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WITHDRAWAL LIABILITY: A RISK FOR COMPANIES WHICH "LEASE" EMPLOYEES?
Multi-employer pension plans have suffered serious declines in assets during the current recession, which has resulted in withdrawal liability claims by pension plans against many employers. The theory of withdrawal liability is that when a company ceases making contributions to a multi-employer pension plan, it should be responsible for paying its share of the unfunded vested liabilities of the plan. A recent decision by the sixth circuit court of appeals addresses a question that will be of great interest to companies that "lease" employees from "leasing" companies—namely, can the company that obtains leased employees be liable for withdrawal liability because the leasing company has a union contract obligating it to make contributions to a multi-employer pension plan. The sixth circuit, disagreeing with several other circuit courts, found that the company that obtained leased employees might itself be liable for withdrawal liability. Central States Pension Plan v. Int’l Comfort Products, LLC, 585 F.3d 281 (6th Cir. 2009).
The company, Int’l Comfort Products ("ICP"), a manufacturer of heating and cooling products had a contract with a trucking company, Tops, which supplied the drivers to deliver those products. Tops had a collective bargaining agreement with the Teamsters and an obligation under that agreement to make pension contributions for the drivers to the Teamsters’ Central States Pension Plan. ICP had no agreement with the Teamsters or with the Pension Plan but did have a contract with Tops which required ICP to reimburse Tops for various costs including the wages and benefits paid by Tops to the leased drivers.
Similar cases have arisen in other circuits and in deciding those cases, the courts focused on whether the company being charged with withdrawal liability was an "employer" under the Multiemployer Pension Plan Amendments Act ("MPPAA"). The sixth circuit court discussed four circuit court decisions which held or suggested that companies like ICP were not "employers" because they, unlike the leasing company which had signed the Teamster contract, had no contract obligation to make pension contributions for the drivers. The court disagreed with this approach and relied on statutory provisions which had not been discussed in the other circuit court cases, which stated that an obligation to contribute to a pension plan arises not only from a contract obligation but also "as a result of a duty under applicable labor-management law." The court remanded the case to the district court for a finding as to whether ICP had an obligation to contribute to the Teamster plan under labor-management law even if it had no contract obligation to make pension contributions.
This case has significant implications for companies that obtain workers from leasing companies. If the leasing company has a union contract requiring it to contribute to a multi-employer pension plan, this case suggests that both the leasing company and its customer may be liable for withdrawal liability when contributions for the leased employees terminates.
The court did not spell out the circumstances or legal theories that might make the customer responsible for withdrawal liability. The court may have been suggesting that if employment responsibilities were shared by the leasing company and its customer—for example, the leasing company determined and paid the drivers’ wages and benefits but the customer supervised them on the job—the customer might then be responsible for withdrawal liability as a "joint employer." Whether there is a legal basis for finding the customer liable is the issue yet to be decided.
Given the potential magnitude of withdrawal liability, this is an issue that needs to be carefully reviewed by companies who lease or are thinking of leasing employees from leasing companies which are obligated to contribute to multi-employer pension plans.
