United States Court of Appeals,
Third Circuit.
John BAUER, Appellant
v.
SUMMIT BANCORP.
No. 01‑3624.
Argued Nov. 4, 2002.
March 25, 2003.
Employee
brought action against employer, claiming that employer's retirement plan
violated the Employment Retirement Income Security Act (ERISA) by excluding
hourly employees. The United States District Court for the District of New
Jersey, Garrett E. Brown, Jr., J., granted summary judgment in favor of employer.
Employee appealed. The Court of Appeals, Hill, Circuit Judge, held that plan
did not violate ERISA.
Affirmed.
West Headnotes
[1] Pensions 
27.1
296k27.1
Nothing in ERISA requires employers to establish employee benefits
plans. Employee Retirement Income Security Act of 1974, § 2 et seq., 29 U.S.C.A. § 1001 et seq.
[2] Pensions 27.1
296k27.1
ERISA does not mandate that employers provide any particular
benefits, and does not itself proscribe discrimination in the provision of
employee benefits. Employee Retirement Income Security Act of 1974, § 2 et
seq., 29 U.S.C.A. §
1001 et seq.
[3] Pensions 121
296k121
Plaintiff seeking to recover from ERISA plan must satisfy two
requirements to establish participant status: first, the plaintiff must be a
common law employee, and second, the plaintiff must be, according to the
language of the plan itself, eligible to
receive a benefit under the plan. Employee Retirement Income Security Act of
1974, § 2 et seq., 29
U.S.C.A. § 1001 et
seq.
[4] Pensions 139
296k139
An individual who does not qualify as a common law employee or as
an employee under the language of the ERISA plan lacks standing to bring a
claim for benefits under a plan established pursuant to ERISA. Employee
Retirement Income Security Act of 1974, § 2 et seq., 29 U.S.C.A. § 1001 et seq.
[5] Pensions 26
296k26
The Court of Appeals is required to enforce a ERISA plan as
written unless it finds a provision of ERISA that contains a contrary
directive. Employee Retirement Income Security Act of 1974, § 2 et seq., 29 U.S.C.A. § 1001 et seq.
[6] Pensions 23
296k23
The Court of Appeals may look to the Internal Revenue Code to
determine whether or not a ERISA section being construed in ERISA claim has a
mirror‑like counterpart. Employee Retirement Income Security Act of
1974, § 2 et seq., 29
U.S.C.A. § 1001 et
seq.
[7] Pensions 31
296k31
Retirement plan that excluded hourly employees from participation,
by restricting eligibility to salaried employees only, did not violate ERISA;
ERISA's minimum participation requirement provided that no pension plan could
require that employee complete a period of service with the employer extending
beyond the later of the date on which employee attained the age of 21 years, or
the date on which he completed one year of service, the exclusion regarding
hourly employees was not based on either age or length of service, and employee
did not cite to any contrary directive in ERISA that prohibited employer from
limiting plan participation to salaried employees. Employee Retirement Income
Security Act of 1974, § 202(a), 29 U.S.C.A. § 1052(a).
*156
Robert A. Vort (Argued),
Pearce Law LLC, Hackensack, NJ, for Appellant.
Gary W. Flanagan, (Argued), Edwards & Angell, LLP, Providence, RI, for
Appellee.
Before BECKER, Chief Judge, McKEE and HILL [FN*] Circuit Judges.
FN* The Honorable James C. Hill of the United
States Court of Appeals of the Eleventh Circuit, sitting by designation.
OPINION OF THE COURT
HILL, Circuit Judge.
Appellant John Bauer appeals from the district court order granting
summary judgment for appellee Summit Bancorp (Summit)
[FN1] and denying his
cross‑motion for summary judgment on his claim (Count One)
[FN2] that Summit's
Retirement Plan [FN3] (Plan) violates the Employment Retirement
Income Security Act of 1974 (ERISA), as amended, 29 U.S.C. § 1001 et seq. because it excludes hourly
employees. Based upon the following discussion, we affirm the judgment of the
district court.
