Eighth Circuit Signals it Might Accept Termination of CBA Participation as a Defense in Benefit Fund Collections Actions | Practical Law

Eighth Circuit Signals it Might Accept Termination of CBA Participation as a Defense in Benefit Fund Collections Actions | Practical Law

In Twin City Pipe Trades Service Ass'n, Inc. v. Frank O'Laughlin Plumbing & Heating Co., the US Court of Appeals for the Eighth Circuit signaled, in a matter of first impression, that it might join a minority of circuit courts that recognize termination of participation in a collective bargaining agreement (CBA) as a valid employer defense in benefit fund collection actions under 29 U.S.C. § 1145, provided the employer unequivocally expresses a clear and explicit intent to terminate participation in a CBA.

Eighth Circuit Signals it Might Accept Termination of CBA Participation as a Defense in Benefit Fund Collections Actions

by Practical Law Labor & Employment
Published on 22 Jul 2014 • USA (National/Federal)
In Twin City Pipe Trades Service Ass'n, Inc. v. Frank O'Laughlin Plumbing & Heating Co., the US Court of Appeals for the Eighth Circuit signaled, in a matter of first impression, that it might join a minority of circuit courts that recognize termination of participation in a collective bargaining agreement (CBA) as a valid employer defense in benefit fund collection actions under 29 U.S.C. § 1145, provided the employer unequivocally expresses a clear and explicit intent to terminate participation in a CBA.
On July 17, 2014, in Twin City Pipe Trades Service Ass'n, Inc. v. Frank O'Laughlin Plumbing & Heating Co., the US Court of Appeals for the Eighth Circuit signalled, in a matter of first impression, that it might join a minority of circuit courts that recognize termination of participation in a collective bargaining agreement (CBA) as a valid employer defense in benefit fund collections actions under 29 U.S.C. § 1145. However, the court did not consider the merits of that defense because the employer failed to unequivocally express a clear and explicit intent to terminate participation in the CBA that gave rise to its benefit fund contribution obligations. Courts that have recognized the termination of CBA participation defense have held that a cursory inquiry must show that the employer unequivocally communicated the intent to withdraw from the CBA. (13-2521, (8th Cir. July 17, 2014).)

Background

Frank O'Laughlin Plumbing & Heating Co. has been a signatory to CBAs with a local plumbers and pipefitters union since 2000. In early 2011, O'Laughlin was a signatory to a CBA effective until April 30, 2011. This CBA:
  • Required O'Laughlin to contribute to union benefit funds administered by Twin City Pipe Trades Service Ass'n, Inc. for all pipe work performed by its employees.
  • Had an evergreen provision, providing that the CBA would remain in effect unless either party gave 90 days notice of its intent to terminate the CBA as of the expiration date.
On January 27, 2011, O'Laughlin sent a letter to the union stating that it would be terminating its CBA with the union effective January 31, 2011. However, for three months after January 31, 2011, O'Laughlin continued to comply with the terms of the CBA, including making benefit contributions to Twin City on behalf of its employees.
In spring 2011, the union began to negotiate for a new CBA effective May 1, 2011. After May 1, when the new CBA was effective, and throughout 2011, O'Laughlin continued to contribute to the Twin City benefit funds on behalf of its employees. In December 2011, the CBA increased the local pension contribution rate and for that month, O'Laughlin continued to contribute at the increased rate.
On December 27, 2011, O'Laughlin sent a second letter stating that O'Laughlin would be terminating the CBA effective January 1, 2011. Beginning January 1, 2012, O'Laughlin:
  • Stopped making benefit fund contributions on behalf of its employees.
  • Continued to employ individuals to perform work covered by the CBA.
After O'Laughlin stopped making contributions, Twin City brought this action under 29 U.S.C. § 1145 to collect fringe benefits allegedly owed by O'Laughlin to union employee benefit funds. Twin City argued that O'Laughlin:
  • Never effectively terminated its participation in the 2009-2011 CBA.
  • Remained obligated to contribute to benefit funds on behalf of its employees.
Twin City moved for summary judgment in the district court. In response, O'Laughlin argued that:
  • The January 27 letter's termination date of January 31 was intended to reflect compliance with the 90-day notice period in the CBA. It was not a reference to the actual termination date of the CBA.
  • The December 27 letter merely reiterated that the CBA was no longer in effect.
  • The December 27 letter's reference to an effective termination date of January 1, 2011 was a typographical error. The letter should have said January 1, 2012.
  • It participated in negotiations for a new CBA during Spring 2011 to attempt to reach a deal to bring O'Laughlin back into a CBA with the union, but the negotiations were unsuccessful.
  • It continued to make the fringe benefit contributions throughout 2011 as a voluntary measure of good will, not because it considered itself still bound by the CBA.
The district court noted that:
However the district court granted summary judgment for O'Laughlin:
In particular, the district court:
  • Credited O'Laughlin's explanation of the January 27 letter, finding that the letter:
    • unequivocally expressed O'Laughlin's intent to terminate its participation in the CBA; and
    • complied with the CBA's 90-day notice requirement.
  • Determined that the termination was not invalidated by O'Laughlin's:
    • subsequent conduct in making voluntary payments throughout 2011; or
    • participation in negotiations for a new CBA.
  • Concluded that, "O'Laughlin is a small company that tried to do the right thing and made some missteps in the process. These missteps, however, are not enough to negate its unequivocal termination of the CBA."
Twin City appealed to the Eighth Circuit, asserting that the district court erred in concluding that O'Laughlin indisputably terminated its participation in the CBA.

