:: Claim of Interference With Benefits Rights Requires Bona Fide Employment Status
Although the Second Circuit has not squarely addressed this issue, courts in this District have held that § 510 only proscribes interference with the employment relationship . . . Thus, “plaintiffs must allege that defendant took some type of adverse employment action to interfere with the attainment of their benefit rights under the plan.â€
Tirone v. New York Stock Exchange, Inc., 2006 WL 2773862 (S.D.N.Y.) (September 28, 2006)
In Tirone, the plaintiff commenced an ERISA class action against the NYSE on behalf of himself and at least 14 other former NYSE employees whose health and life insurance benefits were discontinued by a leave of absence policy. In early 1990, the plaintiff took a medical leave of absence after he began experiencing seizures. His employer, the NYSE, classified him as “totally disabled.â€
Under the NYSE Welfare Benefit Plan, the Plaintiff was approved for long-term disability benefits payable by Unum Insurance Company on the basis of a total disability. The Plaintiff also participated in an HMO and enjoyed group benefits under separate policies – the curtailment of these benefits gave rise to the case.
The Change In Policy For Individuals On A Medical Leave of Absence
Effective January 1, 2005, the Defendants adopted a purported leave of absence policy under which the employment status of an individual on medical leave would be discontinued if the individual failed to resume work within two years of commencing the leave. This change, whether constituting an plan amendment or a new policy (a disputed point), had the effect of discontinuing the plaintiff’s health and life insurance benefits.
Section 510 of ERISA – Protection Against Interference With Benefit Rights
Section 510 of ERISA, as codified at 29 U.S.C. § 1140, provides:
It shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary ··· for the purpose of interfering with the attainment of any right to which such participant may become entitled to under [an employee benefit plan].
Although the plaintiff brought claims under Section 502 and 510, the viability of the Section 510 claim was the issue before the court. While Section 510 can apply in various contexts, such as suspensions, expulsions, disciplinary actions, or any other form of discrimination, the Tirone opinion focused on the effect of the new policy (or “plan amendment”, as the case may be) under Section 510.
Employment Status As Essential Element of Claim
Given the attenuated nature of the plaintiff’s employment status, the Court viewed the complaint as failing to allege an essential element of an ERISA Section 510 claim. The Court observed:
The law is unsettled regarding the extent to which a § 510 claim must implicate the employer-employee relationship. See Choi v. Mass. Gen. Physicians Org., 66 F.Supp.2d 251, 254 (D.Mass.1999) (collecting cases). Although the Second Circuit has not squarely addressed this issue, courts in this District have held that § 510 only proscribes interference with the employment relationship. Devlin v. Transp. Commc’ns Int’l Union, No. 95 Civ. 0742(JFK), 1997 WL 570512, at (S.D.N.Y. Sept. 15, 1997); see also Downes v. J.P. Morgan Chase & Co., No. 03 Civ. 8991(GEL), 2004 WL 1277991, at (S.D.N.Y. June 8, 2004); DeSimone v. Transprint USA, Inc., No. 94 Civ. 3130(JFK), 1996 WL 209951, at (S.D.N.Y. Apr. 29, 1996); see also DeGrooth v. Gen. Dynamics Corp., 837 F.Supp. 485, 489 (D.Conn.1993).
Intepreting the foregoing authorities, the Court concluded that the “plaintiffs must allege that defendant took some type of adverse employment action to interfere with the attainment of their benefit rights under the plan.†A review of the following facts suggested that the plaintiffs had not met this requirement:
1. The plaintiff and the putative class did not allege an adverse employment action.
2. Neither the plaintiff nor any member of the putative class worked for the NYSE when their benefits were discontinued.
3. Although they kept their “employee†status until the policy change was implemented, they did so only to receive benefits, and their “termination†affected them only insofar as it deprived them of those benefits.
Quoting from DeGrooth v. Gen. Dynamics Corp., 837 F.Supp. 485, 489 (D.Conn.1993), the court stated that “[a] reduction of benefits, in and of itself, is not adverse employment action for purposes of Section 510.†See, DeGrooth, 837 F.Supp. at 489.
