Mortgage Loan Officers May Be Eligible for Overtime Pay

The DOL has issued an legal opinion that banks should not classify their loan officers "administrative employees" under the FLSA. Therefore, the loan officers may be eligible for overtime pay. Essentially, the DOL has concluded that these mortgage loan officers are inside sales employees who "produce" loans. As such, they are not exempt from overtime laws requiring overtime pay for work that exceeds 40 hours in a workweek. The latest statement from DOL reverses the positions it adopted in opinion letters issued in 2001 and 2006. The complete text of the Administrator's opinion letter is here.

NFL Players Association, Congress to Follow-up on Head Trauma Study

NFL Players Association, Congress to take closer look at head trauma - NFL - SI.com

The recent NFL study on the rates of cognitive impairment in retired NFL players has spurred both the NFLPA and Congress to take a closer look. The NFLPA has formed a committee of players, former players and medical experts to examine the "diagnosis, treatment and prevention of concussions and brain injuries in active players; and the long-term cumulative effects of isolated or repetitive traumatic brain injuries in NFL players as patients."

A Congressional committee previously investigated the NFL's disability benefit plan in 2007 and concluded that it was materially flawed and needed to be fixed. Now, another Congressional committee will look at the effects of head injuries, how to limit them and compensate affected players and families. Presumably, the committee will examine how the NFL Player Retirement Plan handles disability claims arising out of concussions and head injuries. The committee should not overlook the links between brain injury and depression, drug use or suicide.

The NFL has repeatedly denied a link between a football career and an increased risk of cognitive impairment and has distanced itself from the results of the latest study. While experts seem to agree that the study is not definitive, it is consistent with other studies and the medical science related to the long-term effects of head trauma. The NFL should really be more concerned about the post-career effects of a player's head injuries than a player's untucked uniform or overly exuberant celebration in the end zone after a touchdown.

Retired NFL Players Suffer From Higher Rates of Cognitive Impairment

As reported in the New York Times and elsewhere, an NFL commissioned study finds that "Alzheimer’s disease or similar memory-related diseases appear to have been diagnosed in the league’s former players vastly more often than in the national population — including a rate of 19 times the normal rate for men ages 30 through 49." Over 1,000 former players were interviewed for the study. The results are significant because the NFL commissioned the study. Previous studies which suggested that retired NFL players suffered from high rates of brain function impairment were downplayed by the NFL. Now, the NFL's own study reveals much higher than expected rates of cognitive impairment in former players compared to men in the general population of a similar age.

The NFL and NFL Players Association offer the "88 Plan" to retired players who have Alzheimers, dementia or similar conditions. That plan reimburses players for up to $88,000 of expenses per year for the services needed to care for the player. But the NFL study tees up the issue of whether a former player with cognitive impairment will qualify for disability benefits from the NFL Player Retirement Plan.

A key point from the study is that the cognitive impairment is occurring at a relatively young age. Any retired player suffering from such an impairment would have a diminished ability to work productively, perhaps enough to render him totally disabled. The NFL's disability plan has different levels of disability benefits, but for a player that becomes disabled after finishing his career, the benefit level with the highest monthly payment is the "football degenerative" benefit. (The plan pays $110,000 per year to players who qualify for "football degenerative" benefits.) The plan, however, limits eligibility for the "football degenerative" benefit to former players who are under 45 or who are less than 15 years from the end of their NFL careers (whichever is later). According to the NYT article, the NFL study found:

A normal rate of cognitive disease among N.F.L. retirees age 50 and above (of whom there are about 4,000) would result in 48 of them having the condition; the rate in the Michigan study would lead to 244. Among retirees ages 30 through 49 (of whom there are about 3,000), the normal rate cited by the Michigan researchers would yield about 3 men experiencing problems; the rate reported among N.F.L. retirees leads to an estimate of 57.

Both population groups (30-49 and 50+) showed abnormal rates of cognitive impairment, but it seems that most of the players suffering from these conditions are older than 45. Players who became disabled because of a cognitive impairment after age 45 would be ineligible for the "football degenerative" benefit unless they were still within 15 years of their last season. There are not that many players who are still playing beyond age 31 or 32, however.

Representatives of the NFL and the NFL Players Association are currently meeting to discuss a new collective bargaining agreement. This NFL study should prompt both sides to consider revising the disability plan to make sure that players with cognitive impairments at any age can qualify for "football degenerative" benefits.

