Claims and Remedies under ERISA Section 510: The Mysteries Continue

By Guest Blogger Colleen Medill (Nebraska):

Somewhat overshadowed by the Supreme Court’s oral argument last week in LaRue v. DeWolff Boberg & Associates was the Court’s denial of certiorari in another significant ERISA case, Eichorn v. AT&T Corp., 484 F.3d 644 (3d Cir. 2007) ("Eichorn II"). Eichorn II provides a vehicle to address dual ERISA mysteries: (1) Is an ERISA Section 510 claim possible when the plaintiffs are a class of employees affected by a corporation reorganization?; and (2) If so, is there a remedy for such a Section 510 claim under ERISA Section 502(a)(3) that qualifies as equitable relief?

The facts of Eichorn, which are somewhat unique, are described in detail in Eichorn v. AT&T, 248 F.3d 131 (3d Cir. 2001)("Eichorn I"). Greatly summarized, the case arose out of the 1995 reorganization of AT&T. As part of the reorganization, AT&T agreed to sell its subsidiary, Paradyne Corporation. Part of the sale agreement included an agreement by AT&T and its remaining subsidiary corporations that they would not rehire any Paradyne employee with a salary above $50,000 for eight months after the sale. This "no-hire" agreement effectively eliminated certain "bridging rights" that would allow an employee to retain pension service and vesting credit under the AT&T pension plan (which had a five-year cliff vesting schedule) for time away if the employee returned to work for AT&T or one of its subsidiaries within six months.

In Eichorn I, the Third Circuit held that the plaintiff-employees affected by the no-hire agreement had presented sufficient evidence to survive summary judgement on their claim under ERISA Section 510 that the no-hire agreement was specifically intended to interfere with their rights under the AT&T pension plan. In Eichorn II, however, the Third Circuit held that the plaintiff-employees had no remedy under ERISA Section 502(a)(3), and therefore upheld the district court’s grant of summary judgment for AT&T.

The denial of certiorari in Eichorn II is mysterious for several reasons. First, the case presented an opportunity to clarify the meaning of "equitable relief" under Section 502(a)(3) in the context of Section 510 claims. Equitable relief under Section 502(a)(3) for a violation of Section 510 has been an area of emerging controversy in the wake of the Supreme Court’s cryptic dicta in footnote 4 of the majority opinion in Great-West Life & Annuity Insurance Co. v. Knudson, 534 U.S. 204 (2002), which suggested that back pay awards may not constitute "equitable relief."

More fundamentally, Eichorn is symbolic of a new genre of Section 510 claims where the claim of interference is not made by a lone individual who allegedly was targeted for retaliation, but rather stems from a corporation restructuring where employee benefits (most notably, their costs) are a factor in how the reorganization is structured. Other examples include Register v. Honeywell Federal Manufacturing & Technologies, LLC, 397 F.3d 1130 (8th Cir. 2005), and Millsap v. McDonnell Douglas Corporation, 368 F.3d 1246 (10^th Cir. 2004). From an employer’s perspective, Honeywell illustrates a best practices approach; Millsap illustrates what not to do.

The Supreme Court previously has addressed a 510 claim in the corporate reorganization context once before in Inter-Modal Rail Employees Association v. Atchison, Topeka & Santa Fe Railway Co., 520 U.S. 510 (1997). Inter-Modal involved a corporate restructuring that affected benefits under a collective bargaining agreement. Inter-Modal, however, was limited to the narrow question of whether alleged interference with welfare plan benefits (as opposed to vested pension benefits) could lead to an actionable claim under Section 510. (The Court said "yes.")

One has to wonder whether part of the reasoning for denying certiorari in Eichorn II stems in part from a general unwillingness on the part of the Supreme Court to fall again into the trap of Mertens v. Hewitt Associates, 508 U.S. 248 (1993). In Eichorn II, was the Court reluctant to rule on the remedies available under Section 502(a)(3) "where it is unclear that a remediable wrong [under Section 510] has been alleged"? See 508 U.S. at 255.

Finally, the mystery deepens further when one sees observes the diminishing viability of the McDonnell Douglas burden shifting analysis under Title VII. Is McDonnell-Douglas going to remain as the judicial approach to Section 510 claims in the future? What could (or should) replace McDonnell Douglas as an analytical framework for the federal courts to follow in Eichorn-like corporate reorganization claims under Section 510?

For those in the legal academy who complain that their scholarship is being ignored by the judiciary and lawmakers, these are certainly mysteries worth writing about. In the meantime, labor and employment lawyers need to add the possibility of a claim under ERISA Section 510 to their checklist of legal claims (WARN, ADEA, etc.) that possibly can arise from a corporate reorganization, downsizing, or outsourcing of labor functions. It is cold comfort to the employer to "win" when winning entails years of litigation in the federal courts.

CM