December 2012

By: James B. Sherman, Esq.

The Minnesota Court of Appeals recently held that a union benefit fund is an intended third-party beneficiary to a surety bond guaranteeing full payment of labor costs. The Court noted that, although the surety bond contract did not mention a duty to pay the funds, it did guarantee payment for all “labor and material used or reasonably required for use in the performance of the subcontract…” Here, the employer was obligated by a collective bargaining agreement to make fringe benefit contributions to the funds on behalf of its union employees. The Court held that the language of this agreement showed that the parties contemplated a benefit to the funds as a third party.

This case is just another example of the broad reach of trustees of union fringe benefit funds to secure payment to the funds. Courts frequently permit collection actions against related companies, so-called “control group” entities and even individual owners in certain cases. Attaching a performance bond as the court allowed in this particular case demonstrates that when employers commit to participate in union fringe benefit funds the commitment may be greater than they bargained for. Employers should carefully consider the potential repercussions of signing any contract with a union.