Are Principals Liable for Liquidated Damages to Unions for Unpaid Fringe Benefits?
We recently encountered this issue after we bankrupted our General Contractor client. Thereafter, the Union sought to obtain liquidated damages against the principals of the Bankruptcy Company since the company failed to pay fringe benefits. We argued that liquidated damages only applied to the employer (the bankrupt General Contractor) and did not extend to its principals. The Court agreed with us and made the following finding:
When an employer violates Section 515 of ERISA by failing to make contributions to employee funds as required by a CBA, the plan is entitled to recover the contributions, interest, liquidated damages, reasonable attorneys’ fees and costs, and all other appropriate equitable relief. 29 U.S.C. § 1132(g)(2).
ERISA fiduciaries cannot be held individually liable for liquidated damages and interest under 29 U.S.C. § 1132(g)(2). See Iron Workers’ Local No. 25 Pension Fund v. McGuire Steel Erection, Inc., No. 03-71056, 2004 WL 3105944 (E.D. Mich. Sept. 28, 2004)). Whether individuals within a company can be held responsible for damages under 29 U.S.C. § 1132(g)(2) is an open question. See Trustees of Bricklayers & Masons’ Local Union No. 5, Ohio Pension Fund v. VIP Restoration, Inc., No. 1:17-CV-01091, 2018 WL 2270949, at *8 (N.D. Ohio Mar. 2, 2018) (finding that a company principal officer liable for unpaid contributions, liquidated damages, and interest if the company is found liable after bankruptcy stay is lifted); see also Glencorp, Inc., 178 F. Supp. 3d at 604 (awarding $13,997.91 in liquidated damages against company and its principal); but see McGuire Steel, 2004 WL 3105944 at *10 (finding company president not subject to § 1332(g)(2), because he was not the employer, and was liable for only the unpaid contributions and interest).
However, the cases in which liquidated damages are awarded against individuals for violation of their ERISA fiduciary duties, the courts do not explain the reasoning behind the liquidated damage awards. The McGuire Steel court, on the other hand, explained that §1332(g)(2) applies to employers only, which the company president was not. Id. at *6. The Court finds the McGuire Steel court’s reasoning persuasive. The remedies under § 1132(g)(2) flow from delinquent contributions by an “employer who is obligated to make contributions to a multiemployer plan under the terms of the plan or under the terms of a collectively bargained agreement.” 29 U.S.C. § 1145 (emphasis added). Liquidated damages, on the other hand, “do not serve to make good to the plan any losses and do not constitute appropriate equitable relief . . . .” Bricklayers & Allied Craftworkers Local 2, Albany, N.Y. Pension Fund v. Moulton Masonry & Const., LLC, 779 F.3d 182, 190 (2d Cir. 2015).
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