Interference with ERISA-Protected Rights
Making a Federal Case Out of a Wrongful Discharge Action
By Kenni B. Merritt

INTRODUCTION

With recent increases in plant closings, reductions in force and outsourcings, it has become increasingly common for wrongful discharge or employment discrimination actions to include claims against employers for interference with ERISA1 rights. ERISA Section 510, which is known as ERISA’s anti-retaliation provision, makes it unlawful to discharge, fine, suspend, discipline or discriminate against a participant in an employee benefit plan for exercising any right under ERISA or an ERISA benefit plan or for the purpose of interfering with any right to which a plan participant may become entitled under ERISA or a benefit plan. Claims to enforce statutory rights under ERISA Section 510 have become “catch-all” type claims in employment litigation. Adding an ERISA 510 claim can turn a state law wrongful discharge action into a federal case thereby changing the litigation landscape dramatically. It is important that labor and employment lawyers as well as corporate lawyers have at least a basic understanding of ERISA and its unique provisions. In addition, employers are well advised to evaluate ERISA issues when terminating employees, outsourcing, closing a plant or taking other actions that may result in workers losing rights or benefits under ERISA plans.

WHAT IS AN ERISA PLAN?

Employee benefit plans consist of two types of plans. Employee welfare benefit plans are employee benefit plans established or maintained by an employer that provide welfare benefits such as medical, disability and death benefits.2 Employee pension benefit plans, commonly referred to as retirement plans, are employee benefit plans established or maintained by an employer that provide retirement income to employees or result in a deferral of income by employees for periods extending to the termination of employment or beyond.3

APPLICATION OF ERISA 510 TO RETIREMENT PLANS AND WELFARE PLANS

ERISA Section 510 claims typically involve employee pension and retirement benefit plans. Unlike pension plan benefits, welfare benefits such as health plan benefits do not become vested, i.e., protected from change, unless the plan documents expressly provide. The U.S. Supreme Court has held that “ERISA does not create any substantive entitlement to employer provided health benefits or any other kind of welfare benefits. Employers or other plan sponsors are generally free under ERISA, for any reason at any time, to adopt, modify or terminate welfare plans.”4 Therefore, absent a provision in its group health plan or an employment agreement or other contract to the contrary, an employer is under no obligation to continue its group health plan and is permitted under ERISA to terminate the group health plan for any reason at any time. However, although most ERISA Section 510 claims relate to employee pension and retirement plan benefits, the U. S. Supreme Court has held that ERISA Section 510 also applies to employee welfare benefit plans.5 In resolving a conflict among the circuit courts as to whether ERISA Section 510 protected non-vested welfare benefits, the U. S. Supreme Court determined that the protection afforded by ERISA Section 510 applies to both pension benefits and welfare benefits, including rights that have not yet vested. Since ERISA’s vesting rules apply only to pension plans, some courts and commentators were of the view that ERISA 510 should not apply in the case of welfare benefits reasoning that the protections of ERISA 510 would be meaningless if applied in the welfare plan context. However, the Supreme Court rejected this view and instead adopted a broader reading of ERISA Section 510 that encompasses both pension and welfare benefits. Therefore, ERISA Section 510 works as a safeguard against employer abuse or manipulation of the employment relationship for the purpose of interfering with rights to employee pension plan benefits and employee welfare plan benefits.

ELEMENTS OF AN ERISA SECTION 510 CLAIM

To prevail under ERISA Section 510, a plaintiff must show that the alleged discrimination was intended either to retaliate for the exercise of a right or to interfere with the attainment of an entitled right. There is no cause of action where the loss of benefits “was a mere consequence of, but not a motivating factor behind, a termination of employment.”6

This means that, in order to state a Section 510 claim, the plaintiff must put forth direct evidence that the employer had the specific intent to violate Section 510 — that the employer’s action was at least partially motivated by the specific intent to engage in the prohibited retaliatory conduct; otherwise the court will apply a shifting burden analysis. Because the existence of a specific intent to interfere with an employee’s benefit rights is a critical element in Section 510 cases, but is seldom the subject of direct proof, courts analyze ERISA retaliation claims using a “burden-shifting” methodology similar to that applied in employment discrimination cases.