FN1. Bauer was hired in 1977 by United Jersey
Bank (UJB). UJB changed its name to Summit Bank in 1996. It is a subsidiary of
Summit Bancorp, defendant/appellee.
FN2. Bauer abandoned his estoppel argument
(Count Two) on appeal.
FN3. Summit's Plan was a defined benefit
retirement plan, effective March 1, 1980, and entitled the "United Jersey
Bank Financial Corp. Retirement Plan." It was amended and restated,
effective January 1994. On May 10, 1995, the Internal Revenue Service (IRS)
issued a favorable determination letter with respect to the Plan. It was again
amended and restated, effective July 1, 1997, and entitled the "Summit
Bancorp Retirement Plan." See note 1 supra. On August 2,
1999, the IRS issued a second favorable determination letter with respect to
the Plan.
*157 I. BACKGROUND
A. Facts
The material facts are undisputed. Bauer worked as a Summit
sales representative for approximately eighteen and one‑half years, from
May 9, 1977, until November 6, 1995. He was compensated on an hourly basis,
apparently to accommodate his schedule as a firefighter. Thereafter, for
approximately 3.667 years, from November 7, 1995, until July 15, 1999, Bauer
was compensated by Summit on a salaried basis. Neither party disputes that in
each of the years that Bauer was employed, he
completed at least 1,000 hours of service per year.
In 1999, after twenty‑two years of employment with Summit,
Bauer retired. He applied for his retirement benefits under the Plan. Summit's
benefit administrators advised him that he was eligible to receive retirement
benefits based upon only his 3.667 years of service as a salaried employee.
Although his eighteen‑plus years as an hourly employee were not counted
in computing retirement benefits for the years he was ineligible to participate
in the Plan as an hourly employee, they were counted in satisfying the Plan's
five‑year vesting period for the years he was eligible to participate in
the Plan as a salaried employee. See Part I.B. infra.
B. The Plan
The Plan was first implemented in 1980. It was amended and
restated in 1994 and again in 1997. The portions of the Plan pertinent to this
appeal remain in substance unchanged over the years. See notes 4, 5 infra.
They can be described in terms of the number of credited years of service as an
employee in computing benefits, minimum participation/eligibility requirements,
and minimum vesting standards.
"Employee" is defined in Section 1.19 of the Plan as
"any person who is employed by an Employer who is compensated by a
weekly, monthly or annual salary, regardless of the number of hours worked...."
(Emphasis added.). Benefits are calculated based upon a participant's years of
service. Years of service are defined in
Section 1.40 of the Plan to mean "a year or fraction of a year ... during
which a Participant is or was an Employee of the Company or a corporation
or branch acquired by the Company...." (Emphasis added.). [FN4] A year of service is earned "for
each calendar year in which [an Employee] is paid or entitled to payment for
1,000 hours by the Corporation."
FN4. The 1980 SPD explained that "[t]he
length of your Credited Service is used to determine the amount of your benefit
... Credited Service means the number of years and months (expressed as a
fraction of a year) of Service as a salaried staff member of the
Corporation." Years later, both the 1996 and the 1998 SPD explain that
"the amount of an employee's benefit depends upon the length of Credited
Service with the Company ... which is determined by months and years of service
as a salaried employee."
An eligibility computation period is used to establish an
employee's entitlement to participate in a qualified plan. Section 2.01 of the
Plan, regarding minimum participation/eligibility standards,
[FN5] states:
FN5. Similarly, the Plan (implemented in 1980
and amended in 1994) described "Eligibility for Participation" as
follows: "If you are a member of the
salaried staff of a participating employer within the Corporation (that is, you
are compensated by a weekly, monthly or annual salary), you will automatically
be covered by the Plan on the first day of the month following the date you
complete one year of service ...." The 1996 Summary Plan Description
(SPD) explained "Eligibility and Participation" by stating that an
employee is automatically a Participant in the Plan if the Employee is "a
salaried employee of [UJB], age 21 or older, and completes one Year of Service
with the Company with at least 1,000 of Hours of Service." The 1998 SPD
stated that an employee is automatically a participant in the Retirement Plan
if you are "a salaried employee of [Summit], age 21 or older ... and
complete one Year of Service with at least 1,000 Hours of Service."
