Recently, the Sixth Circuit Court of Appeals affirmed a District Court order, enforcing an indemnification clause in a collective bargaining agreement, requiring the Unionto indemnify the Employer for withdrawal liability.  In Shelter Distribution, Inc. v. General Drivers, Warehousemen & Helpers Local Union No. 69, the Court held that the provision in the collective bargaining agreement did not violate public policy.

The Employer and theUnionhad previously agreed to the following language in their collective bargaining agreement:

The Employer shall continue to contribute to theCentralStates, Southeast and Southwest Areas Teamsters Pension Fund, the sum of $49.00 per week per covered employee for the year beginning December 1, 1988, $55.00 per week for the year beginning December 1, 1999, and $61.00 per week for the year beginning December 1, 2000.  The Union and the members of the Bargaining Unit have agreed that only the liability of the Company to the Pension Benefit Plan of the Central States, Southeast and Southwest areas [sic] Pension Funds are, have been and shall be limited to the actual contributions it makes during the course of the past, present and future Contracts, and the Company shall not be liable for any other obligation or contingent obligation of any kind or nature whatsoever.  TheUnionshall indemnify the Company for any contingent liability which may be imposed under the Multi-Employer Pension Plan Amendments Act of 1980.

During the negotiations for a new collective bargaining agreement, theUnioninformed the Company that it disclaimed its representation of the employees of the Employer.  As a result, the Employer withdrew from the pension plan.  Subsequently, the Health and Welfare and Pension Funds imposed withdrawal liability against the Employer.

The Employer then demanded indemnification from theUnion.  TheUnionrefused and the Employer commenced a lawsuit in federal District Court, seeking to enforce the indemnification provision.  TheUnionargued that the provision violated public policy and alternatively argued that the issue must be arbitrated.  The District Court stayed the lawsuit and enforced the arbitration provision.

The matter was the arbitrated and the Arbitrator held that the indemnification provision was enforceable and did not violate public policy.  Subsequently, back in District Court, the Court upheld the Arbitrator’s award and ordered theUnionto comply with the indemnification provision.  That resulted in the appeal to the Sixth Circuit.

The Sixth Circuit Court of Appeals agreed with the District Court and the Arbitrator and joined the Third Circuit in holding that the indemnification provision did not violate public policy.

Employers should definitely consider negotiating this language into any future collective bargaining agreements.