Court Rejects Wife's Joint Liability for Withdrawal from Multi-Employer Pension Plan by Husband's Business

Last month, the Sixth Circuit reversed a wife’s liability and affirmed a husband’s liability for over $1M in withdrawal liability from a multi-employer union pension plan of a single member corporation formerly owned and managed by the husband several years earlier.  Local 499 v. Art Iron, Inc., No. 22-3925/3926 (6^th Cir. 9/26/24).   While the evidence showed that the husband was the sole owner of the defunct corporation and his consulting business, there was no evidence that the wife’s hobby business of making jewelry was regular and continuous as required. 

According to the Court’s opinion, the husband owned a corporation which wound up its business in 2017, stopped paying taxes, sold its assets and distributed some of its proceeds to the husband as the sole shareholder and director.  Prior to that time, he had taken profit distributions from the corporation and also charged it consulting fees from his consulting business (a single member LLC), which continued to operate for several years after the corporation was dissolved and paid him with 1099-MISC forms instead of W-2s.   He and his wife (who owned her own single-member jewelry- making hobby-business LLC) shared a minor son.  The pension plan then sued both husband and wife for withdrawal liability and the district court agreed that they were jointly and severally liable since their single-member LLCs were under common control with the defunct corporation.   Notably, the wife had never responded to the pension plan’s motion or sought judgment in her favor.

The spouses disputed that their respective LLCs were “trades or businesses” for purposes of withdrawal liability.  The Sixth Circuit noted that:

Section 1301(b)(1) provides that, for ERISA purposes, all employees of trades or businesses that are under common control with an employer signatory to the pension plan shall be treated as employed by a single employer and all such trades or businesses are treated as a single employer. 29 U.S.C. § 1301(b)(1). Under the statute, this means that a trade or business under common control with Art Iron is treated as a single employer with Art Iron. The “primary purpose of the common control provision is to ensure that employers will not circumvent their ERISA and MPPAA obligations by operating through separate entities.”

The Court had no difficulty finding the husband’s consulting business to be a “trade or business”:

As the primary shareholder of [the corporation], [the husband] controlled how his income was allocated to him. He chose to receive income from [the corporation] in three different ways, as (1) employee wages, (2) shareholder distributions, and (3) independent-contractor fees for his consulting services. There is nothing in the record that suggests [he] received these payments for any purpose other than as income or profit.

The second factor, whether an activity is regular and continuous, is also met. According to the record, [he] provided consulting services to [the corporation] for several consecutive years including the year that [it] withdrew from the Plan. This regularity and continuity make [his] consulting business a “trade or business” under Groetzinger.

The Court rejected his argument that his consulting fees were wages because his “argument fails to account for the fact that tax returns are considered sworn statements, and well-established precedent dictates that contradicting sworn statements does not create a genuine issue of fact.”

The Court reversed the judgment against the wife because her hobby jewelry business did not qualify when she did not earn income from it every year, including 2017. “Her minimal level of engagement in her jewelry enterprise in 2017 falls well below what other cases have required for establishing whether continuity and regularity in a trade or business existed.”  It also refused to hold against her her failure to oppose the pension plan’s summary judgment motion because a court may not grant judgment merely because the adverse party failed to respond.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit Addresses Union Issues Involving ERISA and Tacit Agreements on Arbitrability of Grievances in a Double-Breasted Shop

 Earlier this month, the Sixth Circuit Court of Appeals issued two interesting union-related decisions.  In one, it held the district court had jurisdiction to hear an ERISA claim even though the parties’ bargaining agreement had expired a years earlier because the union did not request the court to decide an unfair labor practice claim over the duty to maintain the status quo during negotiations. The other case involved whether a double breasted shop was subject to arbitration under the grievance procedure in a subsidiary’s bargaining agreement and whether the parent company had tacitly agreed to permit the arbitrator to decide the initial question of arbitrability by appearing at the arbitration.   The Court remanded the case to determine whether the parent company had tacitly agreed to permit the arbitrator (rather than a court) to determine arbitrability.  The Court also found that the employer’s motion to vacate the award was timely because it was filed within three months of the arbitrator’s supplemental award fixing damages even though it was filed four months after the arbitrator determined liability.

In Greenhouse Holdings v. Int’l Union of Painters and Allied Trades, the Kentucky employer owned 90% of a Tennessee subsidiary, which had a bargaining agreement and shared a similar name with the parent organization.  The union then filed an ambiguous grievance, which was submitted to arbitration.  The Union indicated that it believed that both the Kentucky and Tennessee operations were subject to the bargaining agreement while one management representative insisted that the Kentucky operations were non-union.  The arbitrator sided with the union and ordered wages paid to the Kentucky employees as well as the Tennessee employees.  The employer moved to vacate under the FAA.

The district court agreed that there was insufficient evidence that the employer had agreed that its Kentucky operations were subject to the bargaining agreement and had never signed the CBA.   However, the Sixth Circuit determined that this did not end the question and remanded the case for the trial court to re-examine the facts.  The employer may have tacitly agreed to arbitrate the arbitrability of the dispute (i.e., let the arbitrator decide whether it was subject to the bargaining agreement) instead of permitting a court to determine arbitrability.   If so, the court’s review of the issue would be much more limited and not de novo.

On one hand, the Union’s attorney suggests that Kinney spoke on behalf of Greenhouse at the arbitration. But on the other, Kinney states that he participated only on behalf of Clearview Tennessee. This dispute matters. If Greenhouse wasn’t at the arbitration, or if Kinney appeared on behalf of Greenhouse merely to object to the arbitrator’s authority, then the court can decide de novo whether Greenhouse was bound by the CBA. But if Greenhouse consented to arbitration and the question of whether it was bound by the CBA was clearly before the arbitrator, then a higher standard of review applies.