*158 2.01 Eligibility Requirements.
An Employee who was a Participant in the
Prior Plan on June 30, 1997, shall continue his participation thereafter if he
continues to be employed by an Employer. Any other Employee shall commence
participation in the Plan on the first day of the month following the latest
of:
(a) his 21st birthday;
(b) his completion of one Year of
Service; or
(c) the date his Employer adopts the Plan.
Each Employee shall automatically become a
Participant immediately upon becoming eligible in accordance with the foregoing
requirements, and shall continue as a Participant for as long as he is an
Employee....
The second basic computation period is the vesting computation
period. It is used to determine what portion of an employee's benefit is non‑forfeitable
at a given point in time. [FN6] Section 7.01 of the Plan required that
after five years of service, an employee was 100% vested:
[FN7]
FN6. Vesting was described in both the 1996
and the 1998 SPD as "A non‑forfeitable right to a benefit from the
Plan [that] accrues when an employee completes five Years of Service, and an
employee receives Vesting Service for each 12 month period, based on
anniversary date, where the employee is paid for or entitled to payment for
1,000 Hours of Service."
FN7. An employee's benefit does not arise
instantaneously upon his or her entry into a plan but accrues over time. The
employer's annual contribution builds up each participants benefit over time.
Benefit accrual is, thus, the successive accumulation of a final benefit due an
employee upon retirement. See 26 U.S.C § 411(a)(7)(A); Treas. Reg. § 1.411(a)‑7(a).
7.01
Vested Percentage of Accrued Benefit.
Upon termination of his employment for any
reason other than Retirement, a Participant shall be entitled to the following
vested percentage of his accrued benefit:
The Plan in this appeal is what has commonly been referred to
over the last thirty years as a "salaried‑only plan." Such a
plan covers salaried employees of Summit and its subsidiaries, who are age 21
and above, and, who have completed one year of service. By its terms, Summit
hourly employees are not eligible to participate in the Plan. As stated, years
of service as an hourly employee are counted for vesting purposes, but are not
counted for participation purposes.
C. Procedural Background
When Bauer was advised by Summit's benefit administrators that he
was eligible to receive retirement benefits based upon only his 3.667 years of
salaried service, he exercised his administrative rights under the Plan and
appealed to its benefits committee. He requested benefits under the Plan
retroactive to his original date of hire in
1977. The benefits committee denied his request and affirmed the initial
denial of claimed benefits. [FN8]
FN8. The denial letter stated in pertinent
part:
The basic issue as the Committee viewed it
is whether Mr. Bauer was properly excluded from participation in the Plan while
he was an hourly, rather than salaried, employee and whether this exclusion is
permissible under law. We reviewed the citations you submitted as the basis
for your appeal ... The first citation, 29 U.S.C. [§] 1052(a)(1)(A)(ii) ... provides that a Plan may not impose
[a] waiting period of more than one year for an otherwise eligible employee. It
does not have any bearing in determining which classes of employees are
eligible. Your second citation, 29 U.S.C. [§] 1052(a)(3)(A) ... provides that a "year of service" means a
year in which at least 1000 hours are worked. This also has no bearing on
the ability of the Plan to exclude a class of employees, in this case hourly
employees. As you are aware, the Plan document, under Article I
Definitions, 1.42 Year of Service incorporates the 1000 hour provision you
cite. In calculating retirement benefits for Mr. Bauer the Plan did provide
vesting service to Mr. Bauer for the years he worked over 1000 hours as an
hourly employee. By doing so he became fully vested and was eligible for a
benefit calculation. Such calculation, however, appropriately used his credited service for
only those periods in which he was a salaried employee, and thus eligible to
participate in the Plan (see Section 1.19 of the Plan).
(Emphasis added).
*159 Bauer then filed a complaint in federal district
court against Summit alleging that its Plan violated ERISA as it excluded
hourly employees from participating. The district court disagreed. It granted
Summit's motion for summary judgment and denied Bauer's cross‑motion for
summary judgment. This appeal follows.
