By: Ronald Kramer and Jim Goodfellow

On March 16, 2012, the Sixth Circuit Court of Appeals joined the Third Circuit in finding that when a union agrees in a collective bargaining agreement to indemnify an employer in the event that the employer is assessed multiemployer pension plan withdrawal liability, there is no violation of public policy.  In Shelter Distribution, Inc. v. General Drivers, Warehousemen & Helpers Local Union No. 89, Case No. 11-5450 (6th Cir.Mar. 16, 2012), the court affirmed the decision of the district court enforcing an arbitrator’s decision that the Union contractually was obligated to indemnify the employer, Shelter Distribution (“Shelter”), for the $57,291.50 of withdrawal liability Shelter was assessed by the Central States Pension Fund.

The collective bargaining agreement in question required Shelter to participate in the Central States Pension Fund, but it contained an indemnification provision, which provided in relevant part:  “The Union shall indemnify the Company for any contingent liability which may be imposed under the Multiemployer Pension Plan Amendments Act of 1980.”  Slip op. at 3.

Shelter sought to enforce this provision after it was assessed withdrawal liability.  The Union claimed that the indemnification agreement violated a public policy, allegedly established by the Multiemployer Pension Plan Amendments Act (“MPPAA”), that prohibits employers and unions from shifting withdrawal liability through a collective bargaining agreement.  The union claimed such burden shifting defeated the purpose of the statute.  Slip op. at 3.  Both the grievance arbitrator in finding for Shelter, and then the district court in enforcing the award, relied on Pittsburgh Mack Sales & Services, Inc. v. International Union of Operating Engineers, Local Union No. 66, 580 F.3d 185 (3d Cir. 2009), a Third Circuit decision finding a similar agreement enforceable.  Slip. op. at 3-4.

The Sixth Circuit, in a matter of first impression, agreed.  The court recognized that the MPPAA was enacted to minimize the financial burden to a retirement plan when an employer withdraws and to provide more security to employee retirement plans.  Yet Congress saw no problem with allowing a fiduciary (or an employer on the fiduciary’s behalf) to purchase liability insurance, and the court earlier had recognized a fiduciary could similarly contractually obligate a third party to indemnify it for that liability under ERISA.  The court saw “no logical difference” between contracting with an insurance company and negotiating an indemnification agreement with the Union.  The court saw no public policy concerns given that Shelter was still at all times primarily liable to the Fund; rather it simply had a contractual right to collect against the Union.  Slip op. at 7.  The court agreed with the Third Circuit in Pittsburgh Mack that such indemnification agreements are enforceable.

With two strong Circuit Court decisions finding withdrawal liability indemnification agreements are not void as against public policy, it will be harder for other courts or, for that matter, grievance arbitrators to find otherwise.  Employers that participate in multiemployer pension plans should consider negotiating such provisions.  Though they are very difficult to achieve, and may not be of much value if the union has no money, they can provide a possible source of funds in the event of an assessment.