ERISA-Seventh Circuit Rules That Employer Is Required To Make Contributions To A Pension Plan, Despite Oral Agreements To The Contrary

In Central States, Southeast And Southwest Areas Pension Fund v. Auffenberg Ford, Inc., No. 09-2964 (7th Circuit 2011), the plaintiff and its trustee (together the “Fund”) filed suit against the defendant, Auffenberg Ford, Inc. (“Auffenberg”) under ERISA, in order to collect unpaid contributions to the Fund. The Fund is a multiemployer pension plan. The district court granted summary judgment in the Fund’s favor, and Auffenberg appealed. The Seventh Circuit Court found that the terms of the collective bargaining agreement (the “CBA”) between the parties required Auffenberg to make the contributions in question to the Fund, despite oral agreements to the contrary. It therefore affirmed the district court’s decision.

In this case, when negotiating a CBA in 2001, John Green, a union official, orally agreed that Auffenberg’s obligation to contribute to the Fund would end when the CBA expired in five years (in 2006). But this condition was not memorialized in the CBA. Rather, the CBA contained an “evergreen clause”, under which all the terms and provisions of the CBA would remain in effect until a new CBA was negotiated, or until negotiations were terminated. Later, another union official, Scott Alexander, orally agreed that Auffenberg could stop making contributions to the Fund as of April 30, 2006, the day the CBA expired. After some correspondence, in which the Fund was given written notice of this oral agreement, it was agreed that Auffenberg’s obligations to make contributions to the Fund ceased at the end of February 10, 2007. But the Fund brought suit against Auffenberg for contributions for the period starting after April 30, 2006 and ending before the cessation date.

In analyzing this case, the Court said the issue is whether an oral agreement between Auffenberg and a union official to end Auffenberg’s contractual obligation to contribute to the Fund is enforceable, as long as written notice of this oral agreement is given to the Fund. The Court concluded that this agreement is not enforceable. Under ERISA, the terms of an employee benefit plan must be “established and maintained pursuant to a written instrument.” 29 U.S.C. § 1102(a)(1). Also, the Labor Management Relations Act (the “LMRA”) has a similar requirement. Here, the written “evergreen clause” in the 2001 CBA required Auffenberg to continue making contributions to the Fund after the CBA expired and until such time as the parties either entered into a new agreement or terminated negotiations. The LMRA and ERISA prevent a court from giving force to oral understandings between a union and employer that contradict the writings. This obtains even when written notice of the oral agreement is given to the union or its plan.

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