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2015 Union Membership Rate Relatively Stable Despite New NLRB Election Rules

Despite the National Labor Relations Board’s “quickie election rules,” the percentage of unionized workers in the private sector remained stable during 2015, according to the Bureau of Labor Statistics of the U.S. Department of Labor: 6.7% of private-sector workers were in unions in 2015, up from 6.6% in 2014. Not surprisingly, public-sector workers had a much higher union membership rate: 35.2%.

According to the report, men had a higher union membership rate than women: 11.5% versus 10.6%. In addition, the percentage of African-American workers who were union members was greater than Caucasian workers.

New York (24.6%), Alaska (22.8%), and Hawaii (21.8%) had the highest unionization rates, whereas South Carolina (2.2%), Mississippi (3.7%), and Utah (3.7%) had the lowest.

The report found the median weekly earnings of nonunion workers were lower than the median weekly earnings for unionized workers ($776 per week versus $980 per week). The report, however, recognizes that this comparison may not be valid because the “comparisons of earnings in [the] release are on a broad level and do not control for many factors that can be important in explaining earnings differences.” Indeed, this is likely the case.

Article By Howard M. Bloom & Philip B. Rosen of Jackson Lewis P.C.

Supreme Court Poised to Strike Down Union Agency Fees for Public Employees?

The U.S. Supreme Court, in argument on Jan. 11, from all accounts appears poised to strike down its prior decision in Abood v. Detroit Board of Education and conclude that mandatory agency fees paid by public employees to unions that represent them are unconstitutional. Classroom Supreme Court teachers decision

In Friedrichs v. California Teachers Association, the petitioners contend that mandatory fair share dues to cover the cost of collective bargaining and other representational activities violate the free-speech rights of nonunion workers. Chief Justice John Roberts summarized the issue similarly: “The problem that’s before us is whether or not individuals can be compelled to support political views that they disagree with.”

The case, which poses a significant threat to the funding of public employee unions in the 20 states that allow so-called fair share fees, has generated substantial interest and coverage. The SCOTUS Blog is an excellent stepping off point to review coverage of the case.

Court watchers are suggesting that Friedrichs will overturn Abood not only because of the tone of the questioning during argument but in large part because of the Court’s 2014 decision in Harris v. Quinn in which the Court’s 5-4 majority wrote of Abood and its “questionable foundations.”

Article By Gerald F. Lutkus of Barnes & Thornburg LLP

‘Fight for $15’ Walk-Outs and Protests Continue; Are You Prepared for November 10?

national labor relations board Continuing its three-year campaign, “Fight for $15” on November 4, 2015, announced plans for worker strikes and protests at fast food restaurants in 270 U.S. cities on November 10. The protests, timed to occur one year prior to the 2016 presidential election, is calculated to send a message to voters and candidates. Protests will culminate with a march on the November 10 Republican presidential debate in Milwaukee.

While the fast food workers involved in the walk-outs are not represented for purposes of collective bargaining by a labor union, the walk-outs have largely been organized and funded by the Service Employees International Union (“SEIU”). Employers with union contracts who have lived with the possibility of strikes are generally more familiar with the rights and obligations of employees and employers under the labor law than their non-union counterparts. But now that walk-outs and work stoppages are becoming an accepted strategy in the non-union workforce, non-union employers need to know the rules, too. Indeed, over three years of protests, scores of unfair labor practice charges have been filed against non-union employers alleged to have interfered with employee participation in protected activity. Moreover, on November 4, 2015, the National Labor Relations Board (“NLRB”) upheld a decision finding that a St. Louis Chipotle Grill unlawfully discharged an employee because he engaged in fight-for-$15 protests.

“Protected, Concerted Activity”

Under the National Labor Relations Act, employees have the right to engage in group activity for the purposes of “mutual aid and protection.” Thus, whether a union is involved, if two or more employees acting in concert walk off the job to protest work conditions or enforce demands relating to the terms of their employment, the walk-out, or strike, generally is protected concerted activity under the National Labor Relations Act. (Quickie, intermittent work stoppages might not be.) Under these circumstances, it would be unlawful to discipline or discharge (or otherwise disadvantage) employees for walking off the job. It also means that unless the employees have been permanently replaced (discussed below), the strikers are entitled to be returned to their jobs when they make an unconditional offer to do so.

