Looking at an Expanding Landscape: Multiemployer Plan Withdrawal Liability

25 June 2018 Labor & Employment Law Perspectives Blog
Author(s): Arthur T. Phillips

If an employer withdraws from a multiemployer pension plan such that the employer no longer has an obligation to contribute to the plan, the withdrawing employer is generally responsible for its share of the plan’s underfunding. This is referred to as withdrawal liability. Typically, in the context of an asset sale transaction, the seller is the entity that has withdrawn from participation in the multiemployer plan, and any withdrawal liability assessment applies to the seller. However, where the seller does not or is unable to pay, the multiemployer plan may seek to recover the withdrawal liability assessment from the buyer on the theory that the buyer is the successor to the employer.

In general, the buyer in an asset purchase transaction might be deemed to be a successor employer — and thus liable for the seller’s withdrawal liability obligation — if the buyer (1) had notice of the liability and (2) substantially continued the business operations.

However, a recent case decided by the United States Court of Appeals for the Ninth Circuit, Heavenly Hana, LLC v. Hotel Union & Hotel Industry of Hawaii Pension Plan, illustrates that a buyer might be determined to be a successor employer even if the buyer does not have actual notice of the withdrawal liability. In the case, the buyer (Heavenly Hana) agreed to purchase a hotel and related assets owned by the seller. Under the seller’s collective bargaining agreement with the hotel union, the seller contributed to the Hotel Union & Hotel Industry of Hawaii Pension Plan, the multiemployer plan covering the seller’s union workers.

Ten days before the deal closed, the seller ceased contributing to the multiemployer pension plan and on the closing date formally withdrew from the Plan. The seller’s withdrawal from the multiemployer plan triggered withdrawal liability of nearly $760,000. Following the closing date, the multiemployer plan demanded payment from the buyer as successor to the seller.

Because the buyer operated the hotel, used the assets acquired from the seller in the operation of the hotel, and employed the majority of the seller’s employees, the second prong of the successor employer test — continuity of business operations — was satisfied. However, the buyer challenged the plan’s assessment on the grounds that buyer lacked actual notice of the liability. The court rejected this argument and applied a constructive notice standard; that is, the court determined that the buyer should have discovered the seller’s withdrawal liability and thus was deemed to have notice of it.

The court based its determination on the fact that the buyer (1) had previously operated a hotel that participated in a multiemployer plan, (2) was aware of the unionized workforce, and (3) had the awareness to ask legal counsel whether it could incur withdrawal liability in connection with the transaction. (Counsel incorrectly advised that it could not.) In essence, the court determined that the buyer should have known about the potential withdrawal liability.

Due Diligence Considerations

During the due diligence process, asset purchasers should inquire about the existence of union employees participating in multiemployer plans. If such a plan exists, asset purchasers should review union agreements, plan documents, and any withdrawal liability estimates prepared by the multiemployer plan. Armed with this knowledge, an asset purchaser may negotiate purchase price adjustments, indemnities, or escrow accounts to minimize its financial and legal exposure.

Please contact a member of the Foley & Lardner Employee Benefits and Executive Compensation team if you have any questions about multiemployer plans and withdrawal liabilities.

This blog is made available by Foley & Lardner LLP (“Foley” or “the Firm”) for informational purposes only. It is not meant to convey the Firm’s legal position on behalf of any client, nor is it intended to convey specific legal advice. Any opinions expressed in this article do not necessarily reflect the views of Foley & Lardner LLP, its partners, or its clients. Accordingly, do not act upon this information without seeking counsel from a licensed attorney. This blog is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Communicating with Foley through this website by email, blog post, or otherwise, does not create an attorney-client relationship for any legal matter. Therefore, any communication or material you transmit to Foley through this blog, whether by email, blog post or any other manner, will not be treated as confidential or proprietary. The information on this blog is published “AS IS” and is not guaranteed to be complete, accurate, and or up-to-date. Foley makes no representations or warranties of any kind, express or implied, as to the operation or content of the site. Foley expressly disclaims all other guarantees, warranties, conditions and representations of any kind, either express or implied, whether arising under any statute, law, commercial use or otherwise, including implied warranties of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Foley or any of its partners, officers, employees, agents or affiliates be liable, directly or indirectly, under any theory of law (contract, tort, negligence or otherwise), to you or anyone else, for any claims, losses or damages, direct, indirect special, incidental, punitive or consequential, resulting from or occasioned by the creation, use of or reliance on this site (including information and other content) or any third party websites or the information, resources or material accessed through any such websites. In some jurisdictions, the contents of this blog may be considered Attorney Advertising. If applicable, please note that prior results do not guarantee a similar outcome. Photographs are for dramatization purposes only and may include models. Likenesses do not necessarily imply current client, partnership or employee status.


Related Services