The NYT article is here.

The NFL Retirement Plan's Approach to Substance Abuse

Recently, the Philadelphia Inquirer profiled former Eagle defensive lineman Sam Rayburn. Rayburn became addicted to painkillers and was arrested in March 2009 for forging prescriptions for controlled substances. Rayburn apparently began self-medicating during his career with the Eagles from 2003 to 2006. While he does not blame the Eagles trainers or coaches, it appears from the article that he may have obtained some prescription painkillers, legitimately, from the team doctors:

"You could get things when it was necessary," Rayburn said. "If you had an injury they were aware of, they would give you a certain amount. They wouldn't give you an entire prescription. Most of the injuries I was dealing with were undisclosed. I was going outside the team doctors and stuff like that to acquire the medicine I thought I needed. It was a deal where I was going out on my own and getting them from other doctors that I knew."

Interestingly, a player addicted to controlled substances prescribed by an NFL team physician could become eligible for disability benefits from the NFL Retirement Plan. If the player has a “total and permanent disability” caused by his “substantially continuous use” of a controlled substance prescribed for him for football-related injuries, he can receive benefits. This raises an interesting issue. Does the addiction itself qualify the player for benefits, or is the intention to limit eligibility only to retired player who has some secondary impairment (liver damage, perhaps) that was caused by the continuous use of the controlled substance?

Regardless of the answer, the existence of the exclusion may reflect the NFL's concern about painkiller abuse and the potential costs to the Retirement Plan. This provision was added to the Plan in 1998 to exclude most substance abuse disabilities from benefit eligibility. Exclusions are built into disability plans precisely to limit the insurer’s known risks. In this case, the Plan itself is the insurer. The existence of this exclusion in the Plan suggests that the NFL had, and perhaps still has, concerns about the possible abuse of painkillers by the players.

New DIsability Lawsuit Against NFL Player Retirement Plan

This office has filed a lawsuit against the Bert Bell/Pete Rozelle NFL Player Retirement Plan on behalf of Gaylon Hyder, a former player for the Rams and Browns. Mr. Hyder suffers from a kidney disease that has led to hypertension and congestive heart failure, rendering him disabled. So what is the link to pro football? As alleged in the Complaint, Mr. Hyder injured his knee during a Rams game against the Atlanta Falcons. To quell the pain and reduce inflammation, the team medical staff gave him Vioxx, which Mr. Hyder continued to take through the remainder of the season. Non-steroidal anti-inflammatory drugs (“NSAIDs”), like Vioxx, are potentially toxic to those with kidney disease. As further alleged in the Complaint, the Rams' medical staff had the results of medical tests that suggested Mr. Hyder had some impairment to his kidney function. Mr. Hyder contends that he is eligible for disability benefits because the Vioxx treatment worsened his kidney problems and prematurely ended his career. Coverage of the lawsuit can be found here.

NFL Players and Concussions

On the eve of the Super Bowl, an article on the CNN.com website reports on recent research on brain injuries suffered by football players:

[U]sing tissue from retired NFL athletes culled posthumously, the Center for the Study of Traumatic Encephalopathy (CSTE), at the Boston University School of Medicine, is shedding light on what concussions look like in the brain. The findings are stunning. Far from innocuous, invisible injuries, concussions confer tremendous brain damage.

It is known that concussions can lead to headaches, sleep disorders and depression. The physical changes to the brains of these former NFL players resemble the physical changes that might be found in the brains of elderly Alzheimer patients. The NFL and the Bert Bell/Pete Rozelle NFL Player Retirement Plan, however, have resisted the concept that repeated football related concussions can lead to depression and other symptoms which might qualify a player for disability benefits after retirement. The article can be found here.

Firing is Personal -- Don't Let it Be Discriminatory

The financial turmoil of recent months will unfortunately lead to job losses. Each day brings another announcement of large-scale layoffs. The end of a year typically brings terminations of employment as budgets are set for the following year. In this poor economic environment, which has been described as “once in a century,” employers may panic and permit or at least acquiesce in discriminatory decisions to fire employees. While the recession may force employers to reduce staff, individual executives and managers choose the person to fire. It is this unavoidably human element of the firing decisions that leads to claims of discrimination.