Lawful Employer Responses to Protected Concerted Activity

Employers are not without rights in dealing with protected concerted activity (“PCA”). First and foremost, employers have a right to continue business operations. This can be accomplished by assigning managers or hiring replacement workers to do the work of the employees who walked off the job. If the strike is not caused by an employer unfair labor practice, employers have the right to designate the replacement workers either as permanent or temporary. (If the strike is caused by an employer unfair labor practice, employers have the right to designate the replacement workers only as temporary.)

If replacement workers are designated as temporary, when the strikers offer to return to work, the employer is obligated to lay off the temporary workers and put the strikers back to work.

When the employer designates the replacements as permanent, when the strikers offer to return to work, they are placed on a preferential hiring list. In that situation, the employer is not obligated to lay off the replacements, but when positions open up through normal attrition, the employer first has to offer those openings to the former strikers who are on the preferential hiring list.

Walk-outs in the fast food industry have been short, however, typically rendering the hiring of replacement workers impractical. As a practical matter, employers may have to rely on managers or other employees who are not participating in the strike.

Violence and Other Picket Line Misconduct

Employees lose the protection of the NLRA if they engage in certain improper conduct. This includes intermittent or “quickie strikes.” Generally, strikers lose the protection of the NLRA when they engage in a pattern of striking for short periods, returning to work briefly, and then striking again. By engaging in this type of conduct, strikers effectively deny the employer the ability to run its business either by relying on its regular employees or by hiring replacements. The NLRA does not prevent the employer from issuing discipline or discharging employees who participate. However, before taking action, employers should consult counsel and be absolutely certain the particular job action is unprotected.

Other activities that are unprotected include stay-ins or sit-down strikes. A stay-in or sit-down strike occurs when employees refuse to work and also refuse to vacate the employer’s premises. Strikers seek to force the employer to accede to their demands by bringing operations to a halt, preventing the employer from operating. This type of trespasser activity generally is unprotected.

Slow-downs are another tactic sometimes used to impede production. Work is deliberately performed ever more slowly; the employer cannot conduct business and customers fume. Slow-downs are not protected and can be addressed by discipline or discharge.

Lawful Responses to Unprotected Activity

Strikers, of course, are allowed to picket on public property near their place of employment to publicize a labor dispute. They, however, are not privileged to engage in threats, physical assaults, trespass, or property destruction. When they do, employers have these remedies available:

1. Law Enforcement: The most immediate relief available is to call the police. Just because employees ostensibly are engaged in a strike does not immunize them from prosecution when they commit crimes.

2. State Court Injunction: Another remedy is to seek a state court injunction to prohibit violence. This is particularly helpful when there is mass picketing, obstruction of traffic, and blockages of entrances, and the police have difficulty controlling the situation. In these kinds of cases, employers seek court orders prohibiting further violence or destructive activities and limiting to a reasonable number the number of picketers at a particular location at any given time, so police can assure public order.

3. Employer Discipline and Discharge: If the threats, violence and property destruction are egregious enough, the employees involved lose the protection of the NLRA, which means they can be discharged or disciplined. (However, a full investigation should be conducted before the employer takes action to determine what the employee actually did or said. In addition, investigation of past discipline in similar situations not involving protected concerted activity is important because the rules (under the NLRA) prohibit discrimination against employees who engage in such activity. In other words, if, in the past, an employee who was not participating in protected concerted activity engaged in violence for which he was suspended, an employee who engages in similar violence while partaking in protected concerted activity generally also should be suspended, rather than discharged.) Employees should not suffer greater discipline for their misconduct because it occurs while they engage in activity the law protects.

While there is no bright line for evaluating when misconduct becomes unprotected, some general guides may be kept in mind. For example, simple name-calling, momentary blocking of ingress and egress at employer facilities, and simple trespass onto an employer’s property, without any accompanying destruction or violence, probably will not be sufficient to cause the employee to lose the protection of the NLRA. However, physical assaults, participating in extended blocking of ingress or egress, and property destruction are generally the types of conduct that will cause an employee to lose the protection of the NLRA.

Article By Jonathan J. Spitz, Philip B. Rosen, Timothy J. Ryan & Peter N. Moss of Jackson Lewis P.C.

WTF? NLRB’s OK with “Cut the Crap?” – Protected Speech Under the NLRA

The National Labor Relations Board (NLRB) has yet again undercut employers’ efforts to limit profane and vulgar language by workers finding vulgar buttons and stickers to be protected speech under the National Labor Relations Act (NLRA).

