Is Your Union Contract a Ticking Time Bomb?

Typically, unionized employers have established amicable working relationships with the union representing their employees.  These labor management relationships often go back decades and the reasons for unionization long ago forgotten. 

Today, less than 10% of the USA’s private sector workforce is represented by a labor union.  However, some segments of the business world retain pockets of union strength.  The construction industry in many states is a good example.  Others are trucking, old-line heavy manufacturing, grocery, baking and meatpacking. 

It is seldom that day-to-day labor contract administration presents a major problem.  Contract negotiations can be contentious.  But, in today’s world these matters are eventually resolved, usually without strikes. 

So where’s the ticking time bomb?  TRUST FUND HEALTH WELFARE AND PENSION PLANS!  Some union contracts call for participation in company plans.  Others call for participation in what labor lawyers call Taft-Hartley trust funds.  These are jointly managed, large funds where the employer makes contributions on behalf of employees and benefits are paid by the fund. 

The problem usually is seen in a similar pattern of events.  For example, an employer makes contributions for truck drivers but does not contribute for loaders, helpers or part-timers.  Along comes an auditor.  He 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 to collect back contributions, audit fees, late payment penalties, interest and attorneys’ fees.  Worse yet, funds can go back up to ten years to seek 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 these 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.  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.
• 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.  They should pay close attention to exactly how trust fund contributions are administered.  Liability turned up by a later audit can have a devastating impact. 

Another similar time bomb is the issue of unfunded pension liability.  This is unrelated to audit issues, but can be even more troublesome.  Unfunded liability is the product of federal legislation some 20 years ago.  This liability is triggered upon withdrawal from a pension trust fund.  There is no liability if the pension fund is properly funded, but many union funds are not.  In some cases the liability can be so large that it makes selling or going out of business a practical impossibility.