Court: Illinois-Iowa Pension Fund’s Audit Full of “Fallacies”

Several errors in an audit relied upon by Carpenters’ union-sponsored employee benefit funds were cited by the U.S. Court of Appeals for the Eighth Circuit June 20 in overruling a U.S. Dist. Court in Iowa’s  decision requiring an Iowa construction company to pay delinquent contributions to the funds. McKenzie Engineering entered collective bargaining agreements in 1994 with two United Bhd. of Carpenters locals. The bargaining agreements obligated McKenzie to contribute to the Carpenters Fringe Benefit Funds of Illinois.

Disputes arose when McKenzie replaced four carpenters on a project with nonunion workers. The Nat’l Labor Relations Bd. held that McKenzie’s action violated its agreement with the union. Shortly after this dispute, McKenzie signed a collective bargaining agreement with an Int’l Union of Operating Engineers local and assigned UBC work to IUOE. According to the appeals court, an unfair labor practice charge filed with the NLRB over this assignment has not been resolved.

The funds then hired a certified public accountant to conduct an audit of McKenzie’s payroll records and determined that McKenzie owed $49,160 in unpaid contributions. In the funds’ action under the Employee Retirement Income Security Act Section 515 to collect the contributions, the U.S. Dist. Court for the Southern Dist. of Iowa granted summary judgment in favor of the funds.

On appeal, McKenzie challenged the union auditors’ determination that the company owed contributions “for all hours worked by McKenzie employees that were not reported to any union fringe benefit fund.” Finding several faults in the union auditor’s determination, the appeals court noted that, during the audit, the funds claimed a right to contributions for all hours worked by employees “regardless of the kind of work they did,” and “even if they [were] not participants or beneficiaries of the Funds.”

According to the appeals court, “the many fallacies” of UBC funds’ calculation of the amount of unpaid contributions included listing “unreported” hours for: work not covered by the pertinent collective bargaining agreement; employees who were members of other craft unions; employees who worked during the relevant collective bargaining agreements period, but who worked on projects not covered by the agreements; and hours worked by IUOE.

As to the hours listed in the audit that were attributable to work performed IUOE, the appeals court noted that some of the work performed during the period was performed by UBC. However, because UBC failed to invoke the jurisdictional dispute procedures included in its bargaining agreement with McKenzie, the funds were not entitled to contributions for work assigned to IUOE. [BNA 6/29/00]