NLRB

In Pacific Bell Telephone Company and Nevada Bell Telephone Company d/b/a AT&T and Communication Workers of America, Case # 20–CA–080400, the board ruled that the two companies violated the NLRA when they attempted to block workers from wearing buttons and stickers containing the phrase “Cut the Crap” and the abbreviation “WTF.”

The buttons and stickers read “WTF Where’s the Fairness,” “FTW Fight to Win” and “Cut the Crap! Not My Healthcare.” In overturning an administrative law judge’s (ALJ) prior ruling and holding 2-1 that the buttons and stickers were protected speech, the board majority found the language not to be so profane as to lose protection of the Act, particularly where the “WTF” and “FTW” buttons and stickers “provided a nonprofane, nonoffensive interpretation on their face.”

The board’s final order in the case barred the two companies from maintaining and enforcing an overbroad rule which banned these employees from wearing the union-provided pins and stickers. The companies were further ordered to cease and desist from refusing to let employees work unless they removed this union insignia.

The case is the latest in a series of cases in which the board is making it very clear that a wide variety of foul, vulgar and otherwise offensive language remains protected speech and does not lose its protection under the Act when the language is used in the context of concerted activity. In the Plaza Auto Center, Inc., Hooters, and Starbucks cases, the Board also condoned extremely offensive language and overturned decisions to terminate employees.

Employers who are considering discipline or termination of employees for foul, vulgar and/or offensive language must step carefully given this series of decisions. You must first make certain that the language used could not be considered to have been part of a discussion or interchange with the employee that could be viewed as concerted activity.

ARTICLE BY Gerald F. Lutkus of Barnes & Thornburg LLP

The Unions Are Coming…The Unions Are Coming! We Don’t Need Paul Revere’s Lantern To See Who’s Coming!

On December 16, 2014, the term of NLRB Board Member Nancy Schiffer ends. This is a critical date for the union movement because on that date the pro-Union members of the Board will lose their 3-2 majority status and their effective control over the NLRB. So what’s coming next for private employers?

On July 29, 2014, the General Counsel of the NLRB issued an advice memorandum to the NLRB Regional Directors identifying his game plan regarding re-establishing a new definition for joint employer, to make it easier for unions to organize:

“The new broader standard will allow employees to use traditional economic weapons to exert lawful economic pressure on those parties to realistically control the economics of their relationship even if they do not directly control working conditions.”

Prior to that public announcement, the General Counsel had stated that the objective of the Board has been to consistently uphold unions organizing very small subsets of employees, called “micro-units,” instead of the traditional wall-to-wall bargaining units. Quite simply, these “micro units” are easier for unions to gerrymander and, ultimately, to organize.

The final step in this trifecta is the most troubling for employers – the new NLRB Election Rules. Through rule-making, the NLRB is seeking to re-write the NLRA in such a way as to greatly speed up the elections. The new rules reduce the timeline for elections from over 35 days to under 20 days between the time of the petition and the election. These “quickie” or “ambush” elections will undoubtedly benefit unions, because it gives the employer less time to explain to the employee the pros and cons of joining a union. These rules are on a fast track and clearly support the union movement.

So, undoubtedly, the unions are indeed coming after management! This is a watershed moment for the unions. The union’s financial coffers have been depleted as the union membership numbers continue to plummet. If they don’t get their act together and start to effectively unionize, then they will have to stop blaming employers and/or the NLRB for their organizing failures.

Under the new NLRB Election Rules, nearly all election-related issues will be resolved after the election. This process would be similar to the approach taken in the recent Northwestern University football players’ case, in which the NLRB held the election and then impounded the ballots. The NLRB will sort out any issues after the fact so long as the objections don’t impact more than 20% of the bargaining units.

Employers had better gear up and get ready because the unions are locked and loaded and ready to attack. The stage has been proactively set by the NLRB to give unions their best-ever opportunity to succeed in union organizing. If employers don’t prepare now, they will jeopardize their freedom to deal directly with their employees and reduce their flexibility in running their company. The NLRB Regional Offices are already gearing up to explain the new changes in NLRB election procedure, starting in November, so here come the unions!

ARTICLE BY

Amy O. Bruchs

Carlos R. Pastrana-Torres

Robert W. Mulcahy

Farrah N.W. Rifelj

Brian P. Paul

Michael Best & Friedrich LLP

Micro Bargaining Units Coming To a Workplace Near You

It is no secret that many employers take steps to try and keep their workplaces union-free. One of the newer concerns for employers in that camp is the possibility that employees could form a “micro bargaining unit,” which is a unit of employees that make up only a small portion of the workforce.

