By: Richard H. Wessels, Esq.

The poor economy has created another problem for companies with union contracts. Health welfare and pension funds are suffering, and they are using the audit process to generate income. We are seeing stepped-up activity by these trust fund auditors.

A company may feel they are 100% clean, but here is a common scenario: An employer makes contributions for truck drivers but does not contribute for loaders, helpers or part-timers. Then, along comes an auditor from the trust fund who has broad powers to audit books and records. The audit turns up inconsistencies between the labor contract and the contributions. A federal court lawsuit is then filed against the employer to collect back contributions, audit fees, late payment penalties, interest and attorneys' fees. Worse yet, auditors can go back up to ten years to collect contribution discrepancies.

As you can see, these problems can be substantial to a business, particularly in today's tough economic times. The problem is magnified by the fact that union trust funds have a set of rights totally separate from the rights of the union. In many situations, the trust funds are not bound by oral commitments made by union representatives or past practices under the contract. Here are some of the challenges frequently raised by trust fund auditors:

• Inconsistency between the contract classifications and contributions.

• Failure to contribute to funds on all hours worked.

• Employee status - Part-timers, temporary employees, independent contractors or other types of contingent workers.

• "Technicalities" such as payment of contributions for vacation, leaves of absence, workers comp, lay off, etc.

• Potential liability for sub-contracted work.

• Payments during probationary period, beginning of month of hire, and end of month of termination.

Unionized employers need to be alert to these potential problems and should pay close attention to exactly how trust fund contributions are administered. Liability turned up by a later trust fund audit can have a devastating impact.

In dealing with an audit, careful planning is advisable beforehand. There is no precise definition of books and records that the auditors can examine. Normal challenges can be raised on issues of relevance, unreasonable burden, non-existence of requested records, etc. Audits are usually pretty straight forward and routine but there are, of course, exceptions. In theory, the purpose of an audit is to assure that the employer is paying properly into the trust funds as required by the labor agreement. Sometimes there is another motive, but most audits are routine.

Usually the best employer strategy is to outwardly express an attitude of cooperation with the auditor but inwardly "play it close to the vest." In other words, an employer is normally best served by not being hostile or argumentive but to closely monitor all the auditor's activities and carefully determine what will be given to them. If copies of material are given to an auditor, exact copies of what is given should be maintained by the employer so that it will know later exactly what information the auditors have. Frequently having someone with the auditor who can explain things will be helpful.

After an audit, the employer will normally receive an audit report which may or may not include an indication that they believe there is a violation and that additional contributions are due. If there is a demand for additional contributions, there is normally a procedure and plenty of time to dispute the auditor's interpretation and, if appropriate, to negotiate a better deal. If it is not worked out, the trust fund can be expected to sue under ERISA in federal court.

Employers need to be alert to these problems. If an audit is demanded, close interaction and planning with counsel is advisable.