In Operating Engineers v. Rieth-Riley Construction, the Court reversed the dismissal of the union’s ERISA complaint, but noted that the case may still be ultimately dismissed (on summary judgment) for the same reason.  The union agreed to the termination of the 2013 multi-employer bargaining agreement and refused to accept ERISA contributions from the defendant employer, until the employer discovered an old bargaining agreement (which had expired and been replaced many years earlier), reflecting a previous 9(a) relationship with the union.  The employer insisted on negotiating a new agreement with the union and, thus, maintaining the status quo under NLRA rules.  The union accepted the contributions and then, a year later when negotiations had soured, sought to audit the employer for delinquent contributions and brought suit under ERISA to enforce payment of the allegedly delinquent contributions.  While the union could not attempt to litigate an unfair labor practice charge through ERISA, it could sue the employer for breach of contract under ERISA.  The lack of a live contract – since the bargaining agreement had expired and been replaced years ago – was not a jurisdictional requirement to bring an ERISA action, but it might result in the lawsuit being dismissed on summary judgment or at trial:

The trial court determined that the

source of the obligation . . . . acted as “an essential jurisdictional fact” that it had to “determine before proceeding forward.” . . . And here, [the employer] and the Funds “never entered into another contract” after the CBA expired.  Nor did any independent agreements bind the parties. Without a contract, the court found [the employer’s] contribution duty “[arose] solely” from its “statutory status quo obligation under federal labor law.” . . . . And without a contract, the court held it lacked jurisdiction to hear the Funds’ claim.  So it directed the Funds to the NLRB and dismissed their suit without prejudice.

                 . . . .

Here, the Funds brought an ERISA claim, not an unfair-labor-practices claim. They argued that [the employer] failed to make its “promised [contractual] contributions,” not that it violated the NLRA by refusing to bargain or maintain the status quo. . . . . Because the Funds ask us to find that [the employer] breached a contract, not that it violated the NLRA, their claim does not fall into Advanced Lightweight’s ambit.

Of course, in the end, the Funds’ contract claims may fall flat for the reasons the district court gave.  But those findings go to the merits of the Funds’ ERISA claim, not our jurisdiction to hear it. To the extent that the district court concluded otherwise, it erred.

                 . . .

[Assuming the employer] is right about the contracts; they don’t exist. Even so, a deficient contract claim by itself doesn’t  convert[] the Funds’ complaint into an unfair labor practice claim” and “divest[]” this court of jurisdiction. . . . . Rather, it would mean what a deficient claim always does in this context: The Funds lose on the merits.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

CEO Without Remedy Under ERISA When Deferred Comp Plan Fails to Comply with 409A

Last week, the Sixth Circuit Court of Appeals affirmed the dismissal of state law claims brought by a retired CEO who had been assessed tax penalties on account of deferring large amounts of his compensation under an executive deferred compensation plan without complying with IRC 409A on the grounds that the plan was covered by ERISA which, therefore, pre-empted the state law claims. Wilson v. Safelite Group, Inc. No. 18-3408 (6^th Cir. 7-10-19).  The Court found that deferred compensation plans which permitted distributions during periods of active employment as well as during retirement could still qualify as a pension plan under ERISA.  Further, because the plan permitted the deferral of both bonuses and annual salary, it was not exempt from ERISA under DOL regulations as a bonus plan.


According to the Court’s opinion, the employer created a bonus/incentive plan for five executives if they secured a buyer for the company.  When a likely buyer emerged, the company created a non-qualified deferred compensation plan to help most of those executives avoid adverse tax consequences from the incentive plan bonuses.   Under the deferred compensation plan, the executives could defer their regular annual salary and annual bonuses as well as the incentive bonuses.   The CEO make elections to deter his incentive bonus and large portions of his salary each year under the deferred compensation plan.  The plan’s default deferral provided for the payout to begin shortly after employment ended, but it could also be drawn out over as long as ten years and even permitted withdrawals before employment ended.  The CEO was audited by the IRS in 2014 and it determined that some of the deferrals did not comply with IRC 409A and he was assessed with taxes and penalties.  Two years later, the CEO sued his former employer for breach of contract and negligent misrepresentation.  The employer moved for partial summary judgment on the grounds that the deferred compensation plan was a pension plan governed by ERISA, which pre-empted the state law claims.  The trial court agreed, but permitted the CEO to amend his complaint to bring claims under ERISA.  The CEO declined and instead appealed the ERISA ruling.   The Sixth Circuit affirmed.


The parties disputed whether the deferred comp plan satisfied the ERISA requirements because it permitted withdrawals before retirement. “In essence, the question is whether a plan that allows for distributions both before and after termination can be an ERISA employee pension benefit plan.” The Court construed the statute to not require withdrawals to begin only after employment had ended:

Subsection (ii) does not specify deferral of income “until termination” or “to termination”; rather, it says “for periods extending to the termination.”  Thus, deferrals may occur for various “periods,” and those periods may last up to and/or beyond termination.  Subsection (ii) covers a wide array of plans and does not exclude plans that give participants the option to receive in-service distributions.

The employer’s deferred compensation plan presumed that distributions would not begin until after termination of employment, but permitted participants to elect earlier distributions.   It also stated that it was governed by ERISA.  As long as the plan provided for distributions after termination of employment, the requirements of ERISA were satisfied.


That being said, the DOL had published a regulation exempting certain deferred compensation plans which did not “systematically” defer the payment of “bonuses.” “By regulation, employee pension benefit plans do not include “payments made by an employer to some or all of its employees as bonuses for work performed, unless such payments are systematically deferred to the termination of covered employment or beyond, or so as to provide retirement income to employees.”  29 C.F.R. § 2510.3-2(c).”  In other words, the payment of a bonus is typically not a retirement program and would not be treated as a pension plan unless the payment of those bonuses were systematically deferred to termination of employment.  “A bonus plan may defer payment of bonuses and remain exempt, “unless such payments are systematically deferred to the termination of covered employment or beyond, or so as to provide retirement income to employees.”  29 C.F.R. § 2510.3-2(c) (emphasis added).”  Thus, deferred bonus compensation plans which do not systematically defer the payment of bonuses to post-employment periods are exempt from ERISA.


The court rejected the application of this exemption because the deferred comp plan did not relate exclusively to the incentive bonuses and also permitted the deferral of annual salary and regular annual bonuses.


NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Children’s Business Does Not Rise Like a Phoenix to Avoid ERISA Withdrawal Liability of Parents’ Business

In March, the Sixth Circuit applied the NLRA’s alter ego test to determine that the similar business of adult children was the alter ego of the parents’ business for purposes of imposing ERISA pension plan withdrawal liability. Trustees of Operating Engineers Local 324 Pension Fund v. Bourdow Contracting, Inc., No. 18-1491 (6^th Cir. 3-21-19).  The defendant company waived its objection to the application of the NLRA standard because it argued in favor of that standard to the trial court.  