Act Now! to Preserve Your Collective Bargaining Rights!

In a 2011 case, Specialty Healthcare, the National Labor Relations Board (NLRB) established a new standard for determining appropriate bargaining units. Specifically, the Board stated that, in evaluating a potential unit, it would focus on the community of interest among the petitioning employees. According to the Board in that case, factors such as the extent of common supervision, interchange of employees, and geographic considerations should all be taken into account when evaluating a proposed unit.

Specialty Healthcare also placed a significant burden on employers trying to challenge smaller units. The Board stated that, if an employer wished to argue that a unit should include additional employees, the employer needs to show that employees in a larger unit have an “overwhelming” community of interest with those in the proposed smaller unit. That’s a higher burden than what has been applicable in the past, and not one easy to meet.

The effects of Specialty Healthcare were evident in a more recent Board decision. In Macy’s Inc., the Board recently confirmed that 41 Macy’s cosmetic and fragrance department sales employees could form a bargaining unit. Those 41 employees made up about one-third of the employees at that Macy’s store. Macy’s argued that this unit was inappropriate because cosmetic and fragrance employees shared an overwhelming community of interest with the other sales employees, but the Board saw it differently.

The Board noted several factors that established the community of interest among the cosmetic and fragrance employees: they all worked in the same department, were supervised by the same manager, had limited contact with other sales employees, and were paid on the same commission-based based structure. Additionally, the Board pointed out that Macy’s rarely transferred employees between the cosmetic and fragrance department and other store departments.

While the Macy’s, Inc. case was not a positive development for employers, the NLRB then rejected a proposed micro-unit about a week later in a different case at Bergdorf-Goodman, a Nieman Marcus subsidiary. In that case, the Board found that salon shoes salespeople and contemporary shoe salespeople lacked a community of interest. In so deciding, the Board noted that the proposed unit in that case was not created based on any administrative or operational lines established by the employer. Additionally, the employees had different department managers, different floor managers, and different directors of sales.

While both of these cases dealt with the retail industry, the results are important to employers in any sector, since the Specialty Healthcare standard certainly can be applied to create micro-bargaining units in other industries. In fact, employers can probably expect unions to try organizing smaller bargaining units within larger companies, particularly where efforts to organize larger groups have proved unsuccessful. This strategy allows unions to select pro-union employee groups and increase their likelihood of winning an election.

If there’s one proactive takeaway from these cases, it’s that employers need to think in advance about how they can make themselves less vulnerable to micro-unit organizing. For example, cross-training employees and having them work in different departments makes it less likely a union could demonstrate a community of interest among a small group of employees. Of course, any steps taken to combat against micro-unit organizing also need to be evaluated for their operational feasibility. In most cases, it’s probably best that employers contact experienced legal counsel to weigh the pros and cons involved.

College Football Players As Employees ? – Illegal Formation!

Members of the Senate Health, Education, Labor and Pensions (HELP) Committee filed an amicus brief on July 10 that opposed unionization of college athletes. A case involving athletes at Northwestern University is pending before the National Labor Relations Board. Northwestern University and College Athletes Players Association (CAPA), Case No. 13-RC-121359

Sen. Lamar Alexander (R-Tenn.) and fellow committee members Senator Richard Burr (R-N.C.) and Senator Johnny Isakson (R-Ga.) along with members of several House Committees signed the amicus brief in support of Northwestern University in the case. The brief stated:

“Congress never intended for college athletes to be considered employees under the National Labor Relations Act, and doing so is incompatible with the student-university relationship,” the senators said. “The profound and inherent differences between the student-university and employee-employer relationship makes employee status unworkable both as a matter of law and in practice.”

The complete brief can be found here.

The American Council on Education also filed an amicus brief on July 3. That brief can be found here.

Article By:

Jon E. Anderson

Of:

Godfrey & Kahn S.C.

Supreme Court Gives Second Win in Two Days to Caregivers Challenging Compulsory Union Dues

The United States Supreme Court acted today in another case involving a scheme to siphon millions of dollars in compulsory union dues from home caregivers assisting public aid recipients. On June 30, 2014, the Court decided Harris v. Quinn and held that the First Amendment to the United States Constitution prohibits the collection of a compulsory agency fee from rehabilitation program personal assistants who do not want to join or support the union. Today, the Court applied Harris to Schlaud v. Snyder, vacating the judgment, and remanding the case to the United States Court of Appeals for the Sixth Circuit for further consideration in light of Harris v. Quinn. As the Schlaud case continues, look for another blow to the forced-dues arrangment perpretrated by various union officials and their friends in government.