II. ISSUE ON APPEAL
Bauer raises only one issue on appeal: whether the district
court erred in granting Summit's motion for summary judgment on the basis that
the Plan did not violate ERISA when it included salaried employees, and
excluded hourly employees, as eligible plan participants.
III. STANDARD OF REVIEW
We exercise a plenary review of the grant by the district court
of Summit's motion for summary judgment, using the same standards as employed
by the district court initially. See Jordan v. Federal Express Corp., 116 F.3d 1005, 1009 (3d Cir.1997), citing Sempier v. Johnson & Higgins, 45 F.3d 724, 727 (3d Cir.1995).
IV.
DISCUSSION
A. Introduction
[1][2] Nothing in ERISA requires employers to
establish employee benefits plans. Lockheed Corp. v. Spink, 517 U.S. 882, 887, 116 S.Ct. 1783, 135
L.Ed.2d 153 (1996).
Neither does it require that every employee is entitled to participate in a
plan that it does decide to offer, for, as the Supreme Court, in Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 103 S.Ct. 2890, 77 L.Ed.2d
490 (1983), stated:
"ERISA does not mandate that employers provide any particular benefits,
and does not itself proscribe discrimination in the provision of employee
benefits." Id. at 91, 103 S.Ct. 2890. What ERISA does require, however, is
that if an employer decides to provide a plan, that plan is subject to certain
minimum requirements regarding participation, funding and vesting standards. Id. citing 29 U.S.C. 1051‑1086; see also Alessi v. Raybestos‑Manhattan, Inc., 451 U.S. 504, 101 S.Ct. 1895, 68 L.Ed.2d
402 (1981).
[FN9]
FN9. In Alessi, the Supreme court stated that "[t]o
ensure that employee pension expectations are not defeated, [ERISA] establishes
minimum rules for employee participation, §§ 1052‑1062; funding standards
to increase solvency of pension plans, §§ 1081‑1085; fiduciary standards
for plan managers, §§ 1101‑1114; and an insurance program in case of
plan termination, §§ 1341‑1348
....." 451 U.S.
at 510 n.5, 101 S.Ct. 1895.
The present ERISA litigation has arisen because Summit has
excluded Bauer from participating in its Plan for the years he was employed on
an hourly basis, affording *160 him benefits for only the 3.667 years he
was employed on a salaried basis. Bauer claims that he is also entitled to
participate in the Plan for each of his twenty‑two years of employment.
Bauer, in essence, asserts that he is entitled to benefit coverage although he
is explicitly excluded by the terms of the plan itself. His cause of action
arises under 29 U.S.C.
§ 1132.
B. Statutory Analysis
1. Recovery of Benefits
An action for benefits under an ERISA plan may be brought only by
a participant in or beneficiary of an ERISA plan. 29 U.S.C. § 1102(a)(2); 29 U.S.C. § 1104(a)(1). Under ERISA, a "participant"
is defined as "any employee or former employee of an employer ... who is
or may become eligible to receive a benefit of any type from an employee
benefit plan ... or whose beneficiaries may be eligible to receive any such
benefit." 29
U.S.C. § 1002(7). An
employee is defined by ERISA as "any individual employed by an
employer." 29
U.S.C. § 1002(6).
ERISA provides Bauer with a specific cause of action with which
to challenge his denial of benefits. 29 U.S.C. § 1132. It authorizes a suit by a participant
to recover benefits due under the terms of an ERISA plan or to enforce or
clarify rights under the ERISA plan. 29 U.S.C. § 1132(a)(1)(B). [FN10]
FN10. Alternatively, ERISA participants may
seek equitable relief in connection with a benefits dispute to enjoin
violations of ERISA or of the plan's terms or "to obtain other appropriate
equitable relief." 29
U.S.C. § 1132(a)(3).
[3][4] A plaintiff must satisfy two requirements
to establish participant status. See Wolf v. Coca‑Cola Co., 200 F.3d 1337, 1340 (11th Cir.2000). First, the plaintiff must be a common
law employee. See Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 323‑24, 112 S.Ct.
