Given the plan language as described in the decision, the result was not surprising in light of similar decisions from other courts. But the plaintiffs also had a claim under Section 510, which prohibits employers from discriminating against "participants" for the purpose of interfering with their right to attain benefits. The plaintiffs argued that GTE should have moved them to the GTE payroll after they were hired but instead, deliberately kept them off payroll for the purpose of excluding them from GTE's benefit plans.
The court avoided a decision on the merits because it found that the Section 510 claim was time-barred. But if the claim was timely what might be the outcome? Plaintiffs argument is intriguing, but, in my view, not a winner.
Under ERISA, a "participant" is any "employee" of the employer who becomes eligible for benefits. The Supreme Court previously ruled that the term "employee" as used in ERISA means any common-law employee of the employer. The Edes plaintiffs likely were GTE's common-law employees if the facts as alleged in the complaint were true and, therefore, may have become benefit eligible if they were on the GTE payroll. So, the argument goes, GTE's failure to move them to the payroll discriminated against the plaintiff class.
If that's the argument, how does it square with the general principle that an employer's plan design decisions are not subject to ERISA? For example, employers are permitted to create separate plans for salaried and union personnel, with different benefits, so why not two (or more) classes of worker, common-law or otherwise. Moreover, the Third Circuit has held that Section 510 does not apply to hiring decisions. So, if GTE could hire the Edes plaintiffs into non-benefit positions, why would GTE later have an obligation to move them to the payroll so that they could become benefit eligible?
Recall that in the Supreme Court's Inter Modal decision, the Court stated:
But in the case where an employer acts with a purpose that triggers the protection of §510, any tension that might exist between an employer's power to amend the plan and a participant's rights under §510 is the product of a careful balance of competing interests, and is most surely not the type of "absurd or glaringly unjust" result . . . that would warrant departure from the plain language of §510.The Supreme Court was acknowledging the tension between Section 510 and the employer's right to amend benefit plans -- in certain instances, an employer's decision-making may be subject to Section 510 constraints. The Edes plaintiffs, however, go farther. In Inter Modal, the issue was whether Section 510 applied to discharged employees who had not vested in certain "welfare" (e.g. non-pension) benefits. But in Inter Modal, there was no question that the plaintiffs were employees of the defendant employer, at least until they were fired.
In other words, before the Inter Modal plaintiffs were fired, they were eligible to receive, or would become eligible to receive, certain benefits. The employer had promised to provide the benefits to its existing employees (who were recognized as such) and Section 510 "helps make such promises credible." By contrast, in Edes, GTE never promised the plaintiffs any benefits because, from day one, they were off-payroll.
There are other theories that could support the claims of off-payroll employees, but Section 510 does not appear to help those individuals who never were on the employer's payroll.