Age discrimination claims are already on the rise and this trend will likely continue. Another source of discrimination claims will be the revised Americans with Disabilities Act. Revisions that will take effect in 2009 will make it easier for employees to bring claims and survive employer attempts to dismiss the claims at an early stage. The ADA revisions includes the following key changes:

• Impairments that are not inactive or in remission (cancer, for example) can now qualify as a disability.

• A broader definition of “major life activity.” To qualify as a “disability,” an impairment must affect a “major life activity.” Major life activities now clearly will cover such things as seeing, hearing, speaking, walking, breathing, performing manual tasks, learning, caring for oneself, working, eating, standing, lifting, bending, reading, concentrating, thinking and communicating. And more. The revised ADA provides that the list is not all encompassing and that courts should take a broad view of what constitutes a disability.

• In determining whether a disability exists, employers must now look at how an impairment limits major life activities without regard for whether medication or assistive devices would reduce or eliminate the adverse effects of the impairment. For example, an employee with diabetes could still be “disabled” and entitled to a reasonable accommodation even if the diabetic condition is well controlled by medication.

A recession is an impersonal economic event, but firing an employee is very personal from the view of both the decision-maker and the employee. Careful employers will make sure that termination decisions are scrutinized for discriminatory motivation. Careless employers will find themselves subject to lawsuits.

More on NFL Players With Permanent Disabilities

The Washington Post has a lengthy article "The Pain Game" that poses the question of whether the NFL and NFLPA will rethink their financial and moral obligations to former players who helped build the league but who are now disabled.

Former NFL Player Wins Disability Claim

In a rare victory for disabled former NFL players, Wilber Marshall, once a linebacker for the Washington Redskins, convinced a federal appeals court that the NFL's disability plan (the Plan) erred in determining the onset date for disability. The court found that Marshall was entitled to retroactive disability benefits for an additional eight month period plus his attorneys' fees.

Like any other employer sponsored disability plan, the NFL's plan is covered by ERISA. Because the Plan grants the Board the discretion to decide claims and interpret the plan, its decisions are usually upheld unless they are arbitrary and capricious. In this case, the Board used a physician's date of examination to fix the date of disability onset but ignored evidence in the report that the disability extended back at least eight months before the exam. The court held that such decision-making was an abuse of discretion.

Retired NFL players have long been unhappy with the NFLPA and the Plan. Only approximately two percent of former players are receiving disability benefits, which is a very small number considering the physical toll exacted on the players. At a House Judiciary Subcommittee hearing on the NFL's system for compensating retired players, it was noted that:

half of all players retire because of injury, sixty percent of players suffer a concussion, at least one quarter of players suffer multiple concussions, and nearly two-thirds suffer an injury serious enough to sideline them for at least half of a football season.

The retired players would like to see the NFL create a retirement and disability system that better protects players whose careers were shortened by injury and who now have little or no current capacity to earn a living.

FIrst Thoughts on SCOTUS Oral Argument for LaRue

The transcript of the oral argument in LaRue v. DeWolff, Boberg & Assoc. was released this afternoon. Some initial impressions:

• Justices Roberts and Scalia would require participants to apply for benefits to the plan and be denied full payment (or any payment) before they could sue a fiduciary for a breach of ERISA's fiduciary requirements. Justices Roberts and Scalia would overturn 30 years of ERISA law that requires exhaustion of administrative remedies only for Section 502(a)(1)(B) claims (i.e. suits against the plan for denied benefit claims). The two Justices seem to propose that the exhaustion requirement also applies to Section 502(a)(2)/409(a) claims (i.e. suits against fiduciaries to restore losses to the plan as a whole). Why? Because 502(a)(1)(b) comes before 502(a)(2)! But the two sections are in the disjunctive and it would require the Court to read into ERISA a step-by-step requirement that does not exist.
  
  

• Justices Scalia and Roberts suggested that if a participant establishes a benefit due under Section 502(a)(1)(B), and the plan cannot pay, the plan then should sue the trustee for mismanagement. But under ERISA, a plan is not one of the named parties that are authorized to file a lawsuit. Under ERISA only the Secretary of Labor, or a participant, beneficiary, or another fiduciary can sue a fiduciary for a breach of any of ERISA's fiduciary duties. To quote Justice Roberts in an exchange with DeWolff's counsel:

If there is a suit under (a)(1(B) for a breach of the plan by a fiduciary do you agree that the plan, if it's liable, could then sue the fiduciary? . . . [W]ould that be a feasible result under the statute?

