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Contractor Held Liable to Union Pension Fund Under Traveling Contractor Clause as a Result of Subs’ Use of Non-Union Labor
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June 22, 2009
Howrey LLP
The U.S. Court of Appeals for the District of Columbia has held that the traveling contractor’s clause in a contract with a union local obligated a general contractor working outside its home area to pay union pension fund benefits for work performed by subcontractors that employed non-union labor.
The Bricklayers and Trowel Trades International Pension Fund, through its trustee, sued the general contractor under the Employee Retirement Income Security Act (ERISA), 28 USC §1001, et seq., seeking employee benefit contributions based on two projects the contractor undertook in Florida. In response, the contractor challenged its liability under a Florida collective bargaining agreement, claiming that the requested contributions violated the Labor Management Relations Act, 29 USC §186, and asserting that the pension fund had failed to exhaust required arbitration procedures.
The District Court agreed with the general contractor and granted summary judgment. The union pension fund appealed, and the Court of Appeals reversed. Flynn v. Dick Corp., 481 F.3d 824 (D.C. Cir. 2007).
In 2002, the general contractor, which was based in Pennsylvania, was awarded contracts for two construction projects in Florida. Its subcontractors did not employ members of the International Union of Bricklayers and Allied Craftworkers.
In the past, the general contractor had used its own employees to perform the work it subcontracted on the two Florida projects. Its employees were members of the union, and the general contractor paid employee benefit contributions into the pension fund.
The general contractor had signed agreements with two bricklayers union locals in Massachusetts binding it to the terms and conditions of the locals’ current collective bargaining agreements and any successor agreements.
Successor local collective bargaining agreements contained traveling contractor's clauses that required signatory employers, performing any work covered by the agreement outside the coverage area of the agreement and within the coverage area of another union local, to abide by terms and conditions of the union agreement for the jobsite area.
The union pension fund sued the general contractor alleging that it had failed to make employee contributions required by the collective bargaining agreement that governed the locale of the two Florida projects. The pension fund claimed that the traveling contractor’s clauses bound the general contractor to the Florida collective bargaining agreement and that the agreement prohibited use of non-union subcontractors by the general contractor.
The U.S. District Court found that the plain language of the traveling contractor’s clause bound the general contractor to any Florida collective bargaining agreement that was in effect for the location of its Florida projects at the time work was performed. However, the District Court concluded that there was no valid union contract in existence in Florida obligating the general contractor to pay employee benefits into the pension fund because the contract document the fund submitted lacked provisions covering wages and contract duration, rendering it unenforceable. Rather, the District Court held, the document constituted only a standard form or draft agreement.
In addition, the District Court found that the Labor Management Relations Act precluded the contributions the pension fund sought. First, the nature of the agreement submitted by the fund failed to provide the “detailed basis” required for lawful contributions from an employer to a trust fund required by the act. The District Court also held that the contributions sought by the fund were not for the “sole and exclusive benefit” of the general contractor’s employees because its Florida projects were performed entirely by the “subcontractors' ineligible non-union employees” and no employees of the general contractor were eligible to benefit from any contributions based on the work of subcontractors on the Florida projects. Because the fund failed to establish that the requested contributions were for the “sole and exclusive benefit” of the general contractor’s employees, the District Court found the contributions prohibited by the Labor Management Relations Act.
The fund moved for reconsideration, challenging the District Court's conclusion that there was no valid union agreement in effect in Florida and that it did not provide a “detailed basis” for fund contributions at the time of the Florida projects. The District Court agreed with the fund that it had misconstrued affidavits and other evidence submitted by the fund and that the fund had in fact demonstrated the required “detailed basis” for contributions along with evidence of an enforceable Florida union contract. The District Court vacated its grant of summary judgment to the general contractor to the extent it was based on the absence of either an enforceable union contract or a detailed basis for benefit contributions under the act, but again granted summary judgment to the general contractor because the requested contributions were not for the sole and exclusive benefit of its employees as required by the act. The union pension fund appealed.
The pension fund claimed benefit contributions based on ERISA §515, which provides that every employer that is obligated to make contributions to a multiemployer plan under the terms of a collective bargained agreement shall, to the extent not inconsistent with law, make such contributions in accordance with the terms and conditions of such plan or such agreement.
The appeals court held that an employer's obligation to make benefit contributions under ERISA §515 arose from a collective bargaining agreement in the area where employer performed work.
The appeals court recognized that the purpose of a traveling contractor’s clause was to prevent employers that had signed contracts with union locals in one area from using non-union labor in another area. It also recognized that one employer’s failure to pay pension fund contributions increases the burden on other employers participating in the pension plan.
The appeals court held that the Florida union pension fund was entitled to recover as damages the benefit contributions it would received if the general contractor had fully complied with the traveling contractor’s obligations included in its agreement with one of the Massachusetts union locals.
While the National Labor Relations Act prohibits employer contributions to a labor organization, it provides an exception “with respect to the payment... of any money... in satisfaction of a judgment of any court or a decision or award of an arbitrator.” The pension fund asserted that the benefit contributions the general contractor owed were lawful under this exception because the general contractor had breached the union contract by hiring non-union subcontractors on its Florida projects. The general contractor claimed that an underlying judgment was necessary to invoke the exception.
The appeals court held that such a requirement would be cumbersome and duplicative, requiring two separate litigations: an initial determination of breach and a second enforcement proceeding. Instead, once the court finds that a valid contractual provision has been breached, the “satisfaction of a judgment” language of is met and the same court may award damages for the violation.
Because the general contractor had breached the Florida union contract by hiring non-union subcontractors, the appeals court reversed the District Court and found that the pension fund was entitled to damages equal to what the pension funds would have received if the agreement between the defendant and the union had been fully performed by all parties.
The general contractor also argued that the pension fund could not bring suit without first complying with the compulsory arbitration provision contained in the Florida union contract. The appeals court noted that the arbitration clause was in a contract between the union and employer and not in a contract between the pension fund and the employer. It held that in the absence of an unambiguous expression by the parties to the contrary, pension funds are not required to exhaust arbitration procedures in collective bargaining agreements before filing an action for collection of delinquent contributions to the pension fund. The pension fund was, therefore, entitled to file suit for delinquent contributions without first arbitrating. However, the appeals court held that to the extent the pension fund sought to recover dues, it had to comply with the arbitration provision.
The appeals court also remanded certain evidentiary and procedural issues to the District Court.
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For more information about the issues covered in this report, please contact Paul Berning in our San Francisco office at 415-848-4996 or at paulberning@howrey.com or contact your Howrey attorney. For more information about Howrey’s Construction Practice Group, click here.
©2009 Howrey LLP
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