A large construction company with many subsidiaries triggered withdrawal liability of almost $1 million under controlled group liability principles in the Multiemployer Pension Plan Amendment Act (“MPPAA”) when it purchased a nonunion construction company.

In the view of the federal 10th Circuit Court of Appeals (CO, KS, NM, OK, UT, WY) in Ceco Concrete Constr., LLC. v. Centennial State Carpenters Pension Trust, the purchased subsidiary performed work of the same type for which another subsidiary had previously made (but had ceased making) pension contributions to a multiemployer pension plan. This triggered withdrawal liability under the MPPAA’s building and construction industry rules.

Company Lets CBA Expire, Then Parent Buys Nonunion Competitor

Construction employers are treated more generously than most other employers under the MPPAA.   For most employers, if they cease to have an obligation to contribute to a plan or cease covered operations, withdrawal liability is triggered.  Building and construction industry employers do not trigger withdrawal liability when they cease having an obligation to contribute unless, after ceasing the contribution obligation, the employer either continues covered operations or resumes them within five years.

Ceco Concrete Construction, LLC, decided it could no longer compete effectively as a union contractor against nonunion contractors.  Ceco had a collective bargaining agreement that required it to make contributions to the Centennial State Carpenters Pension Trust in Colorado, and it decided to allow its collective bargaining agreement with the carpenters’ union to expire effective May 1, 2010.  Approximately six months later, on October 1, 2010, Ceco’s parent company, Heico Holdings, Inc., purchased CFA, a nonunion construction company that performs the same type of construction work that Ceco did in the same market.  In fact, Ceco and CFA had been competitors.  Heico, Ceco and CFA are under “common control” and are a common-control group.

Appeals Court Affirms Withdrawal Liability

The pension fund assessed withdrawal liability.  Ceco contested the assessment and argued it could not be held liable for withdrawal liability, because once it ceased performing work for which contributions were required, it never resumed such work.  The pension fund responded that Ceco was liable, because the work of CFA (the subsequently-acquired subsidiary) established the common-control group, which is the “employer” under the MPPAA, started to perform work for which contributions were required within a five-year period.

Ceco’s response to this argument was that only parties under common control on the date the obligation to contribute ceased could incur liability under the building and construction industry rules in the MPPAA. Previous court decisions on this issue supported Ceco’s interpretation, and both an arbitrator and the federal district court for Colorado agreed with Ceco, finding the assessment of withdrawal liability improper.

Nevertheless, the appeals court disagreed.  It found that, under the law’s building and construction industry rules, “withdrawal liability may be assessed against all entities in the common control group at the time of continuation or resumption of covered work.”  (Emphasis added.)  Therefore, Ceco, its holding company, and all other members of the common control group were liable for the withdrawal liability.

The court recognized that its ruling conflicts with other jurisdictions, such as the 7th Circuit Court of Appeals and various federal district courts.  It may eventually require a U.S. Supreme Court decision to resolve this conflict within the federal courts.

Bottom Line

Construction employers that are acquiring other entities should scrutinize potential multiemployer pension plan withdrawal liability issues which may arise through the operation of their acquired companies.

Editor’s Note:  This article was written by guest author Ruth Marcott of the law firm Felhaber Larson in Minneapolis, MN. She can be reached at 612-373-8545 or Rmarcott@felhaber.com.

For additional resources on withdrawal liability, visit AGC’s Labor & HR Topical Resources webpage. Log in as an AGC member using the Login button in the top left corner, then select the category “Wages and Benefits” and the subcategory “Multiemployer/Taft-Hartley Benefit Plans & Trust Funds.”