Schlaud and other plaintiffs in the case are home childcare providers in Michigan who sought class-action certification in their First Amendment challenge to the state’s compulsory deduction of union dues from subsidies paid to home childcare providers. In January 2009, the Michigan Department of Human Services (DHS) began deducting 1.15% from subsidy payments made to home childcare providers. The funds were forwarded to the union, which was a joint venture between the United Auto Workers union and the American Federation of State, County and Municipal Employees union. According to the opinion of the United States Court of Appeals for the Sixth Circuit, the union collected $2,000,019.09 in 2009 and at least $1,821,635.21 in 2010.

Schlaud and her co-plaintiffs sought the return of the compulsory union dues that were collected in violation of their First Amendment rights. The district court denied certification of the plaintiffs’ proposed class — all home childcare providers in Michigan — because it concluded a conflict of interest existed within the class: some members voted for union representation and others voted against union representation. The Sixth Circuit affirmed, and Schlaud sought review by the Supreme Court.

Attorneys at the National Right to Work Legal Defense Foundation filed and have litigated both Shlaud and Harris on behalf of personal assistants and home childcaregivers. In Harris, the Supreme Court did not reach the issue of the constitutionality generally of compelling public sector employees to pay union dues or agency fees, but it strongly signaled that the legal analysis of a 1977 Supreme Court decision, Abood v. Detroit Board of Education, which found compulsory agency-fee requirements to be constitutional, was “questionable.” The Harris opinion opens the door, cracked initially in Knox v. Service Employees, for the Court to revisit the constitutionality of compelling public employees to pay union dues or agency fees as a condition of employment.

Article By:

Timothy M. McConville

Of:

Odin, Feldman & Pittleman, P.C.

Employer Email Policies on Chopping Block as General Counsel Seeks to Overrule Register Guard and Board Calls for Amicus Briefs

In a development of importance to both union and non-union employers, the NLRB General Counsel has asked the NLRB to overrule its 2007 decision in Register Guard, 351 NLRB 1110 (2007). In Register Guard, the Board had held that employers could bar employee use of the employer’s email for non-business purposes, including union or other communications protected under Section 7 of the National Labor Relations Act, so long as the employer did so on a non-discriminatory basis.

The General Counsel now seeks a new rule that employees may use employer email for union or other Section 7 protected purposes so long as doing so does not impede production or workplace discipline. The Board has issued a notice the case, Purple Communications, Inc., Case Nos. 21-CA-095151, 21-RC-091531 and 21-RC-091584, inviting interested parties to file amicus briefs by June 16, 2014.

In its notice, the Board asked the amicus briefs to address the following questions:

Should the Board reconsider its conclusion in Register Guard that employees do not have a statutory right to use their employer’s email system (or other electronic communications systems) for Section 7 purposes
If the Board overrules Register Guard, what standard(s) of employee access to the employer’s electronic communications systems should be established? What restrictions, if any, may an employer place on such access, and what factors are relevant to such restrictions?
In deciding the above questions, to what extent and how should the impact onthe employer of employees’ use of an employer’s electronic communicationstechnology affect the issue?
Do employee personal electronic devices (e.g., phones, tablets), social media accounts, and/or personal email accounts affect the proper balance to be struck between employers’ rights and employees’ Section 7 rights to communicate about work-related matters? If so, how?
Identify any other technological issues concerning email or other electronic communications systems that the Board should consider in answering the foregoing questions, including any relevant changes that may have occurred in electronic communications technology since Register Guard was decided.

How should these affect the Board’s decision?

The Board also invited amici to submit “empirical and other evidence”, which most likely means studies showing how employees use email in the workplace, how much productive time is lost because of over-use of email, and the like. It is also possible the Board’s eventual decision could have an impact on other types of employee communications through various electronic devices and social media.

It has long been anticipated that the new Board and General Counsel would want to revisit the Register Guard decision. Now that the time has come, it will be important for employers to engage as amici in an effort to shape the outcome and provide all Board members — including possibly dissenting ones — with both legal analysis and practical and operational considerations that should inform the Board’s policy choices in this important area.

