Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...
ManWeb Services Inc. must keep defending claims by a multiemployer pension fund that the Indiana-based engineering firm is responsible for the $661,978 withdrawal liability assessed against a company it acquired in 2009.
The district court erred in assessing the factors to determine whether ManWeb was responsible for the liability as a successor firm, specifically whether ManWeb continued the business services offered by Tiernan & Hoover, also known as the Freije Company, the U.S. Court of Appeals for the Seventh Circuit held March 12.
ManWeb’s purchase of and use of Freije’s intangible assets, including its name, goodwill, trademarks, supplier and customer data, and trade secrets, and its retention of Freije’s key personnel weigh more heavily in favor of successor liability than the district court recognized, a three-judge panel said.
The decision is noteworthy for rejecting the district court’s approach, which “essentially” invited the “creation of an arbitrary exception for successor liability for big buyers.”
Successor liability under the Employee Retirement Income Security Act is generally imposed on an employer that substantially assumes a predecessor’s assets, continues the predecessor’s operations without interruption or substantial change, and has notice at the time of the acquisition.
The judges’ decision is the latest installment in a case that has gone twice to the Seventh Circuit in the past decade. In 2015, the appeals court reversed a district court ruling that ManWeb wasn’t responsible for successor liability. In that decision, the Seventh Circuit found that ManWeb had sufficient notice of Freije’s contingent withdrawal liability to satisfy the federal successor liability notice requirement.
In its latest decision, the appeals court rejected ManWeb’s argument that it lacked continuity of the business because it only started offering certain services after it bought Freije’s assets. ManWeb also argued that only a small fraction of Freije’s employees stayed and only a limited amount of ManWeb’s projects came from Freije’s contracts pending at the time of the purchase.
In rejecting these arguments, the court agreed with the fund that adopting this approach would undermine the policies of ERISA by creating what amounts to a “big buyer loophole for successor liability.” This approach would defeat a finding of continuity even where a large buyer in essence swallows a smaller seller whole and continues its business as part of the buyer’s business, the judges said.
The totality-of-the-circumstances analysis must focus more on the proportion of the seller’s workforce, business, and customers that move to the buyer, regardless of the extent to which they might be diluted in a much bigger buyer’s workforce, business, or customer base, the judges said.
Judge David F. Hamilton issued the opinion, which was joined by Judge Michael S. Kanne. Judge Daniel A. Manion issued a concurring opinion.
Ledbetter Parisi Sollars LLC represents the fund. Scopelitis Garvin Light Hanson & Feary PC represents ManWeb.
The case is Ind. Elec. Workers Pension Benefit Fund v. ManWeb Servs., Inc., 2018 BL 83491, 7th Cir., No. 16-2840, order vacating district court decision 3/12/18.
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