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Evergreen Clause in Collective Bargaining Agreement Costs Employer More Green in Minnesota

September 2009

By: James B. Sherman, Esq. and Chad A. Staul, Esq.

A federal court in Minnesota recently held that employers are bound by the terms of a so-called "evergreen" clause in collective bargaining agreements (CBA) under fundamental contract law principles. Trustees of Sheet Metal Local No. 10 v. Genz-Ryan Plumbing and Heating Co., Civ. No. 08-4752 (Jul. 17, 2009).

The employer's 2005 CBA was set to expire on April 30, 2008. However, the CBA contained what is commonly referred to as an "evergreen clause" whereby its terms would remain in effect from year to year unless proper notice was given to reopen negotiations. The evergreen clause also provided that if contract negotiations were reopened, the 2005 CBA would "continue in force and effect until conferences relating thereto have been terminated by either party."

Proper notice to reopen the CBA was given and negotiations took place over the next several months between March 17, 2008 and October 27, 2008. However, negotiations were unsuccessful and no new contract was achieved. The employer stopped making fringe-benefit contributions on April 30, 2008, because it believed it properly terminated "conferences" on that date when it gave the union notice of its "last, best and final" offer. In the ensuing lawsuit brought by the trustees of the union fringe benefit funds, the court disagreed with the employer's position, reasoning that although there was no statutory duty for the employer to remain faithful to the CBA after its expiration due to its status under section 8(f) of the NLRA, the employer had a contractual obligation to continue making contributions so long as "conferences" were ongoing. Consequently, the employer remained liable for fringe-benefit contributions under ERISA occurring after April 30, 2008, and continued to be bound by the 2005 CBA.

Employers need to be aware of "evergreen clauses" in negotiating labor contracts. The language of the CBA involved in this case represents a new breed of clauses used by unions to entrap employers into almost never being able to get way from the union. As this case illustrates, the terms of any evergreen clause need to be carefully reviewed before signing any union contract. Employers who fail to know what they are signing run the risk of literally becoming trapped in a contract for far longer than they originally had contemplated. We advise all employers to consult with knowledgeable counsel before entering into any union agreements.

Questions? Please contact WS Shareholder and Senior Attorney James B. Sherman or WS Attorney Chad A. Staul in our Minneapolis, MN office at (952) 746-1700, or jasherman@wesselssherman.com, or chstaul@wesselssherman.com.