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Contract Language on Pension Withdrawal Liability Does Not Violate Public Policy

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March 30, 2012

By Terry Creamer

In the case of Shelter Distribution, Inc. v. General Drivers, Warehousemen & Helpers Local Union No. 89, No. 11-5450 (6th Cir. Mar. 16, 2012), a court considered whether a collective bargaining agreement shifted employer withdrawal liability to a union.  In Shelter Distribution, a multi-employer pension fund assessed withdrawal liability against an employer.  In response, the employer attempted to enforce language contained in its collective bargaining agreement in which the union agreed to indemnify the employer if withdrawal liability was assessed by the pension fund.  At arbitration, the union argued that the indemnification language violated the policy expressed in the Multiemployer Pension Plan Amendments Act which prohibits the shifting of withdrawal liability through collective bargaining agreements.  The arbitrator rejected the Union’s argument, and ordered the union to pay the employer the withdrawal liability that was assessed by the pension fund.  A district court upheld the arbitration award and the union appealed to the U.S. Court of Appeals for the Sixth Circuit.

On appeal, the union again argued that the indemnification language contained in the agreement violated public policy.  The court of appeals rejected the union's public policy argument and affirmed the district court judgment.  The court analogized the indemnification language to a section of the Multiemployer Pension Plan Amendments Act which permits a fiduciary to purchase insurance to cover withdrawal liability.  In the court’s opinion, “[t]here is no logical difference between contracting with an insurance company…and negotiating an indemnification provision …with the Union.  Under the agreement, the Union is the entity analogous to the insurance company….”  The court found there was no unlawful shifting of withdrawal liability, and explained that the employer “was still financially liable to the Fund and the company satisfied its financial obligation.  Under the indemnification provision, the Union simply agreed to reimburse [the employer] for any financial liability it would incur should any contingent liability be imposed by the pension plan.”

Employers who participate in multi-employer pension funds should be mindful of this decision as they prepare for union contract negotiations. 

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