Withdrawal Liability of Construction Industry Employers May be Collectible After Bankruptcy

The Multiemployer Pension Plan Amendments Act (“MPPAA”), passed in 1980, imposes withdrawal liability on signatory employers that withdraw from multiemployer pension plans.  Under the MPPAA, “withdrawal” is defined as ceasing to have an obligation to contribute to the plan.  Once an employer withdraws, withdrawal liability is assessed via a mathematical formula which calculates the employer’s share of the plan’s unfunded liability. 

There is a special definition of “withdrawal” for construction industry employers.  An employer in the construction industry does not “withdraw” from a multiemployer pension plan unless the employer continues operating in the jurisdiction of the Collective Bargaining Agreement, or resumes operating in the jurisdiction within five years.  For this reason, many construction industry employers are able to file for bankruptcy and absolve themselves of withdrawal liability where there is no evidence that the employer has continued operating or resumed operating.

However, if a construction industry employer emerges from bankruptcy and then continues or resumes operating, a number of courts have held that withdrawal liability may be assessed in full.  They have reached this decision by determining that withdrawal liability is not a pre-bankruptcy claim that is subject to discharge by the bankruptcy court.  Accordingly, in the context of a Chapter 7 filing, a bankrupt debtor that does not “withdraw” per the terms of the MPPAA until after its bankruptcy petition is filed could arguably be assessed withdrawal liability in full.  Likewise, in the context of Chapter 11 or 13 filings, a bankrupt debtor that does not “withdraw” until after its bankruptcy plan is confirmed, can also arguably be assessed withdrawal liability in full. 

Furthermore, where a signatory employer files for bankruptcy and thereafter reemerges as a successor or alter ego company, it is relatively well-accepted that the withdrawal liability of the bankrupt company is enforceable against the successor company.  The seminal cases on this point are In re Goodman, 873 F.2d 598 (2d Cir. 1989) and NLRB v. Better Bldg. Supply Corp., 837 F.2d 377, 379 (9th Cir. 1988).

This is an unsettled area of law but one that concerns Trust Fund interests significantly.  It is important to know your legal options.  Should you have further questions or concerns regarding assessment of withdrawal liability against a bankrupt employer, contact your fund counsel.

By Jolene Kramer | December 3, 2014

Legal Developments