Explore the complexities of M&A deals involving union employees in our latest blog post. Learn from the case of International Painters And Allied Trades Industry Pension Fund v. Hess Glass Company and the potential risks for asset buyers.
M&A Stories
October 26, 2023
Introduction:
In the world of M&A, an asset buyer taking over a business with union employees must tread carefully. This case, International Painters And Allied Trades Industry Pension Fund v. Hess Glass Company, sheds light on the challenges and potential pitfalls of such acquisitions.
The Backstory:
Hess Glass Company, a business specializing in glasswork and glazing, employed union workers and was bound by a collective bargaining agreement (CBA). It also had pension fund obligations. However, in 2010, Hess Glass Company ceased operations and stopped contributing to the pension fund. A buyer stepped in to acquire their assets. Importantly, this new buyer did not employ union workers.
The Pension Predicament:
A decade later, the pension fund came knocking, demanding a hefty $338,000 from the buyer. The reason? The pension fund argued that the buyer was the successor to Hess Glass Company. A legal battle ensued.
Legal Limbo:
The court’s decision was pivotal. It denied both parties’ summary judgment motions. In essence, the court held that the buyer could be on the hook for the seller’s pension liability if certain conditions were met. These conditions included purchasing most of the seller’s assets, maintaining similar operations, and having prior knowledge of the pension liability.
Crucial Considerations:
The case’s facts were not crystal clear. On one hand, the buyer utilized the seller’s tangible assets and operated from the same location. On the other hand, the seller’s owner had no equity in the business. The extent of similarities in logos, management, workforce, and business services was also disputed. The key takeaway here is that the buyer’s owners were former employees of the seller, and they were aware of the union worker pension benefits. This highlights the importance of seeking legal counsel well-versed in pension liabilities during such deals.
Mitigating the Risk:
In hindsight, this risk could have been managed if the seller had sold the business to the buyer through bankruptcy. A bankruptcy sale can often be executed free from existing pension liabilities. Unfortunately, the case doesn’t provide clarity on whether the seller could have qualified for bankruptcy.
In the intricate world of M&A, the involvement of union employees adds an extra layer of complexity. This case serves as a stark reminder that such acquisitions require meticulous planning and legal expertise to avoid unexpected pension liabilities down the road.
Case Reference:
International Painters And Allied Trades Industry Pension Fund v. Hess Glass Company, Civil Action No. RDB-21-2162 United States District Court, D. Maryland (September 11, 2023).
By John McCauley: I write about recent legal problems of buyers and sellers of small businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Podcasts https://www.buzzsprout.com/2142689/12339043
Check out my books: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles and Selling Assets of a Small Business: Problems Taken From Recent Legal Battles
Legal Disclaimer
The blogs on this website are provided as a resource for general information for the public. The information on these web pages is not intended to serve as legal advice or as a guarantee, warranty or prediction regarding the outcome of any particular legal matter. The information on these web pages is subject to change at any time and may be incomplete and/or may contain errors. You should not rely on these pages without first consulting a qualified attorney.
Recent Comments