Midwest Operating Engineers Welfare Fund v. Cleveland Quarry, the employer—RiverStone Group, Inc.—had negotiated collective bargaining agreements at three locations with Local 150 of the International Union of Operating Engineers, AFL-CIO. All three agreements were negotiated in 2010 and expired in 2015. The collective bargaining agreements required RiverStone to make contributions to the Midwest Operating Engineers Fringe Benefit Funds (Funds) for each hour of covered employment worked by its covered employees. In 2013, however, the employees of RiverStone voted to decertify the union as their collective bargaining representative. At this point, RiverStone, following well-established practice, stopped contributing to the Funds because it thought all of its contractual obligations under the agreements had ended. The Funds sued for delinquent contributions, and the district court, affirmed by the Seventh Circuit, ruled in favor of the Funds.

The Seventh Circuit cites to earlier case law indicating that the Funds, as third-party beneficiaries, have independent standing to enforce the obligation to contribute under a collective bargaining agreement. The puzzling issue, however, is how an obligation can continue after the union is no longer the collective bargaining representative and the union’s rights have been extinguished. The Seventh Circuit observed that the Employee Retirement Income Security Act of 1974 does not require that an employer’s obligation to contribute be dependent on the existence of a valid collective bargaining agreement. In the view of the Seventh Circuit, the Funds’ rights were created when the union was the collective bargaining representative, and the decertification of the union meant the union no longer had a right to enforce the agreements. The Seventh Circuit concluded that the agreement, however, did not cease to exist “so far as benefits law is concerned,” until by its terms, it expired. Decertification therefore did not extinguish the Funds’ rights as a third-party beneficiary to collect contributions.

Ultimately, the opinion appears to be driven by an increasing concern for the funding of multiemployer funds. The opinion mentions that the Funds had “budgeted” for five years of contributions from RiverStone and recites that “once [multiemployer plans] promise a level of benefits to employees, they must pay [the benefits] even if the contributions they expected to receive do not materialize.” Seasoned multiemployer plan practitioners know that this last statement is generally not true for health and welfare funds, and notably, that there is no guarantee on the amount of contributions since contributions are based on hours paid. By extension, this holding could also be applied to withdrawals of recognition and disclaimers of interest.

This opinion is a sobering issue for employers to consider before and during negotiations of collective bargaining agreements that require contributions to multiemployer benefit funds. There are also a number of ancillary issues that must be addressed in this alternate universe created by the Seventh Circuit such as, when is withdrawal liability triggered and what employee benefits should be offered to affected employees during the post-decertification and pre-expiration periods.

Thomas Vasiljevich  (Chicago)

Thomas Vasiljevich
Thomas Vasiljevich is a shareholder in the firm’s Employee Benefits and Executive Compensation practice group and has over 30 years of experience representing and advising clients on a broad range of employee benefits issues arising under ERISA, the Internal Revenue Code and related federal and state laws and regulations. Mr. Vasiljevich serves as employee benefits counsel to a variety of publicly and privately owned employers and large multiemployer (Taft-Hartley) pension, annuity and...

Grace H. Ristuccia  (Washington DC)

Grace H. Ristuccia
Ms. Ristuccia assists clients on a variety of compliance, administration, and plan design issues for all types of employee benefit plans, including qualified plans, non-qualified plans, governmental plans, welfare plans, and multiemployer plans. Her practice covers all aspects of employee benefits and executive compensation. She has drafted plan documents, summary plan descriptions, HIPAA training materials, and benefit commencement packages. In addition, she has represented clients and...