Moreover, according to the Court’s opinion, the facts showed that the two businesses shared common management and ownership, although the parents were not owners or managers of the new business and had been the majority owners of the bankrupt business.  The new business was formed just days after the parent’s company missed their first withdrawal payment and bid for their first job days before the parent’s company filed for bankruptcy.  90% of the new business operations overlapped with 50% of the parents’ company business.  Although the new business operated out of a new location, it retained over 50% of the former employees and hired the same outside advisers.   The new company purchased all new equipment because the parents’ equipment was sold in bankruptcy. Almost 70% of the customers of the new company had been customers of the bankrupt company.   The owners of the new company were involved in preparing the bankruptcy petition of their parents’ company and used the family name in their business name in order to capitalize on the good will created by their parents’ business.   Because more factors weighed in favor of liability than against, the Court affirmed alter ego liability being imposed.   The Court also rejected a res judicata defense based on the discharge in bankruptcy of the parent company’s withdrawal liability because there was not an overlap in the cause of action.  The operative facts of the alter ego theory were not the same claim  for withdrawal liability asserted in the bankruptcy proceeding.


NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Divided Sixth Circuit Affirms Dismissal of FMLA Claims But Finds Possible ERISA Claims Based on Same Evidence

Yesterday, a divided Sixth Circuit affirmed summary judgment on FMLA interference and retaliation claims where the plaintiff employee, like 55 employees before him, had been fired under the common company policy for failing to call off for three consecutive days, but on the same facts the Court reversed dismissal of his ERISA interference and retaliation claims on the grounds that the employer’s failure to call him to check on him (like some other employees who had similarly failed to show or call off) prior to terminating his employment could constitute evidence of pretext.   Stein v. Atlas Industries, Inc., No. 17-3737 (6^th Cir. 4-9-18).  The Court found that the employee could not show unlawful interference with his right to take FMLA leave because the FMLA regulations permit employers to enforce call-off policies, which the plaintiff admittedly had failed to observe due to his own confusion about when he had been released to return to work.  His confusion about what his physician had written did not excuse his failure.  The Court also concluded that he could not show unlawful retaliation based only on the passage of 10 weeks between the start of his FMLA leave and his termination because temporal proximity alone is insufficient evidence when the span of time is more than 8 weeks.  Unlike his FMLA claim, however, the employee was able to produce evidence that his self-insured employer was very concerned about the medical bills incurred by his son.   Therefore, the passage of 7 months did not destroy his evidence of causation because he was not relying on temporal proximity alone and it was known that his son would likely require another hospitalization.   This “extra” evidence of employer motivation also apparently made relevant evidence of  pretext that the Court had previously rejected as evidence of pretext in his FMLA claims.

According to the Court’s opinion, the plaintiff had worked for the defendant company for 20 years and even had a year of perfect attendance when his son required hospitalization for a severe, chronic and rare neurological condition that apparently caused the employer’s insurance rates to rise and had been blamed by some employees for the employer’s inability to raise wages.  The employee then required surgery for a work-related injury and was off work on FMLA leave for 10 weeks.   Near the end of July, his doctor told him that he could return to unrestricted duty on  August 10.  However, the employee did not understand or realize that his physician had immediately released him to return to work on light duty on July 20 and had so informed the employer.   Although employees are entitled under the FMLA to reject light duty work, they are still required to adhere to the employer’s attendance policy, which in this case required employees to call off every day that they did not intend to return to work after they have been released to light duty.  When the employer received the physician’s release for light duty, it called the physician to confirm the release because the employee had not called off work.  When the employee did not report to work for three consecutive days or call off, it terminated his employment like it had 55 employees before him.   The employee produce some evidence that the employer had called some other employees before terminating them under the same policy, thereby showing selective enforcement.

First, the Court rejected the FMLA interference claim.  The Court found that the employee’s confusion about his medical release and its ramifications did not constitute “unusual circumstances” to excuse his failure to call off work under the employer’s policy.  The type of “unusual circumstances” that would have justified him not complying with the policy would be a malfunctioning voicemail or telephone system.   While the Court was sympathetic that the doctor told the employee one thing, but wrote something else, the Court also found that the employee should have read the form which his physician gave him.  The Court also rejected the FMLA interference claim because FMLA regulations require employees to comply with their employer’s call off procedures even if they are entitled to be on FMLA leave. 

Here, [the employer’s] policy required employees on medical leave to either return to work or call in once their doctor released them with light-duty restrictions.  And the company’s employee handbook provided that “any associate who is absent three (3) consecutive days without permission or without calling in [would] be automatically discharged.”  . . . So, when [the plaintiff] failed to report for work or call in for three consecutive days after his release, [the employer] was within its rights to terminate him.   

It was irrelevant that the employee was legally entitled to reject light duty work under the FMLA. 

Had [the employee] contacted [the employer] to say that he was using his remaining two weeks of FMLA leave and the company subsequently fired him under the attendance policy, [he] would have a claim.  But that is not what happened.  [Its] policy required [him] either to return to work or call in and report his intentions, and [he] did neither.  So the light-duty regulations do not protect him.

Second, the Court rejected the FMLA retaliation claim.   The employee apparently admitted that his only evidence of retaliation was the temporal proximity of the termination – 10 weeks after he began FMLA leave.   There were apparently no stray or other remarks which would show that the employer was motivated to retaliate for his taking FMLA leave.  However, temporal proximity alone cannot constitute sufficient evidence of causation when the lapse of time is greater than 8 weeks.   Accordingly, the Court affirmed dismissal of the FMLA claims. 

Finally, the Court found that there was sufficient evidence for a jury to consider whether the employee was fired in retaliation for, and to prevent him from, using his ERISA benefits to obtain employer-covered medical treatment for his son.  The employer was self-insured for medical coverage and had stop-loss coverage for extraordinary claims.   The company had apparently spent $500K on his son’s care in the prior year (part of which was covered by the stop-loss coverage) and had been publicly lamenting “skyrocketing” health care costs in employee bulletins.  The HR Director was alleged to have complained about this to another employee and attributed the rising employee premiums to his son’s $1M in medical bills.  While the employee’s supervisor made the decision to terminate his employment, he did not act alone because the HR Director and the VP of Operations also participated in the decision, decided to not reconsider or excuse his confusion about his medical release, and were well aware of the cost of his son’s medical expenses.   Further, the passage of seven months between his son’s hospitalization and the termination decision did not destroy the temporal proximity inference because, as just discussed, the employee was not relying on temporal proximity alone (as he did in his FMLA claim).   This was particularly true when it was known and likely that his son would have to return to the hospital again in the future.

