Interference with ERISA rights

[Guest Sieve]

Is there any kind of ERISA violation for making a decision to hire only part-time employees, or to hire a specific employee as part-time, in order to prevent the individuals from being eligible for the qualified plan--or to set employees' hours such that employees do not reach the h/s threshhold in the plan and therefore are never eligible for plan participation? (ERISA Section 510 relates to interference with the rights of a participant, not an employee or a non-employee.) Assume that there is no other discrimination invovled (i.e., race, gender, ADEA, religion, etc.).

[J Simmons]

Is there any kind of ERISA violation for making a decision to hire only part-time employees, or to hire a specific employee as part-time, in order to prevent the individuals from being eligible for the qualified plan--or to set employees' hours such that employees do not reach the h/s threshhold in the plan and therefore are never eligible for plan participation? (ERISA Section 510 relates to interference with the rights of a participant, not an employee or a non-employee.) Assume that there is no other discrimination invovled (i.e., race, gender, ADEA, religion, etc.).

No, ERISA protects only EEs from adverse employment decisions that are benefits motivated, not non-employee applicants. See Becker v Mack Trucks, 281 F3d 372 (CA3 2002).

[Guest Sieve]

Thanks for the cite, John. The case deals with re-hires, but the analysis certainly would equally apply to initial hires.

[Peter Gulia]

John, thanks for the helpful citation.

Because a person usually can’t be a participant unless he or she is first an employee, the simplest way to make ERISA § 510 not apply is to avoid hiring an employee (or not to have any employee-benefit plan). But a business that doesn’t want to go that far sometimes tries a strategy of the kind that Sieve describes.

One worry about such a strategy is that ERISA defines a “participant” as an employee who is “or may [sic] become” eligible for a benefit.

Because ERISA § 510 proscribes “interfering with the attainment of any right to which [a] participant [as so defined] may [sic] become entitled under the plan”, a plaintiff might argue that interference with an opportunity to stay in, or move into, a job classification for which a plan currently provides a benefit or might in the future be amended to provide a benefit is interference that invokes ERISA § 510. (I don’t suggest that such an argument relates to a fair reading of the statute.) One can imagine a plaintiff’s argument that an employer’s decision not to promote an employee from part-time to full-time is the kind of interference that ERISA § 510 forbids.

In Fleming v. Ayers & Associates, 948 F.2d 993, 14 Employee Benefits Cases (BNA) 1673, 57 Empl. Prac. Dec. (CCH) ¶ 41,205, 57 Fair Empl. Prac. Cases (BNA) 330, 1991 U.S. App. LEXIS 25791 (6th Cir. 1991), the court found that firing an employee who had been hired only for a part-time job was an ERISA interference because it deprived her of the opportunity to be considered for a full-time job, which would have (if the plan were not amended) entitled a full-time employee to a benefit. The appeals court’s reasoning was influenced by the trial court’s finding “that Fleming was hired with the intent that she move into a full-time position when a job became available.”

Query: Might an employer have somewhat better protection against ERISA § 510 if it affirmatively informed every job applicant and every part-time employee that the employer never considers a part-time employee as a candidate for any full-time job, and never permits a part-time employee to work (or get credit for) more than 18 hours in any week?

[david rigby]

I always enjoy Peter's discussions.

From the non-lawyer perspective, Sieve's question is a no-brainer: NO.

It's probably also obvious that embedded within his question is the history of why we have statutes/regs that deal with leased employees.

[GBurns]

On the other hand, from my non-lawyer perspective, I see Sieve's question as a no brainer: YES.

Aside from the 501 issue raised by Fiduciary Guidance Counsel, there are other issues which I faintly recall but cannot readily cite.

Wasn't this behaviour by an employer addressed in the Wal-Mart cases and earlier cases which involved supermarkets?

But even if not prohibited by ERISA, other laws should.

[J Simmons]

...Fleming v. Ayers & Associates, 948 F.2d 993, 14 Employee Benefits Cases (BNA) 1673, 57 Empl. Prac. Dec. (CCH) ¶ 41,205, 57 Fair Empl. Prac. Cases (BNA) 330, 1991 U.S. App. LEXIS 25791 (6th Cir. 1991)... .

And thank you, Peter, for that citation to Fleming where a nose-in-the-tent concern is recognized.

Query: Might an employer have somewhat better protection against ERISA § 510 if it affirmatively informed every job applicant and every part-time employee that the employer never considers a part-time employee as a candidate for any full-time job, and never permits a part-time employee to work (or get credit for) more than 18 hours in any week?

Yes, I think that would be somewhat better protection for the ER--and so once again a law like ERISA designed to protect EEs has the effect of incentivizing an ER to take steps that might actually be against the EE's best interests.

[K2retire]

Yes, I think that would be somewhat better protection for the ER--and so once again a law like ERISA designed to protect EEs has the effect of incentivizing an ER to take steps that might actually be against the EE's best interests.

No doubt there are more business owners than working stiffs who make it to the legislature so their perspective is different.

[Guest mjb]

Is there any kind of ERISA violation for making a decision to hire only part-time employees, or to hire a specific employee as part-time, in order to prevent the individuals from being eligible for the qualified plan--or to set employees' hours such that employees do not reach the h/s threshhold in the plan and therefore are never eligible for plan participation? (ERISA Section 510 relates to interference with the rights of a participant, not an employee or a non-employee.) Assume that there is no other discrimination invovled (i.e., race, gender, ADEA, religion, etc.).

Why does the restricting hours of service matter when ERISA 202(a)(4) permits the employer to simply exclude employees by job classification, regardless of the number of hours worked, e.g., all delivery persons are ineligible.

Under the doctrine of renunciation, if an employer notifies an employee of ineligiblity for benefits upon hire, the statute of limitations to bring a claim for benefits under 502/510 begins to run when the notice is provided.

[Guest Sieve]

If the exclusion is by job classification, that would be fine (as long as the plan still passes coverage testing)--unless, of course, the exclusion is specifically service based (e.g., "part-timers"). But if hiring decisions are based on a desire to limit plan participation through a service limitation (which is apparently OK, at least under ERISA), then settling on a job classification for exclusion would be difficult/impossible.

Peter & mjb's suggestion of pre-employment notice would limit the employer's potential exposure--if, as actually hired, the individual would not otherwise be eligible for participation (e.g., hired only for 1 day a week employment, thus would never reach y/s). But, if a full-timer who's otherwise eligible for the plan is hired and told that he/she will never participate in the plan, and his/her are later manipulated in order to prevent plan participation, then it would seem to me that the statute should not start running until the manipulation of hours actually occurred.