A collective bargaining agreement (“CBA”) provision by which a union agrees to indemnify an employer for contingent liability to a multiemployer pension plan does not violate public policy and is enforceable, the U.S. Court of Appeals for the Sixth Circuit (KY, MI, OH, TN) has held. The issue was one of first impression for the court and apparently has been addressed by only one other federal circuit court to date, the Third Circuit (DE, NJ, PA, VI), which issued a similar opinion in 2009.
The present case arose after the union involved terminated negotiations with Shelter Distribution, Inc. (“Shelter”) during collective bargaining over a successor CBA and disclaimed representation of Shelter’s employees. This triggered the Teamsters Central States, Southeast and Southwest Areas Health and Welfare and Pension Fund to impose over $57 million in withdrawal liability against Shelter. Shelter then demanded indemnification for the withdrawal liability from the union pursuant to the following CBA provision:
The Union and the members of the Bargaining Unit have agreed that only the liability of the Company to the Pension Benefit Plan of the Central States, Southeast and Southwest areas [sic] Pension Fund are, have been and shall be limited to the actual contributions it makes during the course of the past, present and future Contracts, and the Company shall not be liable for any other obligation or contingent obligation of any kind or nature whatsoever. The Union shall indemnify the Company for any contingent liability which may be imposed under the Multi-Employer Pension Plan Amendments Act of 1980.
The union refused, and Shelter filed a lawsuit in federal district court to enforce the agreement. The district court first deferred ruled that the dispute must first be arbitrated in accordance with the CBA’s arbitration provision. Relying on the Third Circuit’s opinion, the arbitrator rejected the union’s argument that the indemnification provision was unenforceable as a violation of a public policy established in the Multiemployer Pension Plan Amendments Act prohibiting employers and unions from shifting withdrawal liability through a negotiated collective bargaining agreement. The arbitrator ruled in favor of Shelter, and the district court upheld the arbitrator’s award. The union then appealed to the circuit court, which affirmed the district court’s decision. The court noted that it has previously held that an agreement that purports to relieve a fiduciary from responsibility for a duty under the Employee Retirement Income Security Act (“ERISA”) is void as against public policy. However, a fiduciary’s agreement with a third party does not actually prevent the fiduciary from being held liable. Rather, it merely provides that the third party will compensate the fiduciary in the event that it is held liable. The court further noted that Section 410(b) of ERISA expressly allows a fiduciary to purchase insurance to cover any potential liability, and found that “there is no logical difference” between contracting with an insurance company for indemnification and contracting with a union to accomplish the same thing. Here, there was no shifting of liability that might violate public policy, because Shelter remained financially liable to the fund. The union simply agreed to reimburse Shelter, and that agreement is enforceable. Shelter Dist., Inc. v. General Drivers Warehousemen & Helpers Local 89, Case No. 11-5450 (6th Cir., 3/16/12).