Under the shifting burden analysis, the plaintiff must first establish a prima facie case by showing: 1) prohibited employer conduct, i.e., discharge, fine, suspension, expulsion, discipline or discrimination, 2) taken for the purpose of interfering 3) with the attainment of any right to which the employee may become entitled 4) under the provisions of an ERISA employee benefit plan. If the plaintiff is successful in demonstrating a prima facie case, the burden then shifts to the defendant-employer, who must articulate a legitimate, nondiscriminatory reason for the adverse employment action. If the employer carries its burden, the plaintiff then must persuade the court by a preponderance of the evidence that the employer’s legitimate reason is pretextual, i.e., that the legitimate reason asserted by the defendant-employer for the adverse employment action was not credible but was merely a pretext.7 Thus, the standard in ERISA 510 cases requires the plaintiff to demonstrate that “the employer made a conscious decision to interfere with the employee’s attainment of pension eligibility or additional benefits.”8 Where an employer’s proffered reason for terminating an employee is the employee’s poor attitude or interpersonal skills, it is immaterial whether the defendant’s perception of the plaintiff’s attitude is actually correct; even if an employer is mistaken as to a plaintiff’s bad performance or attitude, the employer’s decision to terminate the employee could be found to be legitimate and non discriminatory, so long as the mistake was in good faith.9

TYPES OF ERISA SECTION 510 CLAIMS

An important recent ERISA Section 510 case involved the closing of the McDonnell Douglas military aircraft manufacturing and assembly plant in Tulsa.10 McDonnell Douglas announced the closing of the Tulsa plant in December 1993, and subsequently laid off all employees at the plant. The plaintiff class consisted of 1,074 McDonnell Douglas employees who filed an action in 1994 alleging that McDonnell Douglas closed the plant for the purpose of depriving the employees of benefits. In a judgment for the employees, Judge Holmes of the Northern District of Oklahoma held that the employees established a prima facie case of interference based on pension cost savings data McDonnell Douglas developed prior to the plant closing, and that McDonnell Douglas’ proffered legitimate reason for closing, i.e. financial considerations related to overcapacity, was pretextual.11 The court stated that, in order to establish intent as an element of the claim, the employee need not show that interference was the sole reason for discharge, but must show more than an incidental loss of benefits as result of the discharge. The court said that the employer’s closing of part of its business in order to save money does not, by itself, constitute a violation of ERISA Section 510. Moreover, some evidence is required that the employer’s desire to block attainment of benefits rights was a determinative factor in the discharge of the employees.

Although ERISA 510 claims have typically been asserted as individual employment actions, recent cases reflect broader potential application in corporate transactions such as restructurings and corporate spin-offs.12

ERISA 510 claims are frequently asserted in outsourcings. A recent case found that the employer did not interfere with employees’ pension rights in violation of Section 510 when it outsourced a division to a subcontractor.13 The court found that the employer’s reason for outsourcing — to make its bid to a governmental agency more competitive — was not pretextual, and thus it did not violate Section 510. It is important to note that the court’s finding was influenced by the fact that the company worked with the subcontractor to make sure that the benefits offered by the subcontractor were equal or better than the company’s benefits package.

In addition to ERISA Section 510 claims, litigation involving benefit discrimination also often involves claims asserted under the Age Discrimination Enforcement Act. While the claims in the Tulsa plant closing case did not involve the ADEA, the average age of the Tulsa hourly workers was a significant factor in that decision.

Employment litigation can also include Americans with Disabilities Act claims and breach of ERISA fiduciary duty claims. In a recent 5th Circuit case,14 the plaintiff claimed that his former employer discriminated against him in violation of the ADA by terminating him based on his disability and by failing to provide him with reasonable accommodations. The plaintiff also claimed that his former employer discriminated against him in violation of ERISA Section 510 by terminating his employment with the specific intent to deprive him of medical benefits under the employer’s group health plan. In addition, the plaintiff claimed that his employer breached its ERISA fiduciary duty because it terminated him to discontinue his benefits (ERISA imposes personal liability on any person who is a fiduciary with respect to a plan and who breaches any of the duties imposed by ERISA). In clearing the employer on the ERISA claims, the 5th Circuit noted that the district court had determined that the plaintiff failed to establish his prima facie Section 510 case because, at the time the plaintiff was fired, he had no right to receive benefits under the health plan. Accordingly, the 5th Circuit held that the employer’s specific intent in terminating the plaintiff could not have been to retaliate against him for exercising a right under the health plan or to interfere with any rights under the health plan. In addition, the 5th Circuit rejected the plaintiff’s argument that the employer breached its ERISA fiduciary duties by discharging him because the employer was not acting in its capacity as an ERISA fiduciary when it fired the employee.

