The arbitrator in a hotly contested withdrawal liability dispute just ruled in favor of Cook Brown’s client–soundly rejecting the Pension Fund’s claim that the client was liable as a successor to a contractor which ceased much of its construction operations in 2015. At stake was a withdrawal liability assessment in the amount of $3.424 million dollars, as well as interest and attorney’s fees. Cook Brown partner Ron Brown persuaded the arbitrator that the successor theory of liability should not apply. He established that although the client and the other contractor were engaged in similar work, with some overlap in customers and employees, the client was not a true successor as it had not purchased or otherwise acquired the other contractor’s assets.
The Pension Fund had argued that proof of asset purchases was unnecessary because Cook Brown’s client purportedly continued the business operations of the other contractor by offering the same services with a similar workforce. The Pension Fund hoped to expand the application of the ruling in Resilient Floor Covering Pension Trust Fund Bd. Of Trustees v. Michael’s Floor Covering, Inc., 801 F.3d 89 (9th Cir. 2015), which found successor liability in certain cases where one company acquires the assets of another. Relying on this Ninth Circuit case, the Pension Fund argued it was sufficient to merely show the purported successor used some of the assets by occasionally leasing them. The arbitrator squarely ruled that the attempted expansion was untenable, reasoning that the Pension Fund’s theory lacked precedent and arbitrators should refrain from creating new law.
Many employers who contribute to union pension funds are unaware of the potential for substantial assessments if they cease contributing to a fund. Since 1980, Congress has allowed such assessments to be issued when a pension fund is underfunded. The principle underlying such assessment is to shore up underfunded pension funds to ensure they can continue to meet their obligations to retired union employees. Overcoming such assessments is particularly challenging given the short time frame to object to the assessments and to initiate arbitration. Cook Brown partner Ron Brown specializes in counseling and advising employers on withdrawal liability exposure and assessments.