Mere proof of an incidental loss of benefits resulting from an employee’s termination of employment does not constitute an ERISA violation

For the week of January 7, 2008

Under the Employee Retirement Income Security Act of 1974 (ERISA), it is unlawful to discriminate against a benefit-plan participant for the purpose of “interfering with the attainment of any right to which such participant may become entitled under the plan.” One federal district court recently dismissed the claim filed by a group of employees who had been terminated for irregularities in reporting expenses for reimbursement, even though the employees argued that the terminations were actually a “downsizing” move motivated by the company’s desire to avoid paying bonuses and other benefits. Kevin Balmat, et al v. Certainteed Corporation, E.D. Pa., No. 04-2505, Dec. 28, 2007.

CertainTeed Corporation is regularly monitored by its parent company, Saint Gobain, for compliance with expense reporting policies. During one of its audits, Saint Gobain alerted CertainTeed to a number of “red flagged” employee files which required additional investigation and documentation. Robert Wilk, Saint Gobain’s Director of Corporate Security, met with CertainTeed management from two CertainTeed business units in an attempt to find legitimate explanations for the noted irregularities. As a result of these meetings, a number of individuals from each of the two units were terminated. Six of those employees subsequently filed a lawsuit against CertainTeed which included a claim of violation of ERISA. The company filed a motion for summary judgment, which was granted by the court.

The court analyzed the case under the protocol typically referred to as the McDonnell Douglas burden-shifting analysis. In order to prevail, the plaintiffs had to establish a prima facie case by showing prohibited conduct by the employer, taken for the purpose of interfering with the attainment of a right to which the employees were entitled under ERISA. The court found that because the audit information was “blind to all benefits-related information,” including age, length of employment, or health condition, and because the plaintiffs showed no competent evidence that the company specifically intended to avoid payment of ERISA-protected benefits, the plaintiffs failed to establish a prima facie case.

However, the court went on to state that assuming that the plaintiffs had been able to establish the required prima-facie case, their lawsuit would have failed at the later stage of the analysis, since CertainTeed proffered a legitimate business reason for the terminations – violation of the well-established expense-reporting procedures. The court analyzed the facts related to each of the six plaintiffs, and found that none of the individual employees had a legitimate explanation for violating the company policy. Therefore, the plaintiffs were unable to carry their burden of showing that the legitimate reason proffered by CertainTeed was simply a pretext for an ERISA violation.

To show that the company’s “legitimate business reason” for the terminations was a pretext, plaintiffs would have had to show “weaknesses, implausibilities, inconsistencies, incoherencies, or contradictions” within that reason. Here, the plaintiff could not do so, because the company had followed its established policy, and had documented the ensuing investigations thoroughly. Once again, the three-step process of consistently applying a business-related policy, objectively investigating perceived violation of the policy, and thoroughly documenting the investigation proved to be the touchstone of a successful defense against legal liability.