Clark Hill Prevails in Landmark Arbitration Involving Multiemployer Pension Plan Withdrawal Liability

Clark Hill attorneys Daniel V. Kinsella and Amy Newton secured a significant arbitration victory involving the application of the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA) and its “5-Year Free Look Rule.”

The matter arose after a purchaser acquired the assets of a business in an arm’s-length transaction. As is common in many asset acquisitions, the purchaser continued operating the business with the same employees, entered into its own collective bargaining agreement (CBA) with the same union, and contributed to the same union pension fund as the seller. Four-and-a-half years later, the purchaser negotiated a new CBA with the union to withdraw from the fund. As a result, the employer ceased contributions to the fund within five years of making its initial contribution.

The pension fund asserted that the purchaser was responsible for withdrawal liability under the MPPAA and assessed liability based on both the seller’s and the purchaser’s contribution histories.

Clark Hill argued that the purchaser qualified for the MPPAA’s 5-Year Free Look Rule because it was a new employer rather than a continuation of the seller. The firm successfully demonstrated that the purchaser was neither an alter ego of the seller nor part of a single-employer relationship with the seller. Clark Hill further argued, and the arbitrator held that, although the purchaser qualified as a successor employer under the National Labor Relations Act, citing Golden State Bottling Co. v. NLRB, 414 U.S. 168 (1973), it was not a successor employer under the body of case law interpreting the MPPAA.

After ruling against the fund on the successorship issue, the arbitrator found that the purchaser was neither an alter ego employer nor a single employer with the seller. As a result, the arbitrator held that the purchaser’s eligibility for the 5-Year Free Look Rule must be evaluated based solely on its own contribution history rather than that of the asset seller.

The arbitrator ultimately determined that the purchaser was entitled to the protection of the 5-Year Free Look Rule and directed the pension fund to rescind its withdrawal liability assessment and refund the interim payments made by the employer.

The decision provides important guidance regarding the availability of the Free Look Rule following an arm’s-length asset acquisition. It also clarifies that, under the circumstances presented, a purchaser’s contribution history is not automatically combined with that of the seller for purposes of determining withdrawal liability, even when the purchaser continues the seller’s business without interruption. Instead, the newly created entity is entitled to its own contribution history and its own 5-year Free Look period.

This matter highlights Clark Hill’s depth in ERISA and labor relations law and demonstrates the team’s ability to navigate highly technical pension withdrawal liability issues carrying significant financial consequences for employers.