In Central States v. Wingra, No. 21-cv-3684, 2023 WL 199360 (N.D. Ill. Jan. 17, 2023), the district court held that an employer expelled from a multiemployer pension plan may not owe withdrawal liability because the permanent cessation of the employer’s obligation to contribute was not voluntary.  While the court subsequently limited the decision as being for discovery purposes only (see Central States v. Wingra, No. 21-cv-3684 (N.D. Ill. Mar. 17, 2023)), the court allowed the employer to assert its challenge in the district court, rather than in arbitration, because the employer plausibly alleged that its expulsion from the plan was in bad faith.

Background

The plan expelled the employer because it was transferring work to non-union workers.  The plan assessed the employer over $58 million in withdrawal liability and filed suit to collect when the employer refused to pay.  The employer counterclaimed, alleging that its expulsion from the plan was arbitrary and capricious, and sought discovery on that basis.  The plan objected to the employer’s discovery requests, arguing that the employer waived its defenses by not timely commencing arbitration to challenge the plan’s withdrawal liability assessment, making the requested discovery irrelevant.

The Court’s Decisions

The court disagreed with the plan, holding that the employer never effectuated a “complete withdrawal” in the first place.  The court relied on the dictionary definition and common usage to conclude that the term “withdrawal” presupposes a voluntary act by the employer, and analogized the term to a general’s “retreat” or an employee’s “retirement,” both of which require a conscious decision by the actor.  In considering the definition of “complete withdrawal” in 29 U.S.C. § 1383(a)(1), which defines the term to mean “when an employer permanently ceases to have an obligation to contribute under the plan,” the court opined that the definition clarifies when a withdrawal is “complete,” not when a “withdrawal” occurs.  In reaching its decision, the court parted ways with other decisions in which district courts held that “voluntariness” has no bearing on whether an employer is deemed to have effected a “withdrawal.”  Having concluded that the employer did not “withdraw” within the meaning of the statute, the court held that the employer retained its defenses to the assessment and was entitled to the requested discovery.

While a subsequent motion for reconsideration was denied, the court clarified that its interpretation of the term “withdrawal” was for discovery purposes only, and that the parties would have an opportunity at summary judgment to argue whether there was a “withdrawal” within the meaning of the statute.  The court also clarified that the employer’s right to the requested discovery was predicated on its counterclaim, which the court reasoned equitably tolled the time for it to commence arbitration.

Proskauer’s Perspective

While the court clarified its decisions as being limited to discovery, employers are likely to rely on these decisions to argue that they do not owe withdrawal liability in other instances where their obligation to contribute ceased because of reasons beyond their control, such as where a union disclaims representation, the bargaining unit is decertified, the employer’s principal client terminates its relationship, or where there is a precipitous decline in the industry or the economy.  Employers may also seek to avoid the arbitration process altogether by alleging bad faith by the plan so they can dispute the basis for imposing withdrawal liability in district court.  Whether other courts will employ the same reasoning as in Wingra remains to be seen.

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Photo of Neil V. Shah Neil V. Shah

Neil V. Shah is an associate in the Labor & Employment Law Department and a member of the Employee Benefits & Executive Compensation Group, where he focuses on ERISA litigation.

Neil represents plan sponsors, trustees, and other fiduciaries in ERISA class actions for…

Neil V. Shah is an associate in the Labor & Employment Law Department and a member of the Employee Benefits & Executive Compensation Group, where he focuses on ERISA litigation.

Neil represents plan sponsors, trustees, and other fiduciaries in ERISA class actions for breach of fiduciary duty arising out of investment losses and prohibited transactions, as well as Department of Labor and other governmental and internal investigations.  Neil also counsels both employers and multiemployer funds regarding the assessment and collection of delinquent contributions and withdrawal liability.

Prior to joining Proskauer, Neil was an associate at a large regional firm, where he litigated individual and class actions involving challenges to insurer claims adjudication procedures under ERISA, fraud recoveries against healthcare providers, and claims for benefits.

Neil has authored several articles, including those published in the New Jersey Law Journal and Bloomberg National Affairs. He is also a frequent contributor to Proskauer’s Employee Benefits & Executive Compensation Blog.

Photo of Daniel Wesson Daniel Wesson

Dan is an associate in Employee Benefits & Executive Compensation and focuses on ERISA Litigation. His litigation practice ranges from complex class actions to individual benefit claims concerning all types of plans, including 401(k) and 403(b) plans, defined benefit plans and health and…

Dan is an associate in Employee Benefits & Executive Compensation and focuses on ERISA Litigation. His litigation practice ranges from complex class actions to individual benefit claims concerning all types of plans, including 401(k) and 403(b) plans, defined benefit plans and health and welfare plans.  Dan represents large corporations, individuals, multiemployer pension plans, insurers, benefit plan committees and independent fiduciaries.  Dan also advises clients on plan administration, benefits restructuring, risk assessment and government investigations.

Dan has coauthored multiple articles in the Benefits Law Journal and is a frequent contributor to Proskauer’s Employee Benefits & Executive Compensation Blog.

Dan earned his B.A. from Northeastern University and his J.D. from Georgetown University.  He was a member of the Georgetown Journal on Poverty Law and Policy.  During his first summer at law school and the following semester, he served in the Division of Plan Benefits Security at the United States Department of Labor in Washington D.C., where he was a Gary S. Tell ERISA Litigation Fellow.