Sheehan & Associates, P.L.C.

Contract pension payment requirements put company out of business

When dealing with contracts or agreements of any type, the decisions you make as a business owner can have far-reaching consequences. Sometimes, those consequences can be very detrimental to your business, which is why it is important to understand the legal issues surrounding any agreement or business situation.

One company in a nearby state is closing its doors after dealing with a legal issue related to its union pension fund. According to reports, the company is required to make pension payments for its union workers into the fund. The company president reports that the company has never missed a pension payment. However, the organization running the pension is suing the company for $2 million.

The reason for the lawsuit is based on how the agreement with the pension company is set up. If a company drops its pension payments by 70 percent or more, then the union agreement allows for that company to be fined. The $2 million in the lawsuit is associated with such a drop -- and allegations that the company in question is pulling partially out of the pension.

In reality, says the company's attorney, the company has simply reduced the number of employees it has from 35 to 14 over the past 10 years or so. The company reports that it has not been profitable since 2005, owing in part to a declining market for home construction.

Even if the drop in pension payments is related to a drop in employees, the company still owes the fine according to the union agreement. Assuming that the courts will side with the union agreement, the company president is closing the business and liquidating assets to pay the $2 million. While this is an extreme case, it is a great example of how a legal agreement can create large waves across your business in the future and why you should work with a legal professional before signing or agreement to anything.

Source: The Times Herald, "Port Huron Building Supply Co. to close by the end of March," Nicole Hayden, Feb. 15, 2016

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