ENFORCEMENT OF AN ERISA INTERFERENCE CLAIM

A claim for interference with ERISA-protected rights can be enforced through ERISA’s general enforcement provisions. An ERISA 510 claim may be asserted against the person who allegedly interfered with ERISA-protected rights, generally the employer. ERISA Section 510 claims may be enforced under ERISA Section 502(a)(3), which permits a court to award appropriate “equitable” relief to remedy a violation. ERISA Section 502(a)(3) permits actions by plan participants or beneficiaries or fiduciaries to enjoin any act or practice violating Title I of ERISA (Section 510 is part of Title I), to obtain other appropriate equitable relief or to enforce any provision of Title I of ERISA. ERISA Section 502(a)(1)(B) permits actions by plan participants and beneficiaries to recover benefits due and enforce rights or clarify rights to future benefits under the terms of their plans. An employee benefit plan participant may bring suit under ERISA Section 502(a)(3) to enjoin employer retaliation or interference with protected benefits without first exhausting administrative remedies under the employee benefit plan. An employee-participant may be entitled to reinstatement. Money damages are clearly not available under ERISA to remedy a Section 510 violation.

In the McDonnell Douglas Tulsa plant closing case, the Northern District Court held that the plaintiffs were entitled to recover back pay because the award constituted “equitable relief” under ERISA Section 502(a)(3). However, on appeal, the 10th Circuit reversed the Northern District and ruled that the award of back pay was not recoverable under the statute because it did not constitute “equitable relief.”15

Although an employer may take some comfort in knowing that back pay should not be available in a Section 510 action, other forms of injunctive and equitable relief are potentially available, including reinstatement. Thus, the cautious employer will evaluate ERISA concerns when terminating employees, outsourcing, closing a plant or taking other actions that may result in workers losing rights or benefits under ERISA plans.

ERISA LITIGATION: A DIFFERENT LANDSCAPE

Adding an ERISA 510 claim can turn a state law wrongful discharge action into a federal case and give rise to ERISA pre-emption issues. A central objective of ERISA was to federalize pension and employee benefit law.16 There are three possible ways in which ERISA, as a federal statute, can pre-empt state laws. First, ERISA Section 514 contains an express and expansive pre-emption provision pursuant to which state laws that relate to ERISA plans are pre-empted. However, certain state laws that have an indirect impact on ERISA plans, such as certain state insurance laws, are expressly saved from pre-emption. Second, in addition to ERISA’s express pre-emption provision, the civil enforcement scheme provided by ERISA Section 502 has been held to occupy the field (known as “field pre-emption”) to such an extent that state law causes of action or state law remedies designed to enforce the same rights that are dealt with in ERISA Section 502 are pre-empted.17 Third, there is also a doctrine of “conflict pre-emption” whereby any requirement of state law that conflicts with a provision of ERISA will also be pre-empted.18 ERISA pre-emption is highly complex and hotly contested, and an in-depth analysis of ERISA pre-emption is beyond the scope of this article. With respect to a claim under ERISA 510, courts have held that ERISA’s explicit language and its structure and purpose demonstrate a congressional intent to pre-empt a state common law claim that an employee was unlawfully discharged to prevent his attainment of benefits under an ERISA-covered plan.19 Therefore, a common law wrongful discharge claim that an employer terminated or otherwise discriminated against an employee to prevent the employee from vesting in a benefit or to prevent accrual or receipt of a benefit is pre-empted by ERISA Section 510.20 However, the mere fact that the relief to be afforded an employee or former employee under state law may involve an employee benefit plan (for example, an order for payment of contributions or damages for loss of employee benefits resulting from discharge) does not necessarily result in ERISA pre-emption.21

A procedural advantage of ERISA subject matter jurisdiction is nationwide service of process; process may be served in any district where a defendant resides or may be found.22 ERISA also provides a broad choice of venue in federal court in any district where the employee benefit plan is administered, where the ERISA breach took place or where a defendant resides or may be found.23

ERISA does not provide a statute of limitations for suits under Section 510. Therefore, courts select the most analogous state law limitations period. The courts that have considered ERISA Section 510 claims have almost unanimously concluded that the most analogous state law cause of action under Section 510 is wrongful termination or retaliatory discharge, state law causes of action encompassing an employee’s claim that he was discharged in violation of public policy. For example, in Held v. Manufacturers Hanover Leasing Corp.,24 the 10th Circuit concluded that the plaintiff’s claim that his employer fired him to prevent the vesting of his pension rights is most analogous to a claim for employment discrimination. To reduce exposure to liability, some plan sponsors include a limitations period in their benefit plan documents and summary plan descriptions. A number of courts have recognized such plan-imposed limitation periods as being valid and enforceable under ERISA.

