United States: Opportunity Lost: The Importance Of Not Ignoring Multi-Employer Pension Withdrawal Liability In A Transaction

Last Updated: October 9 2015
Article by Thomas H. Wilson, David D'Alessandro, S. Grace Ho and Pam Stabler

A party to a transaction, whether it be an asset or a stock deal, cannot simply ignore potential multiemployer pension withdrawal liability in the hopes that it will go away. The United States Court of Appeals for the Seventh Circuit has just made this abundantly clear. In Tsareff v. ManWeb Services, Inc., decided on July 27, the Seventh Circuit took away a district court victory for the buyer in an asset deal. Both the seller and the buyer had ignored a notice from the multi-employer pension plan to which the seller contributed which alleged that the seller owed $661,978 for unfunded liability upon the withdrawal from the plan. Although the district court ruled that the seller had waived its right to dispute the withdrawal liability by failing to institute arbitration proceedings and was liable to the plan for the full amount, it held that the buyer was not liable as a matter of law. The Seventh Circuit reversed, finding that the buyer had notice of the seller's withdrawal liability sufficient to impose successor liability on the buyer pursuant to the terms of the Multi-Employer Pension Plan Amendments Act of 1980 (MPPAA).

This loss is unfortunate for all parties who are involved in transactions where such multi-employer pension liability may exist — particularly those in the construction industry — because the district court had decided in favor of the buyer on the merits of the withdrawal claim. The transaction in this case was an asset purchase between two construction companies and, after closing, the buyer took over all of the seller's work in progress and continued to perform the same type of work previously performed by the seller in the same area, but did not employ the seller's employees, who had been covered by the multi-employer pension plan. The district court considered the standard for withdrawal liability in the construction industry under MPPAA. Under this standard, a complete withdrawal occurs if the employer ceases to contribute to the plan and either continues or resumes within five years to perform the same work in the same area. The court concluded that in an asset purchase, application of liability to the buyer would effectively impute the continued activities of the buyer — i.e., the continuation of the same work with the same assets but with different employees — to the seller and such imputation was contrary to MPPAA's statutory language. This holding is contrary to the holding of a district court in the Ninth Circuit in which the district court applied a fact-based "successor employer" test to determine if such imputation was warranted, but that case was not subsequently appealed to the Ninth Circuit.

While this decision involves construction industry employees, the lessons from it are equally applicable to nonconstruction industry matters where successorship status related to withdrawal liability may be contested. The defendant in Tsareff has filed a motion that indicates it intends to move for a rehearing before the Seventh Circuit. We hope this will lead to greater guidance from the Seventh Circuit on this issue. With open issues such as the application of liability to construction company asset transactions, it is important that when the potential for multiemployer pension plan liability arises in any transaction, construction or non-construction industry, the buyer is alert to any communications from the plan and is prepared to promptly take the appropriate steps.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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