1344, 117 L.Ed.2d 581 (1992). [FN11] Second, the plaintiff must be,
"according to the language of the plan itself, eligible to receive a
benefit under the plan. An individual who fails on either prong lacks standing
to bring a claim for benefits under a plan established pursuant to
ERISA." Id. citing Clark v. E.I. Dupont De Nemours & Co.,
Inc., No.
95‑2845, 105 F.3d 646, 1997 WL 6958 (4th Cir. Jan. 9, 1997) (table).
FN11. In Nationwide Mutual, the Supreme Court ruled that, in the
context of ERISA, the term "employee" means a common law employe, as
opposed to an independent contractor, based on at least twelve factors. These
factors include:
... the skill required; the source of the
instrumentalities and tools; the location of the work; the duration of the
relationship between the parties; whether the hiring party has the right to
assign additional projects to the hired party; the extent of the hired party's
discretion over when and how long to work; the method of payment; the hired
party's role in hiring and paying assistants; whether the work is part of the
regular business of the hiring party; whether the hiring party is in
business; the provision of employee benefits; and the tax treatment of the
hired party.
Nationwide Mut. Ins. Co., 503 U.S. at 323‑24 112 S.Ct. 1344.
[5] We are required to enforce the Plan as written unless we
find a provision of ERISA that contains a "contrary directive." See
Bellas v. CBS, Inc., 221 F.3d 517, 522 (3d Cir.2000), cert. denied, 531 U.S. 1104, 121 S.Ct. 843, 148 L.Ed.2d
723 (2001); Dade v. North Am. Philips Corp., 68 F.3d 1558, 1562 (3d Cir.1995). The ERISA provision identified by Bauer
in this appeal as a contrary directive is 29 U.S.C. § 1052(a).
2. Minimum Participation Requirements
under 29 U.S.C.
§ 1052(a)
The only limitation imposed by ERISA on any of the requirements
for participation *161 is entitled "Minimum Participation,"
and is set forth in 29
U.S.C. § 1052(a). It
states: "No pension plan may require, as a condition of participation in
the plan, that a employee complete a period of service with the employer or
employers maintaining the plan extending beyond the later of the following
dates‑‑(i) the date on which the employee attains the age of 21;
or (ii) the date on which he completes 1 year of service." 29 U.S.C. § 1052(a)(1)(A).
The section continues: "A plan shall be treated as not
meeting the requirements of [29 U.S.C. § 1052(a)(1)] unless it provides that any employee who has satisfied the
minimum age and service requirements specified in such paragraph, and who is
otherwise entitled to participate in the plan, commences participation in
the plan no later than the earlier of‑‑(A) the first day of the
first plan year beginning after the date on which such employee satisfied such
requirements, or (B) the date 6 months after the date on which he satisfied
such requirements...." 29 U.S.C. § 1052(a)(4) (emphasis added).
3. Minimum Participation Standards and Internal Revenue Code Sections 410(a) and 401(a)
[6] We may look to the Internal Revenue Code to determine
whether or not the ERISA section being
construed has a "mirror‑like counterpart." See Gillis v. Hoechst Celanese Corp., 4 F.3d 1137, 1144 (3d Cir.1993). Juxtaposed in the statute alongside the
minimum participation standards of ERISA is Internal Revenue Code 410, 26 U.S.C. § 410, also entitled "Minimum
Participation Standards." It states: "A trust shall not constitute
a qualified trust under section
401(a) if the plan of
which it is a part requires a condition of participation in the plan, that an
employee complete a period of service with the employer or employers
maintaining the plan extending beyond the later of the following dates‑‑(i)
the date on which the employee attains the age of 21; or (ii) the date on
which he completes 1 year of service." 26 U.S.C. § 410(a)(1)(A). We then look to IRC § 401(a), 26 U.S.C. § 401(a), as directed.
IRC §
401(a)(5)(A) provides
that "[a] classification shall not be considered discriminatory within the
meaning of paragraph (4) [regarding contributions or benefits that discriminate
in favor of highly compensated employees] or section 410(b)(2)(A)(i) [regarding minimum coverage
requirements that discriminate in favor of highly compensated employees] merely
because it is limited to salaried or clerical employees."
