ERISA-Sixth Circuit Rules That A Union’s Agreement To Indemnify An Employer For Its Withdrawal Liability Is Enforceable

In Shelter Distribution, Inc. v. General Drivers, Warehousemen & Helpers Local Union No. 89, No. 11-5450 (6th Circuit 2012), the plaintiff, Shelter Distribution, Inc. (“Shelter”), had filed suit against a union, General Drivers, Warehousemen & Helpers Local Union No. 89 (the “Union”), to enforce a provision of the collective bargaining agreement between them (the “CBA”). The provision in question (the “Provision”) obligates the Union to indemnify Shelter for any contingent liability Shelter may incur as a result of its participation in the Union’s multiemployer pension plan (the “Plan”). Shelter claims that, under the Provision, the Union is obligated to indemnify Shelter for any “withdrawal liability,” imposed upon Shelter with respect to the Plan by ERISA (specifically 29 U.S.C. § 1399(b)). The Union argues that the Provision is unenforceable-at least in so far as it requires indemnification for withdrawal liability-as a matter of public policy. The question for the Sixth Circuit Court of Appeals (the “Court”): is the Provision enforceable in this case?

In this case, the CBA between Shelter and the Union was scheduled to expire in November 2001. Pursuant to the CBA, the Union notified Shelter that it intended to re-negotiate the agreement. During negotiations, and prior to agreeing to a new contract, the Union disclaimed its representation of Shelter’s employees and terminated the collective bargaining process with Shelter. As a result, Shelter withdrew from the Plan. It was then assessed a withdrawal liability of $57,291.50. Shelter demanded that the Union indemnify Shelter for this amount pursuant to the Provision. When the Union refused, Shelter filed this suit.

The Court reviewed the provisions of ERISA, which relate to multiemployer plans and withdrawal liability, as well as prior case law. It noted that, factually, Shelter is the party that is primarily liable for the withdrawal liability, and the Union has merely agreed to indemnify Shelter for any such liability it incurs. Based on its review and the foregoing facts, the Court concluded that the Provision does not violate public policy. Therefore, the Court ruled that the Provision is enforceable by Shelter against the Union, so that the Union must indemnify Shelter for its withdrawal liability.

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