DeWolff's counsel answered "yes" but clearly the answer is "no" and Justice Roberts did not challenge the answer (nor did any other Justice).

• The issue of what remedies are available to individuals against breaching fiduciaries under Section 502(a)(3) was addressed mostly in passing. It is possible that the Court's decision would not even answer that important issue if it concludes that LaRue does have a claim under Section 502(a)(2).
  

The Workplace Prof Blog has more details of the argument here.

Langbecker v. EDS Update: Fifth Circuit Decides that EDS is AOK

The recent 5th circuit ruling vacating class certification is a big win for EDS and imposes significant obstacles for the plaintiffs on remand. The 57 page decision can be boiled down to the following:

1. ERISA plan fiduciaries do have plan wide responsibilities for 401(k) plans. So participants can sue on behalf of the entire plan under 502(a)(2) for plan wide relief even if the damages are ultimately allocated on an individualized basis.
   
   
2. BUT, section 404(c) applies as well. ERISA 404(c) immunizes a 401(k) plan fiduciary for any losses caused by a breach if the loss results from the participant's exercise of control.
   
   
3. 404(c) applies even though a fiduciary selected an investment for the plan, or chose to keep the investment as an option. Participants still have control over their own investments, even if the menu is limited by the fiduciary.
   
   
4. The Fifth Circuit is very skeptical that the case is appropriate for class status because of the 404(c) defense, which would appear to apply on an participant by participant basis, as well as damage issues, which depend upon each participant's particular set of investment decisions.
   

"Missed it by THAT Much": Court Strictly Enforces FMLA 75 Mile Limitation

The FMLA protects employees whose employer has 50 or more employees within 75 miles of the employee's worksite. In a recent case, the Tenth Circuit confirmed the DOL's interpretation that the 75 mile limit is based on "surface miles," not linear ("as the crow flies") miles. So a winding road could be the difference between eligibility and ineligibility for FMLA benefits. Apparently, that is precisely why the employee in Hackworth v. Progressive Casualty Insurance Company lost her case. The employee's worksite and one other close-by worksite had a combined 47 employees. Another worksite with 3 employees was 67 linear miles away but 75.6 miles distant if measured by surface miles. The Tenth Circuit deferred to the DOL's interpretation that the proper measuring standard was surface miles, not linear miles.

The case can be found here.

ERISA, Equitable Relief and the "Equitable Lien by Agreement": Undivided Supreme Court Reaches Back to Days of Divided Bench

The Supreme Court's recent unanimous decision in Sereboff v. Mid Atlantic Medical Services, Inc. may have restored to ERISA plan participants the ability to obtain meaningful relief for certain fiduciary breaches. Although Sereboff involved the claims of a fiduciary against a participant for reimbursement of plan-paid medical expenses, plan participants can use the same logic to advance their own claims against plan fiduciaries.

The Sereboffs were participants in an ERISA covered health insurance plan that paid their medical expenses after an auto accident. Mid Atlantic administered the plan. The Sereboffs received a $750,000 settlement for their injuries from the driver and his insurer and Mid Atlantic sought to recover from the Sereboffs the medical expenses paid by the plan, filing a lawsuit under section 502(a)(3) of ERISA. The issue was whether Mid Atlantic's claim for reimbursement constituted "equitable relief." Mid Atlantic had to prove that: (1) the nature of recovery sought was equitable; and (2) the basis for the claim was equitable. As to the first point, the Sereboffs had agreed to set aside about $75,000 of the settlement amount in an investment account until all the issues in the case were resolved. (Mid Atlantic's lawsuit included a request for a TRO and injunction, which was resolved by the set aside agreement). Accordingly, the Court held that the nature of the recovery sought was equitable because Mid Atlantic was seeking "specifically identifiable funds" that were "within the possession and control" of the Sereboffs. It did not matter that Mid Atlantic sought an equitable remedy based on the terms of contract (the plan document). ERISA §502(a)(3)(B)(ii) permits fiduciaries and participants to seek equitable remedies to enforce plan terms, "so the fact that the action involves a breach of contract can hardly be enough to prove relief is not equitable." Were it otherwise, "§502(a)(3)(B)(iii) would be an empty promise."

