Employers Can Be Bound by Unsigned Collective Bargaining Agreements

The Alice-in-Wonderland world of contemporary employment law continually surprises employers. Assume, for example, you are a unionized employer with a signed labor agreement. That contract expires. You do not sign two successive three-year contracts despite several demands from the union that you do so. You’re feeling pretty good, especially because a 1968 Second Circuit decision, Moglia v. Geoghan, 403 F.2d 110, cert. denied, 394 U.S. 919 (1969), holds an unsigned labor agreement does not satisfy Taft-Hartley Section 302’s fund contribution requirements. Three decades later, on October 8, 1999, that same Second Circuit shakes up your world by holding you can be required to make fund contributions under one or more unsigned labor contracts if, by your conduct, you “adopted” those contracts. Brown v. C. Volante Corp., 1999 U.S. App. LEXIS 25350.

Moglia was a difficult case. Mrs. Moglia was a widow whose late husband worked for Elmhurst Contracting for 28 years before retiring in 1965. His application for a $200 per month pension would have been approved except for one problem: Elmhurst never signed any of the several labor agreements dating back over 12 years requiring those contributions. Elmhurst nevertheless made contributions for Moglia and others during those 12 years. Mrs. Moglia took up the legal fight when her husband died in August 1986. She lost and the Pension Fund refunded Elmhurst’s 12 years of contributions. The Second Circuit noted Elmhurst had never signed any labor agreement and held, under Taft-Hartley Section 302(c)(5)(B), that “a written agreement is necessary before payments can be made.” The Court sent Mrs. Moglia home empty-handed even though she argued Elmhurst had “adopted” the standard union contracts by making the stipulated contributions thereunder, paying union scale thereunder and participating without objection in several pension fund audits during those 12 years. Mrs. Moglia argued unsuccessfully that Section 302(c)(5)(B) “only requires a written agreement and not a signed written agreement.”

The Moglia decision shone like a beacon. It was followed over the years by many courts including the Fifth Circuit in Firesheets v. Ardoin, 134 F.3d 729 (5th Cir. 1998). In that case, the employer had been a signatory to a 1982-84 multi-employer labor contract, withdrew to conduct its own separate negotiations, never signed a new contract with the union but continued making contributions to the fringe benefit funds for another ten years. The employer also filed monthly contribution reports and kept revising its contributions upward as the union’s standard contract with other employers increased those contributions over that decade. The Fifth Circuit held the long-expired 1982-84 contract did not satisfy Taft-Hartley’s “written agreement” requirement.

Squaring the Second Circuit’s decision in Brown with its 1968 Moglia decision or with contrary decisions by other circuits such as Firesheets is almost impossible. In general, Moglia and Brown represent extremes. If you never signed a labor contract and continue to make fringe fund contributions, Moglia will protect you if you want to stop making those contributions. However, if you signed a labor contract somewhere in the dim past and have continued to make fringe fund contributions thereunder, Brown prevents you from stopping. This is true at least during the term of the current agreement that you never signed but, under Brown, “adopted” as a matter of law. If your situation falls somewhere in between Moglia and Brown, call your employment lawyer immediately.

Brown upheld claims for unpaid contributions by Teamster Annuity Job Training, Pension and Welfare Funds. The Second Circuit held those were proper claims not only under Taft-Hartley Sections 301 and 302 but also under ERISA Section 515, 29 U.S.C. Sec. 1145. That is another significant change since 1968 when Moglia was decided. ERISA was enacted in the interim, bringing with it many changes. One important change, which encourages lawsuits such as Brown, is that prevailing parties can recover both liquidated damages and their attorneys’ fees under ERISA. Taft-Hartley funds and unions who want to enforce contribution obligations under unsigned “adopted” labor agreements following Brown have important weapons in their legal arsenal.

The rapidly escalating economic stakes in such cases are demonstrated by Brown itself. The employer in that case was a family-run truck rental company, C. Volante Corp. It had signed the 1987-90 labor agreement but did not sign, despite several union efforts, either the 1990-93 or the 1993-96 labor agreements. However, the company continued to make contributions to the fringe funds as it had under the expired 1987-90 labor contract. It made those contributions faithfully each month on the funds’ standard remittance forms for the entire six-year period. The funds then conducted an audit. The company cooperated even though only one month of the period audited (June 1990 to September 1993) overlapped with the long-expired 1987-90 labor contact.

