Court Upholds Funds' Objection to Collective Bargaining Agreement

July 25, 2006 ( - The US District Court for the Eastern District of Michigan ruled that a pension fund did not step over pension law when it refused to approve a collective bargaining agreement that employees of a Michigan trucking company reached with their employer.

A collective bargaining agreement between the Landstar Ranger employees’ union and Landstar covers the employees. Until recently, the employees were participants in two welfare funds: theCentral States , Southeast and Southwest Areas Pension Fund and theCentral States , Southeast and Southwest Areas Health and Welfare Fund, which are the defendants in Slenczka v.Central States , Southeast and Southwest Areas Pension Fund.

According to the court’s opinion, Central States requires that participating employers follow an “adverse selection rule,” preventing the employer from manipulating their workforce so that participating in the pension fund is limited to only those individuals who are most likely to obtain a vested pension and receive the highest pension benefits. The rule also bars employers from manipulating the workforce so that participation in the Health and Welfare Fund is limited to employees whose claims will, on average, be higher than the norm.

Prior to a 1995 to 1999 collective bargaining agreement, the funds investigated Landstar for violating the adverse selection rule by reducing the number of employees who contributed to the fund to 165 employees from 309 employees. Landstar said the reduction was a result of a shift away from hiring owner-operator employees to hiring non-employee owner operators, who are not allowed to make contributions.

The shift was draining the fund because newer, younger employees could afford to contribute more but were not allowed to, and older employees were pulling out a lot more money from the fund.

After the funds agreed to terminate the agreement in 1995, Landstar agreed to a number of concessions, which included a requirement that all new hires would participate in the funds and that Landstar would make its best efforts to hire 15 new employees, replace outgoing employee owners with new employees of the same designation, increase the number of employees participating in the funds and maintain a level of at least 222 participants.

Landstar faltered on that agreement and the number of employees participating in the fund dropped to 80.

After Landstar omitted the concessions that it had made in 1995 in its 2000 to 2005 collective bargaining agreement, upon which the trustees of the funds based their approval of the previous collective bargaining agreement, the funds rejected Landstar’s request for a 2000 to 2005 collective bargaining agreement.

Landstar argued that by refusing the agreement, the funds breached their fiduciary duties under ERISA and discriminated against Landstar on the basis of age.

The court rejected both of claims brought by Landstar employees against the funds. In the court opinion, Judge Nancy Edmunds wrote that the “[f]unds’ adverse selection policy is a justifiable means to protect the health of the Funds, albeit perhaps at the expense of some individual members.” In response to the discrimination claim, the court said the funds’ decision to dump to agreement “was based on a desire to sure that the funds remain adequately funded for all participants.”