(Emphasis added). A classification limiting plan coverage to salaried or
clerical employees shall not, for that sole reason, be considered
discriminatory. 26
U.S.C. § 401(a)(5)(A);
Treas. Reg. § 1.401(a)(5)‑1(b). [FN12]
FN12. See 29 U.S.C. § 1202(a) (which expressly incorporates into ERISA,
regulations promulgated by the Department of the Treasury construing 26 U.S.C. § 410).
C. Plan Classifications of Employees
Neither party disputes that Bauer is a common law employee. He
thus satisfies the first prong necessary to obtain participant status. See
Wolf, 200 F.3d at 1340. We must turn, therefore, to an analysis
of the second prong, that is, whether Bauer is an employee eligible for
benefits under the terms of the Plan itself. Id.
1. Contentions of the Parties
a. Introduction
There has been considerable litigation involving salaried‑only
plans that exclude employees who are paid by the hour. Perhaps due to the
clear language of the *162 statute, 26 U.S.C. §§ 410(a)(1)(A) and 401(a)(5)(A), the case law has focused, not on whether the salaried‑only
plan classification was allowable under the statute, but whether it
discriminated in favor of highly compensated employees (to the detriment of the
excluded hourly workers) as it was applied. [FN13]
FN13. See Cornell‑Young Co. v. United States, 469 F.2d 1318 (5th Cir.1972) (classifications of salaried and hourly
employees excluded employee from participation, but the plan, as applied,
discriminated in favor of members of prohibited group); Wisconsin Nipple & Fabricating Corp v.
Commissioner,
67 T.C. 490, 1976 WL 3743 (1976), aff'd, 581 F.2d 1235 (7th Cir.1978) (where otherwise qualified plan discriminated in favor of
prohibited group in application); Babst Services, Inc. v. Commissioner, 67 T.C. 131, 1976 WL 3634 (1976); Liberty Machine Works, Inc. v. Commissioner, 62 T.C. 621, 1974 WL 2697 (1974), aff'd per curiam, 518 F2d 554 (8th Cir.1975); Ed & Jim Fleitz, Inc. v. Commissioner, 50 T.C. 384, 1968 WL 1420 (1968); Loevsky v. Commissioner, 55 T.C 1144, 1971 WL 2537 (1971), aff'd per curiam, 471 F.2d 1178 (3d Cir.1973) (otherwise qualified salaried‑only
plan discriminated in favor of prohibited group when it covered only 5% of the
company's employees who were its officers, shareholders or supervisors, leaving
the 96% hourly employees not covered under the plan).
b. Bauer's Argument Regarding
Minimum Participation Standards under ERISA
as applied to Salaried‑Only Plan
Classifications
Here Bauer does not contend that the hourly plan classification
discriminates in favor of those who are highly compensated in application.
Neither does he dispute that, under the
express terms of the Summit plan, he is ineligible for benefits for the years
he was classified as an hourly employee.
[7] What Bauer alleges is that Summit's salaried‑only
Plan violates ERISA's minimum participation requirements, 29 U.S.C. § 1052(a)(1), by restricting its definition of an
employee to those who were salaried. By not crediting his years of hourly
employment, the Plan, Bauer argues, imposed an additional requirement not
sanctioned by any statute or regulation.
Bauer claims that any employee, however compensated, who works
1,000 hours a year or more is entitled to pension benefits for that year.
Bauer contends that, once an employee meets the minimum standard of
participation, the latter of reaching age 21 or completing one year of service,
he or she is eligible to participate, and Summit cannot impose a third
requirement that an employee be salaried. [FN14]
FN14. While apparently, this is the first time
that the use of statutory standards to provide benefit plan coverage has been
argued in the context of hourly plans, there are a number of cases considering
the same argument in the context of worker classifications such as
freelancers/independent contractors, temporary employees and leased employees.
See Part IV.C.2 infra.
