9th Circuit Weighs In on Successor Withdrawal Liability

The appellate court determined a district court did not properly review successorship factors.

In determining whether an employer was subject to the Multiemployer Pension Plan Amendments Act (MPPAA) rules for withdrawal liability when a contributing employer ceased operations, a district court misapplied the continuity of the workforce factor in determining whether another company was a successor employer, an appellate court found.

The 9th U.S. Circuit Court of Appeals said the district court had given too much weight to the continuity of the workforce factor. The appellate court held that the most important factor in assessing whether an employer is a successor for purposes of withdrawal liability is whether there is substantial continuity in the business operations between the predecessor and successor, as determined in large part by whether the new employer has taken over the economically critical bulk of the prior employer’s customer base.

In addition, the 9th Circuit found the district court applied incorrect measures to both the business continuity and workforce continuity factors. The district court had looked at the number of customers of the predecessor that the successor had continued to serve, but the appellate court said it should have considered invoices and calculated the amount of revenue the continuing customers generated—what the court called a market share factor.

As for workforce continuity, the appellate court found that the lower court failed to limit its calculation to just those employees covered by the multiemployer plan. Looking at just bargaining unit employees, the successor had hired a majority who had previously worked for the predecessor.

The 9th Circuit’s opinion in Resilient Floor Covering Pension Trust Fund Board of Trustees v. Michael’s Floor Covering, Inc. is here.