The audit showed the company owed $78,000, principally for work done by “outside trucks.” The company, acting without counsel, readily acknowledged it probably owed the money, including for the outside truckers, offered $35,000 as the only amount it could afford, and “as a thought for consideration” pointed out it hadn’t signed a union contract since 1989. The Trustees rejected this offer and sued. Five years of litigation dramatically raised the financial stakes. The 1999 Second Circuit victory means the company now has to pay $73,000 in contributions, $83,000 in interest, $83,000 in ERISA liquidated damages, and $40,000 for the Funds’ attorneys’ fees, for a grand total through the date of the appeals court’s decision of $279,000. It is unclear whether the company will additionally be found responsible for “adopting” the unaudited 1993-96 labor contract during which it also made fringe fund contributions. Presumably, the “adoption” nexus found by the Second Circuit ended once and for all when the company finally stopped making contributions in June 1996.

This company was found to have “adopted” the unsigned labor contract that succeeded the expired signed contract because

1. It submitted 61 successive remittance reports with monthly contributions, most with a typewritten phrase added by the company reading “in accordance with the terms of the standard industry agreement with Local 282, I.B.T.”

2. It cooperated with the funds’ audit covering the June 1990-June 1993 period even though it was only a contract signatory for one month (June 1990) during that period.

3. It did not dispute the audit findings including the conclusion it owed additional contributions for the “outside truckers,” acknowledged its “responsibility to the funds [that] we are not skirting” and offered $35,000 towards that obligation.

4. It paid union wages to its employees as specified in the unsigned “adopted” standard industry agreements in the same fashion that it made the increased fringe fund contributions specified in those unsigned agreements, especially under the 1990-93 contract.

This company closely followed the unsigned industry agreements. It paid the increased wage scales and the increased fringe fund contributions specified in those agreements. It also “adopted” the unsigned agreements in other respects. For example, it continued to check off union dues even though that dues check-off clause expired in June 1990 when the last signed contract expired.

The Second Circuit addressed Moglia only in a footnote, saying “we did not, however, graft a signature requirement onto Section 302(c)(5)(B).” That is true since that section requires only a “written agreement,” not a “signed written agreement.” However, that agreement is supposed to set forth the “detailed basis on which . . . payments are to be made” to a trust fund. The unsigned 12 years of contracts in Moglia and the unsigned six years in Brown all featured increased fringe fund contributions. Thus, the 1990-93 and 1993-96 unsigned Brown fringe fund contributions were higher than the expired 1987-90 contract so that expired contract, while a “written agreement,” did not set forth the detailed basis upon which contributions had to be made after June 1990. More significantly, the conduct of the employers in Moglia and Brown was virtually identical as far as the critical “adoption”legal conclusion is concerned. On this point, the Second Circuit can only state its conclusion that the employer in Brown, “unlike the employer in Moglia . . . manifested an intent to adopt the terms of the unsigned CBAs.” Thus, after three decades in a case with much less “adoptive conduct” (six years rather than twelve) by the employer, Mrs. Moglia’s “adoption” argument is finally accepted.

The Moglia no-liability rule now has a major exception where (1) there is a signed contract somewhere in the past and (2) the employer’s conduct manifests an intent to adopt subsequent unsigned contracts. Under this new construct, a company’s response to funds’ audit demands or remittance reports assumes major significance. One also wonders whether the poor employer found to have “adopted” the fringe fund contribution requirements under unsigned contracts will also be held to have adopted other common contract provisions, such as the union wage scale, the ban on subcontracting, and the endless other restrictions on employer action that appear in modern-day labor agreements. Only certain clauses, in other contexts, are deemed contractual and expire when a contract expires (no-strike, dues check-off, union shop). Presumably, unions will argue other contract provisions can also be “adopted” by an unsuspecting employer.

Many companies continue contract provisions, including fringe contributions, while they bargain for a renewal contract. Indeed, the NLRA generally requires this absent impasse or agreements between the parties. Employers who continue terms of an expired contract have to be careful they do not end up “adopting” the next contract. Finally, do not contribute to fringe funds with or without remittance reports or participate in fund-sponsored audits without calling your attorney first. C. Volante Company is at least a quarter-million dollars poorer because it didn’t follow that simple rule.

The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require and further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative.
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