Michael McNally | Fox Rothschild
A recent decision from the Southern District of New York reveals that courts may be inclined in some withdrawal liability cases to narrowly apply the building and construction industry exemption based on the nature and location of the work performed.
It is commonly understood by union contractors that contribute to a multiemployer pension fund on behalf of their employees that the building and construction industry exemption will protect them and they will not owe withdrawal liability if they cease operations. Only if they “go non-union” do they potentially face withdrawal liability.
While that is correct as a general proposition, some employers may discover that the exemption may not apply to them depending on the nature of the work their union employees perform and where they perform it.
How the Building and Construction Industry Exemption Works
In general, when an employer either completely or partially ceases to have an obligation to contribute to a multiemployer defined benefit pension plan, it has withdrawn from the plan. If the plan has unfunded vested benefits (UVBs), and depending upon the allocation method, the employer is then liable for their allocable share of the plan’s UVBs.
Congress, however, recognized the unique nature of the unionized building and construction industry – as it existed in 1980 – and crafted special rules for employers in the industry.
Under the building and construction industry exemption, an employer is deemed to have withdrawn from a plan only if it ceases to have an obligation to contribute to the plan, but continues to perform work of the type for which contributions were required in the trade and geographic jurisdiction of the collective bargaining agreement pursuant to which contributions were made within the five-year period following the cessation of the obligation to contribute.
That means that if a building and construction industry employer ceases operations, or discontinues performing work that was covered under the collective bargaining agreement, no withdrawal has occurred.
If on the other hand however, the employer terminates a collective bargaining agreement pursuant to which it made contributions, and continues to perform work of the type for which contributions were required in the jurisdiction of the collective bargaining agreement within the five-year period following termination, the employer has withdrawn.
Most commonly, withdrawal liability for building and construction industry employers will arise when an employer is no longer signatory to a collective bargaining agreement and operates non-union, thus not contributing to the pension fund, and either self-performs or subcontracts work covered by the former collective bargaining agreement. Less commonly, it may occur when an employer remains signatory to a collective bargaining agreement, but the collective bargaining agreement no longer includes an obligation to contribute to the plan.
On its face the exemption appears straightforward. But far less straightforward is the question of what constitutes work in the building and construction industry, and when the exemption applies to an employer.
The exemption covers an employer where “substantially all the employees with respect to whom the employer has [had] an obligation to contribute to the plan perform[ed] work in the building and construction industry.”
The phrase “substantially all” is not defined in regulations or guidance from the Pension Benefit Guaranty Corporation (PBGC), but has been consistently interpreted by courts to mean 85%.
The term “building and construction industry” is not defined in MPPAA and is given the same meaning in MPPAA as it has for purposes of the Taft-Hartley Act. Most courts have held that the term should be interpreted under MPPAA according to the case law under § 8(f) of the National Labor Relations Act.
The National Labor Relations Board has generally defined the term as “subsum[ing] the provision of labor whereby materials and constituent parts may be combined on the building site to form, make[,] or build a structure.”
The cases have made clear that certain work, although involved in building or construction of a “structure,” does not fall within the exemption because it is not performed on the “building site.” For example, neither the fabrication of materials in a manufacturing shop nor the delivery of materials to a site would qualify for the exemption.
More plainly stated, building and construction industry work is jobsite work, whereas work not performed on a jobsite is not.
But the law is less settled about specific nature of the work, and what constitutes a “building site.”
Telecommunications Installation
In Dycom Indus. v. Pension, Hospitalization & Benefit Plan of Elec. Indus., a federal judge confirmed an arbitration award assessing $13 million in withdrawal liability where the arbitrator applied a narrow reading of the exemption. The employer had a contract with Time Warner Cable and employed field technicians who completed cable installation and disconnections primarily at residential single and multi-family units. The general scope of work included running wire from a pole to a house or building and throughout the house to the actual device. The specific tasks typically included drilling wall anchors into the exterior of the home, running wire throughout the home, and then making connections to devices.
The employer argued that this constituted work in the building and construction industry for purposes of the exemption because its employees provided labor to combine materials at residential or commercial buildings to receive new or additional cable, Wi-Fi, internet, phone and security services. The Fund argued that the employer was not issued building permits for its work, and that telecommunications installation performed outside of new construction does not constitute work in the building and construction industry.
The arbitrator sided with the Fund, relying heavily on the fact that the employer almost never worked on new construction projects; rather it provided installation where residences had been prewired, which generally did not require any repairs or alterations to an existing building or structure. The arbitrator also considered relevant that the employer never obtained building permits for the work performed, that the employees did not have any qualifications or training to be a licensed/journeyman electrician, and that the employees were not paid the same rate as construction journeyman electricians.
The court confirmed the arbitrator’s award, finding in a de novo review that the arbitrator’s legal and factual analysis were sound.
The court’s and arbitrator’s rulings offer a narrow reading of the building and construction industry exemption that may surprise employers who believe their operations fell within the exemption. It is critical that construction industry employers with union operations have a thorough understanding of how the exemption may apply to their workforce when considering ceasing covered operations.
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