The employer again explained that it had fired the employee under its policy of automatically firing employees who fail to show up or call off for three consecutive days and pointed out that it had similarly fired 55 other employees under this policy.  

Thus it is [the employee’s] turn once more.  [The employee] “need not show that the employer’s sole purpose was to interfere with [his] entitlement to benefits” or to retaliate, but instead that a reasonable jury could find that unlawful considerations were a “motivating factor” in its actions.  

The Court then remarkably concluded that while the employer’s rationale was justified under the FMLA, it could constitute pretext under ERISA.   Although the Court rejected the employee’s argument that the employer’s failure to call him to schedule a return-to-work drug test after he had been released to return to light duty was evidence of pretext for his FMLA retaliation claim, it found that evidence relevant for his ERISA retaliation claim.  Finally, it found that the employee’s “suggestion” that the employer had called some workers to find out why they had not returned to work or called off (instead of automatically terminating them) constituted evidence of selective enforcement and ERISA retaliation, but was apparently irrelevant to his FMLA retaliation claim. 

[The plaintiff] had worked at [the defendant company] for nearly twenty years, had won at least one perfect attendance award, and had worked overtime when asked.  He seems to have been a satisfactory employee.  But as the three days after his release to light duty rolled by, [the defendant company] reached out only to [his] doctor and [its]third-party administrator for workers’ compensation claims—just to double-check that [he] had really been released.  And even though [its] employee handbook indicates that [he] had to “complete a return to work fitness exam and drug screen prior to returning to work” that “[would] be scheduled by the Human Resource department,”  . . . the company did not schedule [his] drug screen before it fired him.   . . .   Although [the defendant employer] was not required to reach out to [him, for reasons set out in the FMLA-interference discussion above, the fact that it did not do so could still raise a juror’s suspicions about [its] motives.  And while [the employer] claims that this was all just standard practice—pointing to a list of fifty-five employees that the company terminated under its no-call, no-show policy in the past twenty or so years—[its] list only includes names and dates.  It does not indicate whether these fifty-five terminations are otherwise similar to [the plaintiff’s] in the relevant respects.  And [the plaintiff], for his part, has pointed to evidence suggesting that his superiors selectively enforced the absenteeism policy by calling some employees to “ask what’s up” when they failed to show up for work, but not others.  

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit Affirms Employee’s ERISA Summary Judgment for Promissory Estoppel, Breach of Fiduciary Duty and Anti-Cutback Violation

[Editor's Note: The Sixth Circuit in October subsequently upgraded its Deschamps opinion  to Recommended for Full-Text publication].

This morning, the Sixth Circuit Court of Appeals affirmed summary judgment for an employee on three ERISA claims after the defendant pension plan reduced his pension credits for the 10 years that he worked for the defendant employer in Canada.  Deschamps v. Bridgestone of Americas, Inc. Salaried Employees Pension Plan, No. 15-6112 (6^th Cir. 9-12-16).  The plaintiff had refused to accept the transfer to the U.S. in 1993 unless he was given pension credit for his prior 10 years in Canada.   The HR and plant managers confirmed with corporate HQ that he would receive that pension credit, which was also included on all of his pension written and online pension summaries until 2010, when the employer reinterpreted the terms of the plan and reduced the pension credits previously awarded to him and other expatriate transfers.  He appealed internally with the Plan, but his appeals were denied and the lawsuit followed.  The Court of Appeals agreed that the undisputed issues of fact in the record confirmed that the employer had been grossly negligent, breached its fiduciary duty and violated the anti-cutback rules in leading him to believe that he would receive the pension credit and then revoking those credits more than 17 years after his transfer and after he rejected two job offers from a competitor (which subsequently went bankrupt).   The employer’s convoluted interpretation of the definition of “supervisor” (which was not otherwise defined in the plan) to exclude the plaintiff (who was an hourly maintenance manager) contributed to the Court’s decision.

According to the Court’s opinion, the plaintiff sought and received assurances from the U.S. plant and human resources managers that they had checked with their corporate office and he would receive pension credit for his 10 years working in Canada if he were to transfer to the U.S. facility in 1993 as the plant maintenance manager. (The retired corporate actuary, however, denied ever approving this information).  For his first 16 years of employment, his online and written pension summaries also listed his 1983 seniority date.  Granted, most (if not all) of these documents stated that they were only estimates and that the actual Plan document governed his eligibility for benefits.  In 2010, the company sought to correct the misapplication of the seniority dates for employees who transferred from outside the U.S. and deducted those 10 years from the plaintiff’s pension accrual.  He appealed internally, but the Plan denied his appeal on the grounds that he was not eligible because he had not been salaried or a “supervisor.”  “Supervisor” was not defined in the Plan or SPD, but the Plan defined it to exclude non-exempt managers like him.  The plaintiff brought suit against the Plan, his employer and its parent company alleging promissory estoppel under 29 U.S.C. § 1132(a)(3), breach of fiduciary duty pursuant to 29 U.S.C. § 1104, and an anti-cutback violation pursuant to 29 U.S.C. §1054(g). The trial court granted him summary judgment on all three claims.  The employer, parent and Plan appealed.

Plaintiffs have a long burden of proof when it comes to promissory estopped claims.  They must show:

(1) conduct or language amounting to a representation of material fact; (2) awareness of the true facts by the party to be estopped; (3) an intention on the part of the party to be estopped that the representation be acted on, or conduct toward the party asserting the estoppel such that the latter has a right to believe that the former’s conduct is so intended; (4) unawareness of the true facts by the party asserting the estoppel; and (5) detrimental and justifiable reliance by the party asserting estoppel on the representation. . . . In the case  of an unambiguous pension plan, the plaintiff must also prove three additional elements: “[(6)] a  written representation; [(7)] plan provisions which, although unambiguous, did not allow for  individual calculation of benefits; and [(8)] extraordinary circumstances in which the balance of equities strongly favors the application of estoppel.”