Turning to issue of the whether the claim itself was equitable, the court looked to its own case law "from the days of the divided bench." Specifically, the Court relied on a case from 1914 involving claims by attorneys for a portion of a contingency fee. Attorney Barnes promised two other attorneys working for him on a particular case one-third of a contingency fee he expected to receive. Justice Holmes concluded that Barnes's promise created a lien on the portion of the money due to Barnes from the client, which the two other attorneys could "follow . . . into the hands of . . . Barnes," "as soon as [the fund] was identified."

The Sereboffs' health plan provided that Mid Atlantic had a claim against "all recoveries from third party" for "that portion of the total recovery which was due" to Mid Atlantic for benefits paid. Mid Atlantic could thus "follow" a portion of the recovery into the hands of the Sereboffs as soon as they settled their case and received the settlement funds. Mid Atlantic could impose a constructive trust or equitable lien on that specific portion of the settlement that was equal to the amount of benefits paid.

Importantly, the Court also held that no "tracing requirement" applies to equitable liens by agreement. To impose the lien, the sought after funds did not have to "be in existence when the contract containing the lien provision is executed." It was sufficient that the contract (the plan document) identified the source and amount of money owed to Mid Atlantic.

The result of Sereboff is that a fiduciary is able to collect $75,000 from a participant. So how does the case help plan participants? Participants sometimes have "equitable estoppel" or misrepresentation claims based on misleading statements from plan fiduciaries about various aspects of their benefit plans. In recent years, such claims have faced numerous hurdles, including the argument that, regardless of the whether the fiduciary violated ERISA, there was no remedy because the participants were seeking damages in the form of lost benefits, not equitable relief. Sereboff suggests that participants may now be able to frame their claims against fiduciaries as an "equitable lien by agreement." The participants might argue that the source of the funds was identifiable (the plan and/or trust fund) and that their portion of the fund was the amount of benefits they claim are due to them based on the terms of the plan as represented to them by plan fiduciaries. The fiduciary's promises arguably create a lien on that portion of the fund that the participant claims as benefits due to him or her. As such, the participant could have a remedy under Section 502(a)(3).

Milofsky Cleared for Take-Off

The Fifth Circuit as a whole has revived the Milofsky lawsuit. As previously reported here in For Your Benefit, American Airline pilots claimed that they lost money because plan fiduciaries botched the transfer of certain plan assets. Neither the district court nor the appeals panel believed that the pilots had a legal claim. Essentially, the pilots were out of luck because the alleged fiduciary breaches affected only them and not all members of the plan. Now, in a two page opinion, the Fifth Circuit as a whole has ruled that the pilots can proceed with their lawsuit.

The key seems to be that the panel and district court failed to accept the plaintiffs' allegation that the lawsuit was on behalf of the plan. Under the notice pleading rules in effect in the federal courts, the plaintiffs' allegation was sufficient. The Fifth Circuit also ruled that the plaintiffs' claim was not a "disguised" benefit claim requiring exahaustion of adminstrative remedies but was, as pled, a fiduciary breach claim that did not require exhaustion.

The Fifth Circuit, however, did not explicitly rule that the plaintiffs' claims were, as a matter of law, on behalf of the plan, rather than themselves. This is somewhat odd, because the issue is not one of first impression. Appeals courts in the Third and Sixth circuits have concluded that subclasses of 401(k) plan participants may seek money damages on behalf of the plan even though the fiduciary violations affected only a subset of the plan’s participants. So there was a legal framework in place to support the pilots if the Fifth Circuit wanted to use it. Perhaps the Fifth Circuit had in mind the Third Circuit's Schering-Plough decision, in which the court distinguished the Milofsky panel decision:

In Milofsky, the plaintiffs alleged that the value of their investments in the BEX plan decreased because of the failure of the defendants to transfer the funds to the American Eagle 401(k) plan. . . .Thus, this alleged loss occurred prior to the transfer of the BEX plan participants’ investments to the American Eagle 401(k) plan. In Milofsky, the plaintiffs sought damages on behalf of the BEX plan members, and did not seek to restore assets of the American Eagle 401(k) fund. Here, the Plaintiffs seek damages from the fiduciaries for their violation of their duty to a subclass which had transferred its funds to the trustee of the Savings Fund.

The pilots now return to the district court for "further development" of their claims.