Article By:

Ronald Meisburg

Of:

Proskauer Rose LLP

Unpaid Employer Contributions as Plan Assets: Expansion Of Liability Under ERISA (Employee Retirement Income Security Act)

The Employee Retirement Income Security Act of 1974, as amended (“ERISA”), requires trustees of multiemployer pension and benefit funds to collect contributions required to be made by contributing employers under their collective bargaining agreements (“CBAs”) with the labor union sponsoring the plans. This is not always an easy task—often, an employer is an incorporated entity with limited assets or financial resources to satisfy its contractual obligations. In some instances, an employer will resort to filing for bankruptcy to obtain a discharge of its debts to the pension or benefit funds.

In a distinct trend, federal courts have found that, depending on the text of the underlying plan documents, unpaid employer contributions due under a CBA may be viewed as plan assets, such that the representatives of an employer who exercise fiduciary control over those plan assets can be held individually liable for the unpaid amounts (together with interest and penalties) under ERISA. These cases will no doubt help plan trustees and administrators collect monies owed to the plan. They also should serve as cautionary warnings to contributing employers to ensure that they fully understand the obligations that they are undertaking when they agree to contribute to ERISA funds pursuant to CBAs.

Background

In the typical scenario, an employer will agree under one or more of its CBAs to make specified contributions to fund the pension and health and welfare benefits promised to plan participants under the trust fund’s plan of benefits. If an employer fails to timely remit those payments in violation of the CBA and the plan’s rules, the trustees of the fund have a legal duty to attempt to recover the unpaid contributions unless, after fully examining the facts and circumstances, the trustees conclude that the likelihood of recovery is outweighed by its costs. What happens if the trustees expend the fund’s resources to seek to collect the unpaid obligations and obtain a judgment against the employer, only to find the company’s coffers empty? Or what if the company files for bankruptcy?

Unlike employee contributions, which under U.S. Department of Labor regulations are explicitly deemed to be plan assets, employer contributions are typically found to be contractual obligations that do not become plan assets until such amounts are paid by the employer to the trust fund. Hence, while an employer’s failure to remit an employee contribution relegates the employer to the status of an ERISA plan fiduciary because it is has authority and control over plan assets, employer contributions have generally been held not to constitute plan assets. As a result, an employer who fails to make its contributions due under the CBA may have committed a contractual violation but has not breached an ERISA fiduciary duty.

The Potential for Individual Fiduciary Liability

Recently, courts have regularly carved out an exception to the general rule that unpaid contributions are not plan assets by finding that employer contributions are plan assets where the CBA explicitly defines them as such. In such cases, these courts will then proceed to consider the next question of whether the officers, directors or other representatives of such employer exercised a level of control over corporate assets sufficient to make them an ERISA plan fiduciary and thus individually liable for the contributions—effectively stripping them of the protections of the corporate form. Furthermore, if elevated to the status of a fiduciary breach, the debt may not be dischargeable in a bankruptcy proceeding. Thus, the plan could proceed to collect the unpaid contributions against the principals of the debtor personally.

For over a decade, some federal district courts in the Second Circuit have applied a two-part test in delinquent employer contribution cases to find that: (i) such contributions are plan assets when so specified by the CBA; and (ii) the principals of the employer are an ERISA plan fiduciary. More recently, the Second Circuit concluded that delinquent contributions were not plan assets where there were no provisions in the relevant plan documents that stated that unpaid contributions are assets of the plan. See In re Halpin, 566 F.3d 286 (2d Cir. 2009). The Court expressly stated, however, that “the trustees were free to contractually provide for some other result.” It further noted that merely finding that delinquent contributions constitute plan assets does not end the inquiry. A court must also determine whether an individual defendant has exercised sufficient fiduciary conduct over the unpaid contributions to be found to be a plan fiduciary under ERISA.

While the Court’s statements were extraneous to the holding of the case, some district courts within the Second Circuit have seized upon this language and have cited In re Halpin for the proposition that employer contributions can be plan assets where the plan documents so provide. See, e.g., Trustees of Sheet Metalworkers Int’l Assoc. v. Hopwood, 09-cv-5088, 2012 WL 4462048 (S.D.N.Y. Sept. 27, 2012); Sullivan v. Marble Unique Corp., 10-cv-3582, 2011 WL 5401987, at *27 (E.D.N.Y. Aug. 30, 2011).