The Court found that the terms of the Plan were ambiguous because of how it interpreted “foremen” and “supervisors” to exclude non-salaried managers like the Plaintiff when those terms were not defined within the Plan itself.   Further, the defendants conceded that the plaintiff could prove elements (1), (3) and (4).

The defendants attempted to dispute that the Plaintiff could prove that the defendants were aware of the “true facts” because he did not inquire of the corporate HQ pension officials himself, but instead, relied on the plant managers to contact corporate HQ for him.  The Court described this element to require the plaintiff to show “either intended deception or such gross negligence as to amount to constructive fraud.”  The Court construed prior precedent and found that the employer was grossly negligent in assuring the plaintiff for 16 years that he would receive the pension credit and not attempting to correct that mistake (if it was a mistake) shortly after making it in response to his specific inquiries.  Further, the plaintiff could not be held responsible for earlier realizing the mistake in light of the convoluted interpretation of “supervisor” which the Plan adopted (to exclude managers).  Thus, the Court found that the employer could be found liable for “constructive fraud.”

The employer also disputed whether the plaintiff could prove that he detrimentally relied upon the employer’s assurances.  In particular, the plaintiff had rejected attractive job offers from a competitor which subsequently went bankrupt and laid off thousands of employees.   The Court rejected the employer’s argument because there was no evidence that the plaintiff would definitely have been laid off by the competitor.   In addition, there was no legal requirement that the competing job offer be economically better, as long as it was an opportunity which the plaintiff rejected in reliance on his employer’s representations about his pension status.   Further, the plaintiff’s reliance for 16 years on the employer’s written and oral (mis)representation were reasonable when he rejected the competitor’s offer of a higher salary.

As for the breach of fiduciary duty claims, the plaintiff was required to show

(1) Bridgestone acted in a fiduciary capacity in making misrepresentations to Deschamps, (2) those misrepresentations were material, and (3) Deschamps detrimentally relied on the misrepresentations. . . . The second element [was] not disputed. 

The disputed issue was whether the employer was a fiduciary:

A fiduciary is defined by ERISA to include a corporation10 who “exercises any discretionary authority or discretionary control respecting management of [a] plan” or “has any discretionary authority or discretionary responsibility in the administration of such plan.” 29 U.S.C. § 1002(21)(A).  In determining whether a corporation is a fiduciary, rather than looking to the formal title, we use a functional approach, looking to whether it acts in a fiduciary capacity with respect to the conduct at issue.

 While making business decisions which have a collateral effect on employee benefits (such as terminating a plan), processing claims, applying eligibility rules or calculating benefits are not fiduciary  functions, explaining the terms of the plan, and conveying information about likely future plan benefits are fiduciary functions.  Accordingly, in this case, conveying information to the Plaintiff about receiving pension credits and the likely benefits he would receive in the future were fiduciary functions.  The Court also found that the plant and HR managers had apparent authority to bind the employer: “Bridgestone acted as a fiduciary when it, through its agents with apparent authority, misrepresented to Deschamps the status of his pension benefits.”

The employer disputed that it had ever construed the Plan to cover the plaintiff, and, therefore, could not have violated the anti-cutback provisions when in 2010 it retracted his credit for the 10 years he worked in Canada between 1983 and 1993.  It construed the contrary assurances to the plaintiff as a “clerical error.”

ERISA prohibits plan amendments that decrease a participant’s accrued benefits, with two exceptions that do not apply here.  29 U.S.C. § 1054(g).  At issue is whether we look to the text of the Plan or the administrator’s interpretation of the Plan in determining if Deschamps accrued a benefit prior to 1993.  

In essence, an employer can illegally cut-back benefits if it changes or reinterprets the terms of the plan to reduce benefits that a plaintiff reasonably believed provided higher benefits based on a different and plausible interpretation of the plan.

As discussed above, the text of the Plan is at worst ambiguous, but at best, favors Deschamps’s argument that he was a covered employee in 1983 under the classification of  “supervisor.”  It is not untenable that Deschamps, in his capacity as a maintenance manager, was a supervisor under the language of the Plan.  Further, it is undisputed that as a result of the [2010] change in the interpretation of this provision that excluded foreign employees from being classified as covered employees, Deschamps’s benefits were decreased. Therefore, Deschamps has established an anti-cutback violation . . .

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Supreme Court: Fiduciary Duty to Continually Monitor Investments Makes Limitations Period a Moving Target

This morning, a unanimous Supreme Court reversed an employer fiduciary’s judgment on a breach of fiduciary duty claim that had been found untimely.  Tibble v. Edison Int’l, No. 13-550 (5-18-15).  The plaintiffs alleged that the fiduciaries violated their duty by paying higher administrative fees for retail funds instead of selecting lower-fee investor class funds while administering the defined contribution ERISA plan (i.e., a 401(k) plan). Based on ERISA’s 6-year statute of limitations, the lower courts found the claim to be untimely as to funds purchased in 1999.  However, the Supreme Court concluded that “a fiduciary normally has a continuing duty of some kind to monitor investments and remove imprudent ones. A plaintiff may allege that a fiduciary breached the duty of prudence by failing to properly monitor investments and remove imprudent ones. In such a case, so long as the alleged breach of the continuing duty occurred within six years of suit, the claim is timely.”

Section 1113 [of ERISA] reads, in relevant part, that “[n]o action may be commenced with respect to a fiduciary’s breach of any responsibility, duty, or obligation” after the earlier of “six years after (A) the date of the last action which consti­tuted a part of the breach or violation, or (B) in the case of an omission the latest date on which the fiduciary could have cured the breach or violation.” Both clauses of that provision require only a “breach or violation” to start the 6-year period.

While the “Ninth Circuit correctly asked whether the ‘last action which constituted a part of the breach or violation’ of respondents’ duty of prudence occurred within the rele­vant 6-year period,” that court erred in finding the act of selecting the higher-cost funds to be the last relevant action for statute of limitation purposes.

Under trust law, a trustee has a continuing duty to monitor trust investments and remove imprudent ones. This continuing duty exists separate and apart from the trustee’s duty to exercise prudence in selecting invest­ments at the outset. . . ., the trustee must “systematic[ally] conside[r] all the investments of the trust at regular intervals” to ensure that they are appro­priate.