Relief for Fiduciary Breach?

A Seventh Circuit panel that included Judge Easterbrook recently invited an ERISA plaintiff to seek "make-whole" relief against a fiduciary in McDonald v. Household International, Inc. This has been a vexing issue for plan participants since the Supreme Court's decision in Great-West, which many courts have interpreted to limit severely the kind of relief a participant may obtain from fiduciaries and others.

Mr. McDonald started working for his employer on November 19, 2001. His health insurance coverage was supposed to be effective as of December 19. For some reason, this did not occur. After December 19, he repeatedly tried to get a prescription filled for blood pressure medicine. Each time he was told that he did not have insurance coverage. Because he could not afford to pay for the drugs himself, he went without them from December 19 to January 15, 2002. He pleaded with his employer and the HMO to fix the problem but nothing happened. On January 15, he suffered a "catastrophic stroke." Subsequently, he and his wife filed the lawsuit, which raised a variety of state negligence and contract claims, but no ERISA claims. The McDonalds obviously hoped to avoid ERISA's limitations on available relief.

Naturally, all of their claims were preempted by ERISA. Judge Wood, however, writing for the court, suggested that the McDonalds take a look at Justice Ginsburg's concurring opinion in Davila:

where she drew attention to the Government's suggestion that ERISA "as currently written and interpreted, may allo[w] at least some form of 'make-whole' relief against a breaching fiduciary in light of the general availability of such relief in equity at the time of the divided bench."

Mr. McDonald should have been covered by a health plan and should have been able to obtain his medicine, which likely would have prevented his stroke. Either the employer or the HMO dropped the ball. The McDonalds are now burdened with presumably massive medical expenses. Yet, since the Supreme Court issued its decision in Great-West, many courts would rule that the McDonalds have no right under ERISA to monetary relief from any party, fiduciary or not.

It is settled law that ERISA prevents participants from receiving tort-type compensation for pain and suffering. However, the McDonalds should be able to recover from a breaching fiduciary monetary compensation at least equal to their medical bills. Three judges from the Seventh Circuit seem to believe that the issue is worth exploring further, at a minimum.

The Department of Labor is pressing courts to rethink the assumption that monetary payments from a fiduciary to a participant can never qualify as equitable relief. A recent brief on that point is here.

Federal Judge Agrees: Nine Is Greater Than Four

As discussed in an earlier post, a federal judge was taking a second look at her decision barring the EEOC from publishing regulations that would permit employers to coordinate retiree health care benefits with Medicare eligibility. The EEOC contended that the Supreme Court's decision in Brand X confirmed the EEOC's authority to issue the challenged regulations, despite the Third Circuit's Erie County decision that the ADEA prohibited benefit plans from reducing medical benefit coverage when retirees became eligible for Medicare.

Yesterday, the judge reversed her previous decision and upheld the EEOC's proposed regulations. The judge ruled that Brand X:

dramatically altered the respective roles of courts and agencies under Chevron. Brand X held that a court's interpretation of a statute only bars an agency from interpreting that statute differently from the court if the court has determined the only permissible meaning of the statute. . . .Because the Third Circuit's Erie County decision did not determine the only permissible meaning of the relevant provisions of the ADEA, under Brand X, I am not bound by Erie County in reviewing the EEOC's regulation.

In other words, because Section 4 did not specifically cover retiree benefits, there was room for an interpretation that such benefits were not covered. Writing on a "clean slate," the court agreed with the EEOC that under Section 9, the EEOC had the "flexibility to decide whether retiree benefits are covered by the Act at all." Given that broad authority, the EEOC was allowed "to interpret the ADEA to cover retiree benefits generally, while exempting the practice of Medicare coordination of health benefits."

Nine is greater than four, after all.

The court's decision is here.

Off Payroll Employees Ineligible for Benefits

What is the benefit status of off-payroll workers? That was the question in Edes v. Verizon Communications, Inc., a recent decision from the First Circuit. The short answer is that the worker's benefit status depends on the language of the benefit plans at issue. The Edes plaintiffs were hired directly by GTE but received their paychecks from one of two payroll agencies. In all other respects the plaintiffs were indistinguishable from employees who received paychecks from GTE. Nevertheless, because the plan excluded workers who were not "paid directly" by the employer, the plaintiffs lost their claims under Section 502(a)(1)(B).

