Court Rules that Employee Benefit Trust Fund Has Mechanic’s Lien Rights

 By: Ryan J. Hatton

The Minnesota Court of Appeals recently decided that the trustees of an employee-benefit trust fund may enforce an employer’s obligation to contribute to the fund through a mechanics’ lien action against real property improved through the labor of the employees. Twin City Pipe Trades Service Association, Inc. v. Peak Mechanical, Inc., 689 N.W.2d 549 (Minn.App. 2004). This was the first time a Minnesota court specifically held that an employee benefit trust fund can enforce a mechanic’s lien, although this has long been the law in such neighboring states as Iowa and Wisconsin.

 So, what does this mean? We always believed that an individual employee has had the right to enforce a mechanic’s lien for the value of his or her contribution of labor to the improvement of real property if the employer failed to pay that employee. The situation of an employer failing to pay its employees, however, is rare. And it is even more rare that an employee who has not been paid has the acumen to navigate the legal hurdles involved with perfecting and foreclosing a mechanic’s lien. It is more common for a construction company that is a party to a collective bargaining agreement to fall behind in making its contributions to the employee benefit trust fund (which is often required by the collective bargaining agreement). The Twin Cities Pipe Trades Service case makes it clear that if an employer does not make the required contributions to the employee benefit trust fund, the trustees for the trust fund may enforce the employer’s obligation on behalf of the individual employees by filing a mechanic’s lien against the real property that the employees have been improving.

 The ruling in Twin Cities Pipe Trades Service raises issues for both owners and general contractors. Owners need to know whether the general contractor (or any subcontractor of the general contractor) is party to a collective bargaining agreement. Likewise, general contractors need to be aware of the existence of any collective bargaining agreement requiring payment into an employee benefit trust fund by any of the general’s subcontractors. If a collective bargaining agreement is in place, the employee benefit trust fund should be treated like any other supplier on a construction project. It is critical for owners/general contractors to obtain mechanic’s lien waivers from the trustee of any employee benefit trust fund prior to (or concurrent with) making final payment to the entity (general or sub-contractor) that is party to a collective bargaining agreement.

 In the event the trustee of an employee benefit trust fund files a mechanic’s lien statement on a specific project, the owner needs to carefully analyze the amount of the lien. Where a construction company has failed to contribute to the benefit fund, as required by its collective bargaining agreement, it will often be the case that company owes the fund for labor contributed to more than one project. It is therefore important to have an audit performed to verify the number of hours worked by the union workers on the project to ensure the amount stated on the face of the mechanic’s lien is for only the obligation incurred on the project that has been liened.

In sum, it is now clear that in Minnesota employee benefit trust funds must be considered when time for payment arrives. Owners and generals need to protect themselves from having to make double payment by obtaining lien waivers from the trustee of any employee benefit trust fund that had members provide labor to the improvement of real property.

 Ryan J. Hatton is an associate with Rinke-Noonan and practices in areas of construction law and litigation, Mechanic’s Liens, Bond claims, and land use litigation.