The Uniform Prudent Investor Act confirms that “[m]anaging embraces monitoring” and that a trustee has “continuing responsibility for oversight of the suitability of the investments already made.”

This being said, the Court “express[ed] no view on the scope of respondents’ fiduciary duty.”  It remanded the case to consider whether the fiduciaries failed to review and monitor within the six year limitations period.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Supreme Court Overrules Yard-Man and Presumption of Vested Lifetime Retiree Healthcare Benefits

In what is likely the most significant employment law decision to be issued in decades by the Supreme Court, today the Court unanimously repudiated the long-time Sixth Circuit rule from Yard-Man that a collective bargaining agreement which provides for retiree medical benefits is presumed to last for the retiree’s lifetime unless the agreement also specifies a duration specifically for retiree benefits or reserves the employer’s right to modify retiree benefits in the future.  Under this rule, employers have been bound to promises made in the 1960’s and 1970’s when employers routinely provided full indemnity healthcare coverage without co-payments, deductibles or employee premiums and before healthcare costs began to rise 20% each year and life expectancies extended into the 90's and beyond.   The only way to avoid such catastrophic healthcare costs was for the company to file for bankruptcy and have the agreement voided or modified by the court.   Of course, after Yard-Man, many employers began inserting clauses into summary plan descriptions reserving their rights to modify the retiree healthcare plans in the future and attempted to negotiate such clauses for bargaining agreements.  Nonetheless, in today’s case, M&G Polymers USA LLC v. Tackett,  No.  13-1010 (1-25-15), the Sixth Circuit had rejected the employer’s attempt to modify retiree healthcare benefits after the bargaining agreement expired. The Supreme Court reversed on the grounds that the Yard-Man presumption is inconsistent with numerous basic principles of contract law.  Instead, the Court directed that the bargaining agreement should be interpreted as any other contract, which requires the parties’ actual intent (rather than imputed intent) to be considered.

According to the Court’s opinion, the bargaining agreement at issue provided in relevant part that:

“Employees who retire on or after January 1, 1996 and who are eligible for and receiving a monthly pen­sion under the 1993 Pension Plan . . . whose full years of attained age and full years of attained continuous service . . . at the time of retirement equals 95 or more points will receive a full Company contribution to­wards the cost of [health care] benefits described in this Exhibit B–1 . . . . Employees who have less than 95 points at the time of retirement will receive a re­duced Company contribution. The Company contribu­tion will be reduced by 2% for every point less than 95.

Exhibit B-1, which was incorporated by reference into this clause, specifically provided: “Effec­tive January 1, 1998, and for the duration of this Agree­ment thereafter, the Employer will provide the following program of hospital benefits, hospital-medical benefits, surgical benefits and prescription drug benefits for eligible employees and their dependents . . . . ”  Exhibit B-1 did not specifically refer to retirees and was, therefore, ambiguous.  

Several years after the bargaining agreement (and Exhibit B-1) expired, the defendant employer announced that retirees would need to begin contributing to the cost of their healthcare.  The plaintiffs filed suit, which was dismissed by the federal court for the Southern District of Ohio.  On appeal, the Sixth Circuit reversed on the grounds that retiree healthcare benefits are presumed under Yard-Man to vest for life and, therefore, the employer could not modify the benefits by requiring a contribution.

On appeal, the unanimous Supreme Court found that the Sixth Circuit's decision in International Union, United Auto, Aerospace, & Agricultural Implement Workers of Am. v. Yard-Man, Inc., 716 F. 2d 1476, 1479 (1983) and the subsequent cases applying its logic were inconsistent with many ordinary and basic principles of contract law, which the Court has always utilized to interpret collective bargaining agreements and ERISA welfare plans:

·        “As an initial matter, Yard-Man violates ordinary con­tract principles by placing a thumb on the scale in favor of vested retiree benefits in all collective-bargaining agree­ments. That rule has no basis in ordinary principles of contract law.”

·        Yard-Man imputed the intention of the parties without consideration of any evidence of the parties’ actual intent. “Yard­-Man’s assessment of likely behavior in collective bargain­ing is too speculative and too far removed from the context of any particular contract to be useful in discerning the parties’ intention.”

·        Yard-Man applied its inference “indiscriminately across industries” without consideration of each specific industry’s custom or usage. “Although a court may look to known customs or usages in a particular industry to de­termine the meaning of a contract, the parties must prove those customs or usages using affirmative evidentiary support in a given case.”

·        Yard-Man relied too heavily on the fact that retiree benefits are a permissible subject of bargaining when it often becomes a mandatory subject once the parties include it in their bargaining agreement.

·        “Yard-Man also relied on the premise that retiree benefits are a form of deferred compensation, but that characterization is contrary to Congress’ determi­nation otherwise” in ERISA, where retiree health benefits are welfare benefits, not pension benefits.

·        Yard-Man “distort[s] the text of the agreement and conflict[s] with the principle of contract law that the written agreement is presumed to encompass the whole agreement of the parties” because it refused to apply the agreement’s general durational clause unless it specifically referred to retiree health benefits. It also “failed to consider the traditional principle that “contractual obligations will cease, in the ordinary course, upon termination of the bargaining agreement.”

That principle does not preclude the conclusion that the parties intended to vest lifetime benefits for retirees. Indeed, we have already recognized that “a collective-bargaining agreement [may] provid[e] in explicit terms that certain benefits continue after the agreement’s expiration.” Ibid. But when a contract is silent as to the duration of retiree benefits, a court may not infer that the parties intended those benefits to vest for life.

·        Yard-Man violated the principle that “courts should not construe am­biguous writings to create lifetime promises.”  Instead, “contracts that are silent as to their duration will ordinarily be treated not as ‘operative in perpetuity’ but as ‘operative for a reasonable time.’”

·        Yard-Man misapplied the illusory promise doctrine by requiring a promise of retiree healthcare to benefit all retirees equally.  Bargaining agreements often benefit employees differently.  It does not render a promise to a union as illusory merely become some employees benefit while others do not. 

That interpretation is a contradiction in terms—a promise that is “partly” illusory is by definition not illusory.  If it benefits some class of retirees, then it may serve as consideration for the union’s promises. And the court’s interpretation is particularly inappropriate in the context of collective-bargaining agreements, which are negotiated on behalf of a broad category of individuals and conse­quently will often include provisions inapplicable to some category of employees.