A prevailing party also can seek to recover its attorneys’ fees and costs under ERISA Section 502(g), which provides that in any suit by a participant, beneficiary or fiduciary under ERISA Title I, the court in its discretion may allow a reasonable attorney’s fee and costs of the action to either party.

Although jury trials are generally not available in ERISA cases, a jury trial may be available when an ERISA claim is combined with a common law or statutory claim where the plaintiff has a right to a jury trial under the U. S. Constitution.25

CONCLUSION

Claims to enforce statutory rights under ERISA Section 510 are increasing as “catch-all” type claims in employment litigation. An ERISA Section 510 claim can effectively make a federal case out of a state law wrongful discharge action. Some commentators assert that the combination of ERISA’s broad pre-emption of state laws and ERISA’s prohibition of abusive discharge and discipline in Section 510 invites federalization of the law of employee discharge and discipline.26 The addition of an ERISA 510 claim to an employment action dramatically changes the litigation landscape. Therefore, it is important for labor and employment lawyers as well as corporate lawyers to have a grasp of ERISA and its unique provisions. In addition, employers are well advised to evaluate ERISA concerns when terminating employees, outsourcing, closing a plant or taking other actions that may result in workers losing rights or benefits under ERISA plans.

1. Employee Retirement Income Security Act of 1974 (ERISA), P.L. 93-406.
2. ERISA §3(1).
3. ERISA §3(2)(A).
4. Curtiss-Wright v. Schoonejongen, 115 S. Ct. 1223 (1995).
5. Inter-Modal Rail Employees v. Atchison, Topeka and Santa Fe Railway Co., 520 U.S. 510 (1997).
6. Dister v. Cont’l Group, Inc., 859 F.2d 1108, 1111 (2d Cir. 1988).
7. DiFederico v. Rolm Co., 201 F.3d 200 (3rd Cir. 2000).
8. Id.
9. Ancekewicz v. Long Island University, No. 02-CV-4490 (E.D.N.Y. 2005).
10. Millsap v. McDonnell Douglas Corp., 62 F.Supp.2d 1262 (N.D.Okla. 2001).
11. Id.
12. See, e.g., Nauman v. Abbott Laboratories, 2005 U.S. Dist. LEXIS 9568 (N. D. Ill. 04/27/05) (ERISA Section 510 claim asserted as a result of corporate spin-off transaction).
13. Register v. Honeywell Federal Manufacturing & Technologies LLC, No. 04-1902 (8th Cir. 2005).
14. Hinojosa v. Jostens Inc., No. 04-10229 (5th Cir. 2005), cert. denied.
15. Millsap v. McDonnell Douglas Corp., No. 03-5124 (10th Cir. 2004).
16. Langbein, John H. and Wolk, Bruce A., Pension and Employee Benefit Law (3d Ed. 2000).
17. Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987).
18. Id.
19. Ingersoll-Rand Co. v. McClendon, 498 U.S. 133 (1990).
20. Id.
21. E.g., Forbus v. Sears Roebuck & Co., 30 F.3d 1402, 1406-1407 (11th Cir. 1994), cert. denied, 513 U.S. 1113 (1995).
22. ERISA §502(e)(2).
23. Id.
24. 912 F.2d 1197 (10th Cir. 1990).
25. See, e.g., Stewart v. KHD Deutz of American Corp., 1996 US App Lexis 3243 (8th Cir. 1996).
26. See Langbein, John H. and Wolk, Bruce A., Pension and Employee Benefit Law (3d Ed. 2000).

About the Author

Kenni B. Merritt, an attorney with Crowe & Dunlevy, resides in Bellingham, Wash., and telecommutes to her office in Oklahoma City. Ms. Merritt focuses her practice primarily on employee benefits law and ERISA, representing employers in the design, implementation and administration of all types of employee benefit plans and deferred compensation arrangements. She is a graduate of the University of Oklahoma College of Law and is admitted to practice in Oklahoma and in Washington state.

Published OBJ 77 873 (March 11, 2006)