Outcome

The Eighth Circuit:
  • Noted that its precedent recognizes only two employer defenses in benefit fund collections actions under 29 U.S.C. § 1145, neither of which are termination of CBA participation. However, it refrained from holding that the precedent was determinative because the employer in the earlier case did not raise a termination of CBA participation defense. (Central States, 919 F.2d 1343.)
  • Declined to formally recognize the termination of CBA participation defense in this case because the employer's statements and actions here did not show that the employer unequivocally communicated the intent to withdraw from the CBA as the employers who successfully proved that defense in other courts had.
The Eighth Circuit concluded that O'Laughlin did not unequivocally express an intent to terminate its participation in the CBA for the following two reasons:
  • O'Laughlin showed an intention to continue to follow and be bound by the terms of the CBA by continuing to make fringe benefit contributions throughout 2011. The terms of the CBA do not contemplate employers making voluntary payments.
  • The January and December 2011 letters O'Laughlin sent to the union did not express unequivocal intent to stop participation in the CBA because:
    • the first letter was not a "clear and explicit" notice of intention to terminate participation in the CBA because it did not explicitly refer to the 90-day notice provision or reference the correct termination date of April 30, 2011; and
    • the second letter did not clarify the first letter, did not refer to the correct termination date and was inconsistent with the first letter because the letters purported to terminate participation in the CBA on different dates.

Practical Implications

In this matter of first impression for the Eighth Circuit, the court suggested that it might join the US Courts of Appeals for the Fifth and Sixth Circuits (and one district court analysis within its jurisdiction) in recognizing a termination of CBA participation defense to benefit fund collections actions when presented with the appropriate facts (see Laborers Pension Trust Fund-Detroit & Vicinity, 394 F. App'x 285, La. Bricklayers & Trowel Trades Pension Fund & Welfare Fund v. Alfred Miller Gen. Masonry Contracting Co., 157 F.3d 404 (5th Cir. 1998) and Heimerl, ). However, to raise this defense, employers must unequivocally express clear and explicit intent to terminate their participation in the CBA giving rise to the benefit fund contribution obligations. For example, employers should ensure that:
  • Correspondence they send to the union:
    • is consistent;
    • refers to and complies with the CBA's notice provision; and
    • states a valid date for terminating the employer's participation in the CBA (usually when the CBA expires).
  • Their actions consistently demonstrate their understanding that they are not bound by a CBA with the union. For example, employers disavowing CBA obligations should not make "good will" gratuitous contributions to benefit funds under the terms of the CBA as the employer did here.
Employers should not understand the termination of CBA participation defense as a panacea. This case, like many others in which employers could lawfully decide whether to renew CBAs, involves construction industry NLRA Section 8(f) CBAs. The CBAs and bargaining obligations in the construction industry are often temporary to satisfy the temporary hiring needs of buildings trades employers. Collective bargaining obligations related to unions authorized to bargain under the normal NLRA Section 9(a) processes are more restrictive.
In addition, employers whose obligations to contribute to multiemployer pension funds cease when CBAs or collective bargaining obligations terminate may, in certain circumstances, still face liability for their shares of pension funds' unfunded vested benefits under the Employee Retirement Income Security Act of 1974 (ERISA), as amended by the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA).