As all employers know, there are numerous reasons why it is critical to keep accurate records of employees’ hours worked, particularly for non-exempt employees. The First Circuit recently added yet another: failure to keep accurate records could require employers to show that they are not required to make hours-based contributions to ERISA-governed benefit plans (as opposed employees/benefit plans being required to show that employers are required to make those contributions). This potentially could open the door to significant increases in benefits contributions from employers.

In Central Pension Fund of the International Union of Operating Engineers and Participating Employers v. Ray Haluch Gravel Co., Docket No. 11-1944, the defendant, Ray Haluch Gravel Co., operated a landscape supply company. Haluch entered into various collective bargaining agreements (“CBAs”) with the International Union of Operating Engineers, Local 98, which operated a hiring hall. As part of those CBAs, Haluch agreed to contribute to various Union-affiliated employee benefit funds. Haluch’s contributions were based on the number of hours that employees performed work for the company that was covered under the CBAs. Eventually, the Funds audited Haluch’s records and asked for additional payments from the company based on work that they believed was covered under the CBA but had not been reported by the company. Haluch refused, and litigation ensued.

In the litigation, the Union and the various Funds argued that Haluch failed to maintain proper records of the work its employees performed (in particular, Haluch did not keep records of, or make benefits contributions for, the work performed by certain, unidentified employees who took over the job responsibilities of another employee for whom Haluch had kept records and made benefits contributions for in the past). Therefore, the Union and the Funds argued, Haluch should bear the burden of showing which employee hours were not covered work under the CBA.

The First Circuit agreed, noting that ERISA requires employers to “furnish to the plan administrator the information necessary for the administrator to make the [required] reports” under the plan. 29 U.S.C. § 1059. The Court then stated that “an employer cannot evade responsibility for benefit remittances by the simple expedient of failing to keep the records that the law requires.” Accordingly, the Court found that a failure to maintain proper records created a presumption that an employer was liable for all hours potentially representing covered work, unless it could offer evidence to allow for a more precise calculation.

The Court noted, however, that this burden-shifting is not automatic. Rather, a plaintiff still must show that at least some employees performed work covered under the plan and that the employer failed to keep adequate records of that work. However, if that showing is made, there will be a presumption that the employee benefit plans are entitled to receive hours-based benefit contributions. Of course, the employer still will have an opportunity to rebut that presumption through whatever evidence it can offer, but the lack of adequate records necessarily will hamper the employer’s efforts.

The Haluch case sends yet another warning to employers to remain vigilant about their recordkeeping practices. To that end, periodic self-audits could prove to be an invaluable tool to ensure that all records are kept up-to-date. If questions arise about the sufficiency of records, counsel should be consulted to explore the ramifications.