Plaintiff’s “Administrative Status” Insufficient Employment Nexus
As it turned out, the alleged denial of benefits entailed a change in Plaintiffs’ administrative status as an “employeeâ€. The Court held that that fact alone was of no consequence for the purposes of Section 510. In support of this holding the Court cited Mansfield v. Lucent Techs., No. 04 Civ. 3589(MLC), 2005 WL 2175452, at (S.D.N.Y. Sept. 6, 2005) (dismissing § 510 claim asserted by former employee whose long term disability benefits were discontinued after the employee was misclassified as a “retired employee†instead of an “active employeeâ€).
Disparate Impact Insufficient “Discrimination” For Purposes of Section 510
The Plaintiff also contended that the Defendants violated Section 510 by “singling out Plan participants on long term disability for termination of benefits.” The Court rejected this claims as a basis for liability under the statute.
[T]his is not the sort of “discrimination†that gives rise to § 510 liability. “[A]llocating benefits among employees ··· does not constitute adverse employment action.†DeGrooth, 837 F.Supp. at 489. “While [a reduction that disproportionately affects a certain group of participants] may indeed be arbitrary, [it is] not actionable under § 510, in the absence of further allegations of an employer’s specific intent to discriminate against individual employees.†DeGrooth, 837 F.Supp. at 489; see also McGann v. H & H Music Co., 946 F.2d 401 (5th Cir.1991) (affirming summary judgment dismissing § 510 claim based on reduction of benefits to certain plan participants); Owens v. Storehouse, Inc., 984 F.2d 394 (11th Cir.1993) (same)
Thus, the Court rejected disparate impact alone as sufficient to state a claim under the statute, stating that [i]f every change to a welfare plan that disparately impacted participants were considered discriminatory, “employers who reduce or terminate coverage for certain categories of illness ··· would face near-automatic section 510 liability.â€
Failure To Follow Plan Document Improper Basis For Section 510 Claim
The complaint alleged that the defendants failed to follow the SPD’s procedures for Plan amendments and, therefore, the policy was void. ERISA § 402(b)(3), 29 U.S.C. § 1102(b)(3), requires that employee benefit plans provide “a procedure for amending such plan, and for identifying the persons who have authority to amend the plan.†Even if this were correct, the Court held that:
a flawed Plan amendment alone does not give rise to liability under § 510. Plaintiffs identify no case in which a § 510 plaintiff was excused from showing an adverse employment action because the defendant violated § 403(b)(3). Rather, Plaintiffs must meet all of § 510’s requirements regardless of the circumstances. Plaintiffs might have other avenues of recovery for the alleged violation of the Plan’s amendment procedure, but they cannot recover under § 510 on the facts of this case.
Note: In addition to the elements of a Section 510 case set forth in McDonnell Douglas Corp. v. Green, 411 U.S. 792, 802-05, 93 S.Ct. 1817, 36 L.Ed.2d 668 (1973), two additional requirements are implied. As part of a prima facie case, the plaintiff must establish that the plan at issue is an ERISA covered employee benefit plan. See, 29 C.F.R. § 2510.3-1 (1983). Second, the plaintiff must establish that the defendant took some type of adverse employment action to interfere with the attainment of their benefit rights under the plan. See, Deeming v. American Standard, Inc., 905 F.2d 1124, 1127 (7th Cir.1990) (“[a] fundamental prerequisite to a § 510 action is an allegation that the employer-employee relationship, and not merely the pension plan, was changed in some discriminatory or wrongful wayâ€). And as Tirone illustrates, the employment nexus must be substantial and not simply an administrative status or nominal relationship.
(The Degrooth citation in the opinion, did not reflect that the decision was affirmed in Degrooth v. General Dynamics Corp., 28 F.3d 103 (2nd Cir.1994), cert den., DeGrooth v. General Dynamics Corp., 513 U.S. 1043 (1994))