In a concurring opinion, four of the justices noted that extrinsic evidence and the entire agreement may be considered to divine the intent of the parties when drafting the particular clause about healthcare benefits.  In such a case, the plaintiffs do not need to show “clear and express” language before retiree healthcare benefits will vest.  “Because the retirees have a vested, life­time right to a monthly pension, App. 366, a provision stating that retirees “will receive” health-care benefits if they are “receiving a monthly pension” is relevant to this examination.”

 

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit ERISA Decisions from August

The Sixth Circuit issued three interesting ERISA decisions last month. In the first case, the Court affirmed dismissal of the LTD claim as untimely where the plan provided a limitations period of three years from when the initial proof of claim was required and the plaintiff filed suit within 8 months after the conclusion of her internal appeal following a contractual change in the eligibility standard.  In the second decision, the Court affirmed denial of LTD benefits on the basis of physical disability, but reversed on the mental disability LTD claim.  In the third case, the decision of the claims administrator (aka insurance company) on medical coverage was repeatedly reversed in three court appeals for refusing to consider and/or explain why it was not accepting the medical recommendations of the treating physicians for inpatient alcohol rehabilitation after several failed attempts at outpatient rehabilitation as provided in the insurance company’s internal guidelines. Ultimately, the court decided that the decision was arbitrary and capricious and ruled in favor of the claimant.

In Russell v. Catholic Partners Employee LTD Plan, No. 13-4804 (6^th Cir. 8-14-14), the nurse claimant submitted a claim for LTD benefits based on a knee and mental impairment which prevented her on May 12, 2007 from continuing the RN job she had held for 30 years.   Her LTD benefits were granted on November 15, 2007 since she was unable to continue her regular occupation.  However, she was also informed at that time that the standard of eligibility changed after two years and she would then be required to show that she was unable to work in any gainful occupation in order to continue receiving LTD benefits.   After the two years passed, her claim for LTD was denied since the insurance carrier determined that she could perform work as a case manager or triage nurse despite her physical and mental impairments.  The claimant appealed internally and the final denial was issued on July 20, 2010.  When the claimant initiated a federal court lawsuit on March 20, 2011, the carrier moved to dismiss on the grounds that the statute of limitations had run. 

The LTD Plan required written proof of a claim to be submitted within 90 days of the 180-day elimination period.   It also provided that a federal lawsuit could be initiated 60 days after proof of the claim had been submitted and within 3 years after the proof of claim was required.   The Court determined that the proof of claim was required to be submitted by February 8, 2008 and, therefore, the limitations period expired on February 8, 2011 – fifty days before the claimant initiated the lawsuit.   The Court rejected the claimant’s argument that the limitations period was re-set by the application of a different eligibility standard on November 12, 2009. “The Supreme Court recently held “a participant and a plan may agree by contract to a particular limitations period, even one that starts to run before the cause of action accrues, as long as the period is reasonable.”  In this case, the claimant had six months after the final denial of her LTD claim on July 20, 2010 to file suit before the three-year limitations period expired. “The plan’s use of the “any gainful occupation” standard did not reset the contractual limitations period.”  The Court also refused to re-set the limitations period each time the carrier requested new evidence supporting proof of continuing disability. 

In Hayden v. Martin Marietta Materials Inc. Flexible Benefits Program, No. 13-6319 (6^th Cir. 8-18-14), the claimant left work in January 2010 because of a variety of physical ailments and mental impairments (depression and anxiety).  She sought and was awarded SSI benefits.   However, she was denied LTD by her employer’s claims administrator on the grounds that her physical ailments were objectively insufficient to render her unable to work in her profession (as an office manager) and her mental impairments were not sufficiently severe to prevent her from working.  The Court agreed that the claimant failed to show that she was physically unable to work during the entire 180-day elimination period. For instance, her physician’s notes did not mention her arthritic hands until eleven months after she stopped working and similarly did not discover other conditions until after the elimination period. Her “minor” heart condition from 2008 similarly did not prevent her from working.   Therefore, the plan’s decision to deny benefits on this basis was not arbitrary or capricious.

The Court reversed the claims administrator, however, on the mental disability claim because the reviewer imposed a higher standard than the criteria outlined in the plan documents.  The reviewer denied benefits on the grounds that the claimant could perform some work, instead of evaluating whether she was mentally capable of continuing to perform her own profession.  Indeed, the reviewer’s decision “suggests that Hayden would have had to be suffering from “severe psychiatric symptoms, suicidal ideation, homicidal ideation, hallucinations” to be considered disabled.” This decision would effectively preclude any claimant from showing that depression or anxiety as a “disability— [and] is inconsistent with the terms of the Plan, which focus on whether a claimant can perform the material and substantial duties of her own occupation.”  The reviewer also denied benefits in part because he was influenced by the fact that the claimant’s employer was going through bankruptcy.  The treating physicians and psychiatrist had explained that her anxiety was related to her own health problems and those of her husband.  

It is true, as a general matter, that when a plan administrator relies on the opinion of one doctor over that of another, “the plan administrator’s decision cannot be said to have been arbitrary and capricious because it would be possible to offer a reasoned explanation, based upon the evidence, for the plan administrator’s decision.”  . . . . But ERISA does not grant to a plan administrator carte blanche to adopt the opinions of its reviewing physicians. When a reviewing physician’s report is “inadequate,” a plan administrator cannot be said to engage in a deliberate, principled reasoning process when it adopts the position of that report.  . . .  In particular, where a reviewing physician’s opinion applies standards that conflict with the terms of the plan, that opinion is not evidence supporting a conclusion that the claimant is not disabled within the meaning of the plan.

Instead of remanding the case for another review, the Court awarded benefits to the Claimant based on her mental disability in light of the uncontroverted evidence.

