Sale of Assets - Withdrawal Liability of Purchaser

[ERISA25]

Company is selling assets (only at one particular location) and contributes to a multiemployer plan. Seller is also subject to CBA with union. The seller will be subject to withdrawal liability as a result of the sale. What can we do to protect the purchaser from incurring any liability associated with the withdrawal? I understand that the seller is liable, but is there any extra steps that can be taken to protect the purchaser? Is there an argument of successor liability, and if so, what is the best way to protect against that type of claim?

Thank you.

[Brian Haynes]

Assuming there is withdrawal liability, you are correct that ERISA imposes that liability on the seller. ERISA does not contain any authority to impose the seller's liability on the buyer as a successor employer. However, I note that under Section 4212© of ERISA, if there is a principal purpose to evade or avoid withdrawal liability, the pension fund may pursue its claim for withdrawal liability without regard for the transaction. As a general rule, an entity that purchases the assets of another entity does not assume the seller's liabilities. However, under federal common law successor liability doctrine, there may be an exception to this rule that may impose the withdrawal liability on the buyer. There are a number of factors that determine whether the buyer is considered a successor (e.g., acquired substantially all the assets and continued without interruption or substantial change, the seller's business operations, etc.). Assuming in your facts the buyer would likely be considered a successor (and you cannot adjust any factors post-closing that would change this), I would specifically state in the asset purchase agreement that the buyer is not a successor, obtain indemnfication for any such claim and/or adjust the purchase price for this potential liabiltiy. Hope this helps.

[ERISA25]

Assuming there is withdrawal liability, you are correct that ERISA imposes that liability on the seller. ERISA does not contain any authority to impose the seller's liability on the buyer as a successor employer. However, I note that under Section 4212© of ERISA, if there is a principal purpose to evade or avoid withdrawal liability, the pension fund may pursue its claim for withdrawal liability without regard for the transaction. As a general rule, an entity that purchases the assets of another entity does not assume the seller's liabilities. However, under federal common law successor liability doctrine, there may be an exception to this rule that may impose the withdrawal liability on the buyer. There are a number of factors that determine whether the buyer is considered a successor (e.g., acquired substantially all the assets and continued without interruption or substantial change, the seller's business operations, etc.). Assuming in your facts the buyer would likely be considered a successor (and you cannot adjust any factors post-closing that would change this), I would specifically state in the asset purchase agreement that the buyer is not a successor, obtain indemnfication for any such claim and/or adjust the purchase price for this potential liabiltiy. Hope this helps.

Very helpful. Thanks, Brian!