Similarly, the Eleventh Circuit, in ITPE Pension Fund v. Hall, 334 F.3d 1011 (11th Cir. 2003), held that delinquent contributions can constitute plan assets when explicitly provided for in the plan documents and corporate officers are plan fiduciaries with respect to those assets. The Court demanded a high level of clarity in the plan documents, however, regarding the delinquent contribution’s status as plan assets. It explained that when a corporation is delinquent in its contributions, the fund “has a sufficient priority on the corporation’s available resources that individuals controlling corporate resources are controlling fund assets. This in effect places heavy responsibilities on employers, but only to the extent that . . . an employer freely accepts those responsibilities in collective bargaining.”

In addition, district courts in the Third, Fourth, and Ninth Circuits have found that employer contributions constitute plan assets when the plan documents so provide. See, e.g., Trustees of Construction Industry and Laborers Health & Welfare Trust v. Archie, No. 2:12-cv-00225 (D. Nev. Mar. 3, 2014) (holding that unpaid contributions were plan assets based upon the CBA’s language and finding that the company principals’ acts and responsibilities demonstrated sufficient control and authority over the company’s operations and financials to qualify as ERISA fiduciaries); Galgay v. Gangloff, 677 F. Supp. 295, 301 (M.D. Penn. 1987) (refusing to dismiss fiduciary breach claims for alleged failure to pay delinquent contributions based upon the “clear and undisputed language [of the agreement] stating that title to all monies ‘due and owing’ the plaintiff fund is ‘vested’ in the fund,” rendering “any delinquent employer contributions vested assets of the plaintiff fund.”; Connors v. Paybra Mining Co., 807 F. Supp. 1242, 1246 (S.D.W.V. 1992) (finding company officers personally liable for delinquent contributions that were plan assets based upon CBA’s language since they breached their fiduciary duty by exercising authority over those assets by favoring other creditors over the fund); see also Secretary of Labor v. Doyle, 675 F.3d 187 (3d Cir. 2012) (holding that district court erred in failing to determine whether payments collected from various employers were plan assets subject to ERISA).

District courts in the Sixth Circuit have even signaled support for finding that contributions are plan assets as soon as they become due, “regardless of the language of the benefit plan.” See, e.g., Plumbers Local 98 Defined Benefit Funds v. M&P Master Plumbers of Michigan, Inc., 608 F. Supp. 2d 873, 879 (E.D. Mich. 2009) (holding company principal personally liable for delinquent contributions since “the CBA and trust agreements . . . treat these unpaid contributions as inalienable plan assets” and signaling support for holding delinquent contributions plan assets “regardless of the language of the benefit plan.”).

In a related context, a federal bankruptcy court recently refused to discharge a debtor’s debt for delinquent contributions based upon the Bankruptcy Code’s “defalcation in the performance of fiduciary duty” exception. See In re Fahey, 494 B.R. 16 (Bankr. D. Mass. 2013). Although the court initially found that the debtor lacked the necessary discretion for fiduciary status under ERISA because the “option to breach a contract does not constitute discretion in the performance of one’s duty,” the United States Bankruptcy Appellate Panel for the First Circuit reversed. The Panel ruled that “even if an ERISA fiduciary does not per se satisfy the § 523(a)(4) requirement for ‘fiduciary capacity,’ an analysis of [the Debtor’s] control and authority over the plan in functional terms nonetheless yields the conclusion that he acted as a fiduciary of a technical trust imposed by common law.” On remand, the bankruptcy court found that the debtor prioritized payments that were personally beneficial over his obligations to the ERISA funds and, consequently, committed defalcation as contemplated by the Bankruptcy Code.

View from Proskauer

Although the general rule that employer contributions do not constitute plan assets until actually received by the trust fund continues, recent decisions indicate an increased willingness by courts to carve out an exception to this rule. Funds looking to protect their ability to collect contributions should explicitly define in the plan documents and agreements with employers that plan assets also include all unpaid contributions in the hands of the employer. Employers should be fully cognizant of these provisions; otherwise its officers, directors and other representatives who choose to pay other creditors rather than the trust fund might be held personally liable for the unpaid amounts and interest and penalties, and possibly be unable to escape this liability through bankruptcy.

Article By:

Neal S Schelberg

Aaron Feuer

Of:

Proskauer Rose LLP.

Tag: union

2015 Union Membership Rate Relatively Stable Despite New NLRB Election Rules

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Supreme Court Poised to Strike Down Union Agency Fees for Public Employees?

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