In Butler v. United Healthcare of Tennessee, Inc,  No. 14-6446 (6^th Cir. 8-22-14), the claimant was a long-time alcoholic, who attempted a variety of outpatient treatment programs before finally admitting herself into an inpatient facility in 2005.  Her husband’s insurance company denied coverage, although she seemed to meet the insurance carrier’s internal criteria (as they belatedly discovered only after initiating the litigation), of having a “[h]istory of continued and severe substance abuse despite appropriate motivation and recent treatment in an intensive outpatient or partial hospitalization program.”  Her husband paid for her inpatient treatment and pursued two internal appeals of the denial of coverage.   The external reviewer hired for the third internal appeal was given an incorrect standard by the insurance company and failed to explain why he disagreed with the recommendations of the claimant’s two treating physicians or mention the claimant’s history of failed outpatient rehabilitation.   After litigation commenced in 2008, the carrier realized it had given the wrong standard to the external reviewer and attempted to correct that mistake, but the reviewer affirmed his prior decision and still failed to explain why he disagreed with the recommendations of the claimant’s two treating physicians or mention the claimant’s history of failed outpatient rehabilitation.   

The Court agreed that the insurance carrier had not completed a complete or fair review of the case and remanded it for the carrier to explain why it disagreed with the recommendations of the claimant’s two treating physicians and why the claimant’s history of failed outpatient rehabilitation was irrelevant.  Instead, the carrier obtained another letter from the same external physician claiming that he believed he had previously reviewed the letters from the treating physicians and, in any event, after reviewing the file again he still believed coverage should be denied, but still did not explain why he disagreed with the treating physicians.  The Court remanded the case again for the insurance carrier to retain a different external reviewer, explain why it disagreed with the treating physicians and permit the submission of new medical information.  The claimant submitted new medical information that specifically addressed the carrier’s internal criteria for inpatient treatment (which was not disclosed until after litigation commenced).  While the carrier retained a new external reviewer, it suggested that the reviewer should not give much weight to the new medical information.  The reviewer, in turn, made the same mistakes as the first reviewer:  He denied coverage without explaining why he disagreed with the treating physicians or why the claimant’s unsuccessful outpatient treatment did not qualify under the carrier’s own criteria.  Accordingly, the Court granted judgment for the claimant and the Sixth Circuit affirmed.  

United’s refusal to give Janie’s benefits claim a fair review not once, not twice, but three times—in spite of clear instructions from the district court—casts a pall over United’s handling of the claim from the start. Through it all, through three chances to get it right (indeed through three chances just to engage in a nonarbitrary decision-making process), United failed the Butlers in multiple ways. United never explained its disagreement with the opinions of Janie’s treating physicians, which all contained detailed accounts of her prior attempts to get sober using increasingly intensive outpatient programs and which unequivocally deemed residential treatment necessary.  . . .United ignored key pieces of evidence and the key guideline applicable to Janie’s claim, making factually incorrect assertions (e.g., Janie had no history of trying unsuccessfully to treat her addiction with outpatient treatment),  . . ., or remaining silent about the matter,  . . . or (worst of all) mentioning the prior failures but nonetheless concluding without explanation that she did not meet the guideline requirements,  . . .. And United stacked the deck against the claim, instructing reviewers to “disregard” the evidence that John submitted in favor of the “contemporaneous physician-authored documents” that it had entered in the record.

                . . .

United adds that the decision to deny benefits cannot be arbitrary and capricious because five reviewing physicians agreed with it. That reviewing physicians paid by or contracted with the insurer agree with its decision, though, does not prove that the insurer reached a reasoned decision supported by substantial evidence. The physicians’ opinions carry weight only to the extent they provide a fair opinion applying the standard for granting benefits to the facts of the case. Elliott, 473 F.3d at 619. The reviewing physicians did not do that. They misstated or omitted the key fact of Janie’s prior failed outpatient treatment and ignored United’s guideline that allowed residential rehabilitation where outpatient treatment had not worked in the past. This argument, too, proves too much. If a decision to deny benefits could never be arbitrary and capricious when backed by the insurer’s reviewing physicians, court review would be for naught. The insurer would invariably prevail so long as the insurer had physicians on its staff willing to confirm its coverage rulings. That also does not make sense.

The District Court had also penalized the carrier for failing to earlier provide a copy of its internal criteria.  However, the statute only imposes liability on the Plan Administrator (the employer), not the claims administrator (i.e., the insurance company).

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

ERISA Does Not Protect Opposition to Statutory Violations or Internal Complaints without a Proceeding or Inquiry

On Friday, a divided Sixth Circuit Court of Appeals affirmed the summary judgment dismissal of a “whistleblower” claim that was found to be governed, and completely preempted, by ERISA.   Sexton v. Panel Processing, Inc. , No. 13-1604 (6^th Circ. 5-9-14).  In that case, the plaintiff was terminated approximately six months after he protested the employer’s refusal to sit additional employees who had been elected to the Board of Directors and its removal of him from a trustee position with the company’s retirement plan.  He emailed the Board Chairman alleging, among other things, that his removal as a trustee violated ERISA and if not rectified, he would report the violations to the DOL.  The Company did not respond to his email and he never filed a complaint with the DOL.   He ultimately filed a wrongful discharge lawsuit, which was removed by the employer to federal court under ERISA.  The Court found that, unlike Title VII, the FLSA and other statutes, ERISA protects only an employee’s participation in a “proceeding” or “inquiry” relating to ERISA.  It does not contain an opposition clause which would protect unsolicited complaints, like the one made by the plaintiff. 

Section 1140 of ERISA provides in relevant part:

It shall be unlawful for any person to discharge, fine, suspend, expel, or discriminate against any person because he has given information or has testified or is about to testify in any inquiry or proceeding relating to this chapter or the Welfare and Pension Plans Disclosure Act.

The parties agreed that there was no proceeding in place.  The Court found that the “giving of information” included “any” information, including information about a claim for benefits which did not relate to alleged violations of ERISA.   The Court also concluded that there was never any “inquiry,” no matter how the term was interpreted because there was never any investigation or question posed about his allegation.  Because there was never any proceeding or inquiry made by the employer or the DOL, this anti-retaliation provision could not apply.  The Court was even reluctant to broaden the meaning of this statute to include unsolicited complaints which ultimately lead to an inquiry, investigation or proceeding.    The Court also rejected attempts to analogize this statute to Title VII or the FLSA because those statutes specifically protected an employee’s opposition to unlawful practices.   Unlike those statutes, ERISA contains additional enforcement mechanisms (such as criminal prosecution and reporting requirements) which could explain why Congress chose not to include an opposition clause for employees.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.