By Ronald J. Kramer.

Yes Virginia, sometimes ignorance is excusable, but never expect you will get away with it. In Jayeff Construction Corp. v. LIUNA, Case No. 05-cv-5027 (D.N.J. July 27, 2012), however, a construction employer did exactly that by getting a court to void two “short form” contracts obligating it to recognize the Laborers Union throughout New Jersey on “fraud in the execution” grounds.

Jayeff Construction (the “Company”) had operated for approximately 15 years as a non-union general contractor that would hire union subs or non-union subs, depending upon the job at issue. Even when it hired union laborers, it historically would do so without a contract. Seventy-five percent of its work statewide was non-union. In 2001, while the Company was working on a high profile hotel project with many union laborers, the union got the Company to execute a “project only” agreement for the hotel project. While the union’s standard “Short Form Agreement, Project Only Form,” incorporated by reference the full statewide Laborers contract by reference, by its terms the short form agreement limited the scope of the statewide contract to the one project.

The following year, the Company began construction on a shopping center. The Company repeatedly told the union it would not sign a statewide contract, but again consented to executing a project only agreement. This time, however, the union proffered for signature and the Company twice executed — once for a two month term, and then without a set duration — a generic standard “Short Form Agreement” binding the employer to the statewide contract. But for a sentence designating the project location, the two Short Form Agreements were very similar. Indeed, the union often would use the generic Short Form Agreement for project labor agreements and simply hand write in the applicable location. Handwriting on the first agreement noted the town of the project, but no one could identify whether it was added before or after the agreement’s execution. The renewed agreement had no location on it, written or typed. Also in in 2002, for a third project, the Company signed yet another generic standard Short Form Agreement without any reference to the specific project.

In 2004, despite the Company having worked without union objection on multiple non-union projects since executing the Short Form Agreements, the union claimed for the first time that the Company was a signatory to the statewide CBA, an agreement the Company had never seen, which was not to expire until 2007. The Company attempted to cancel its agreements, but the union refused. The Company then brought suit for a declaratory judgment.

After a bench trial, the district court found fraud in the execution. Fraud in the execution arises when a party executes an agreement with neither knowledge nor reasonable opportunity to obtain knowledge of its character or its essential terms. To demonstrate fraud in the execution, a party must show that he signed a contract that is radically different from that which he was led to believe he was signing.

Here the court recognized the Company’s long history of refusing to sign contracts, and its repeated statements to the union that it would not sign a statewide agreement. The court also noted that the union, for years after the execution of the generic Short Form Agreements, had not objected to the Company’s non-union jobs. Moreover, the union must have understood the generic agreements executed here to be project specific or else it would not have seen the need to execute new agreements when a new project was started — the initial “statewide” agreement would have covered it. Neither party had acted as if the Short Form Agreements bound the Company to the statewide agreement. Given the facial similarities between the Short Form Agreement and the Short Form Project Only Agreement, and the parties’ bargaining discussions, the court found the Company “was excusably ignorant of the contents of the short form agreements.” Accordingly, the court voided the Short Form Agreements.

The court’s findings saved the Company from contract breach claims as well as potentially significant delinquent contribution suits from the health, welfare and pension funds to which it would have been obligated to contribute for Company jobs statewide. It is very rare for a court to void a collective bargaining agreement on fraud in the execution grounds. The Company here was blessed with significant evidence of the parties’ intentions — something that often is hard to collect.

Many construction employers with large, diverse operations involving multiple projects run by different managers — not all of whom understand the consequences of signing a generic short form agreement — are at risk of becoming parties to union contracts whose scope and consequences are not fully recognized until years later. Union business representatives rarely provide the underlying copies of the contracts incorporated in short form agreements, and employers who do ask the right questions often fail to insure the agreements they sign reflect the answers given. This is true both as to the scope of the agreement (e.g., project specific or statewide) and as to whether the employer is executing a contract with the union as a construction industry employer pursuant to Section 8(f) of the NLRA or recognizing the union as the majority representative of its employees under Section 9(a). Critically, multiemployer funds are generally permitted to enforce agreements as written, regardless of what a union may have promised or the parties orally agreed upon. Construction industry employers must carefully keep track of what they sign and insure that when they intend to execute a site specific or project only agreement, the agreement truly is limited to that site or project. Jayeff is the rare exception, not the rule.