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.

Overtime Pay for Stockbrokers

As reported in the New York Times today, Merrill Lynch agreed to pay $37 million to settle an overtime pay case involving up to 3000 California stockbrokers. Financial industry employees are perceived generally to be exempt from overtime rules, but that is not necessarily true. The FLSA overtime exemptions are based on a two part duties and salary test. If both tests are satisfied, the employee is exempt from overtime. If only one test is met, the employee must be paid overtime.

The new "Fair Pay" regulations provide:

Employees in the financial services industry generally meet the duties requirements of the administrative exemption if their duties include work such as collecting and analyzing information regarding the customer's income, assets, investments or debts; determining which financial products best meet the customer's needs and financial circumstances; advising the customer regarding the advantages and disadvantages of different financial products; and marketing, servicing or promoting the employer's financial products. However, an employee whose primary duty is selling financial products does not qualify for the administrative exemption.

So one area of uncertainty is whether the broker's "primary duty" is selling financial products.

The salary basis test requires that employees receive a minimum salary of $455 per week. While the salary can be paid on a bi-weekly or monthly basis, a pure commission arrangement does not qualify. Apparently, the Merrill Lynch brokers may not have received this guaranteed salary.

Merrill Lynch also contended that the brokers were exempt from overtime rules because they were employed in a retail business (e.g. selling stock to individual customers). However, the regulations specifically exclude "stock or commodity" brokers from the exemption for retail businesses. In other words, stockbrokers must be paid overtime pay unless they meet the duties and salary test.

Comment: The new "Fair Pay" regulations went into effect in August of 2004. The old rules, however, were similar enough to the new "Fair Pay" rules that brokers who were improperly classified as exempt before August 2004 likely remain entitled to overtime pay under the new rules.

Some Contract Issues Facing Professional Sports Players

The Sports Law Blog has two interesting posts on professional sports player contracts. In one post, the author raises the question of whether certain players for the Washington Nationals have a misrepresentation claim against the team because the dimensions of the RFK field turned out to be larger than represented. As pointed out, the key issue is whether the ballpark dimensions are "material" to the player's decision to sign with the team. The article concludes that the players probably have only a small chance of succeeding.

The other post discusses the longing of NFL players for guaranteed contracts. The players union continues to believe that the current system of up-front bonuses in lieu of guaranteed contracts best protects the players, but the players see it differently.

Is 4 Greater than 9?

The AARP, the EEOC and interested retirees are waiting to hear from the U.S. District Court for the Eastern District of Pennsylvania whether four is greater than nine or whether nine is greater than four. The district court previously enjoined the EEOC from publishing regulations that would explicitly permit employers to coordinate retiree health care benefits with Medicare eligibility. Those regulations were designed to overturn the Third Circuit's ruling in the Erie County case in 2000 that it was a violation of the ADEA age discrimination rules for benefit plans to reduce coverage when retirees became eligible for Medicare. The district court ruled that in the wake of the Third Circuit's ruling, the ADEA was not ambiguous and, therefore, the EEOC had no authority to issue contrary regulations.

The Supreme Court's Brand X decision however, opened the door for the district court to take a second look at the issue. In Brand X, the Supreme Court held that "[o]nly a judicial precedent holding that the statute unambiguously forecloses the agency's interpretation, and therefore contains no gap for the agency to fill, displaces a conflicting agency construction." According to the EEOC, Brand X requires the district court to ignore Erie County in determining whether the EEOC has the authority to issue the challenged regulations.

While the EEOC concedes that Section 4 of the ADEA prohibits the practice of coordinating retiree health benefits with Medicare, Section 9 specifically authorizes the EEOC to issue regulatory exemptions as necessary and proper. Because Erie County analyzed Section 4 only, the EEOC believes that Erie County simply doesn't apply to the EEOC's regulatory activity under Section 9. In short, 9 is greater than 4.

The AARP, by contrast, argues that after Erie County, the ADEA is clear on its face that health benefits cannot be reduced when retirees become Medicare eligible. As such, there is no ambiguity and no gap for the EEOC to fill with a new regulation. In essence, the AARP is arguing that there is no need to analyze the ADEA beyond Section 4. In short, 4 is greater than 9.

Calling Judge Roberts?

The AARP and EEOC briefs can be found at the ERISA Industry Committe website here.