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WHAT IF AN EMPLOYER systematically fired its employees just before those employees became vested in their pension benefits? Would such an action be illegal?
Absolutely. Section 510 of the Employee Retirement Income Security Act makes it a crime to discharge or discriminate against employees for the purpose of preventing them from attaining their rights under a benefit plan.
But let's say the facts were slightly different.
Take, for example, an employer that offered a generous health care benefits package and decided to transfer its employees to a new subsidiary that didn't offer any health care benefits. The employer gives the workers a choice of continuing their jobs at the new company-albeit without any benefits-or being let go. Would such an action, while perhaps reprehensible, also be illegal?
Until now, workers had few opportunities to make that case because under some previous interpretations of ERISA, such suits were rejected by the courts.
As we report on page 1 this week, the U.S. Supreme Court, while perhaps not definitively answering our hypothetical question, now at least will let courts consider such cases. The high court unanimously ruled that Section 510's protections against corporate actions, such as dismissals, specifically aimed at preventing employees from earning benefits, applies to welfare as well as pension benefits.
Given what we think is the clear statutory language of Section 510, we don't see how the court could have ruled differently. Section 510, as Justice Sandra Day O'Connor wrote, makes it unlawful to discharge employees for the purpose of denying any right an employee could become entitled to under a plan. Had Congress intended to limit Section 510 protection to pension plans or plans where benefits vest, it would have said so, Justice O'Connor wrote.
No doubt, some employers may panic and interpret the decision as one that will interfere with their ability to make business decisions and benefit choices free from government intervention.
But we believe employers have little to worry about.
The decision does nothing to prevent employers who follow legal procedures, such as giving employees sufficient notice, from reducing or even eliminating their health care benefits.
Nor does the decision bar an employer from taking other actions that yield reduced benefit expenses. For example, an employer could freely outsource corporate functions, such as payroll administration, if it can show it has fundamental business reasons for doing so, such as a desire to focus on its core operations.
What the decision does do, however, is say that corporate actions driven solely by the motivation of denying employees' benefits-be they pension benefits that vest or health care benefits that almost never vest-can be challenged in court.
We think that is only fair and just. Benefits that employees receive through health care plans should be protected from illegal actions to the same extent as the benefits they receive through pension plans.