Hiring non-union subcontractors may prove costly for some union employers.
Union employers that contribute to multiemployer plans should proceed with caution when hiring non-union subcontractors. Union employers are obligated to make contributions to various benefit funds for their own employees, but what about for subcontractors? Under some collective bargaining agreements (CBAs), if the subcontractor is a non-union employer doing covered work, the signatory employer may be obligated to make contributions for all hours worked by the sub’s employees.
Further, if an employer payroll audit reveals that covered work was performed by a non-union subcontractor, the signatory employer may get stuck with penalties, fees and interest that can exceed the principal contributions. Depending on the terms of the CBA, plan documents, trusts, and incorporated policies, the scope of the audit may be expanded as deemed necessary by the plans’ trustees. If an employer refuses to cooperate with the audit, the trustees may bring a federal lawsuit to compel the audit and collect contributions, interest, fees, and other damages under ERISA. Federal lawsuits and expansive audits can be disruptive and costly. Therefore, union employers should be fully informed of their obligations under the CBA, related trusts, and incorporated policies, especially before engaging the services of non-union subcontractors.
If you are a union employer and have any doubts or questions about your obligations under your CBA, seek answers from qualified legal counsel before rolling the dice.