Other than to cite 29 U.S.C. § 1052(a), Bauer does not point to any
"contrary directive" in the ERISA statute that would forbid Summit to
limit participation in its Plan to its salaried employees. See Bellas, 221 F.3d at 522. The case authority offered in support
for Bauer's proposition is an unpublished, unreported, yet factually similar,
case from the Southern District of New York. There the issue was raised on a
motion to dismiss. Ambris
v. Bank of New York, 1997 WL 107632 (S.D.N.Y.1997).
In Ambris, the employee argued that the hourly classification
functioned as an impermissible additional service requirement. In denying the
defendant's motion to dismiss, the Ambris
court heard no evidence, was limited to the four corners of *163 the
complaint, and owed deference to the plaintiff.
Even given this procedural setting, Bauer argues that Ambris is "sound and correctly
reasoned" and that "its reasoning is grounded in basic principles of
statutory and regulatory construction, i.e., that what Congress says in
a statute is what it means .... (citations omitted)."
[FN15]
FN15. What Congress says is what it means
expresses a valid rule of statutory construction. However, in 29 U.S.C. § 1052(a)(4), when Congress used the clause "...
and who is otherwise entitled to participate in the plan ...," Congress is
clearly saying the contrary of Bauers contentions.
The district court in the Southern District of New York did not
"reason" in Ambris.
It merely found that, in ruling on a Rule 12(b)(6) motion, it did not appear
that the plaintiff had not stated a claim upon which relief could be granted. Ambris, 1997 WL 107632 at *1. From a precedential standpoint, nothing
more can be inferred. Unlike the case before us, the merits of the Ambris plaintiff's claim were never reached.
[FN16]
FN16. The Ambris defendants' motion for summary judgment
was granted a year‑and‑a‑half later on statute of limitations
grounds, a point never mentioned by Bauer.
c. Summit's Argument
Summit argues that 29 U.S.C. § 1052(a)'s minimum participation standards do not prevent an employer from
denying an employee's participation in an ERISA plan as long as that exclusion
is made on a basis other than age or length of service. Summit has
consistently excluded non‑salaried employees from participation. This
exclusion is not premised upon an employee's age or length of service.
In support of its position, Summit cites Lynn v. CSX Transp., 84 F.3d 970, 973‑74 (7th Cir.1996) (plan limited participation to non‑union,
salaried employees, excluding hourly
employees from coverage). [FN17] In addition, Summit contends that the
district court correctly dismissed Ambris
as unpersuasive.
FN17. In Lynn, the retired employee had worked for
years on a contract basis, compensated at an hourly or daily rate of pay. The
CSX retirement plan limited participation to employees paid on a monthly
basis. Lynn claimed, as Bauer does now, that he should be considered a participant,
for the twenty‑plus years that he was a "contract worker,"
compensated on a daily or hourly basis. Lynn, 84 F.3d at 973. "Looking to the plain language of
the plan documents," the district court agreed with the plan
administrator's determination that Lynn was not entitled to participation
status as an hourly employee. The Seventh Circuit affirmed. Id. Although we cannot determine that Lynn
asserted the claim that 29
U.S.C § 1052(a)
trumps all other plan exclusions, the facts of Lynn are indistinguishable from the facts of
this case.
2. Recent ERISA Litigation Regarding Worker Classifications
Recent litigation regarding the use of statutory ERISA standards
to provide benefit plan coverage to certain classifications of workers has
centered upon freelancers/independent contractors, leased employees and
temporary employees.
a.
Freelancers, Agents or Other Independent Contractors
In Capital
Cities/ABC, Inc. v. Ratcliff, 141 F.3d 1405 (10th Cir.1998), the Tenth Circuit upheld the denial of
claims for benefits coverage sought by a class of newspaper carriers/delivery
agents for the Kansas City Star newspaper. The class of plaintiffs had signed
an agency agreement acknowledging that they were independent contractors, not
employees, and therefore excluded from participation in the benefits *164
plan. The court, deferring to the terms of the ERISA plans, found that there
was no dispute that the carriers had knowingly agreed to be excluded. See
also Trombetta
v. Cragin Fed. Bank for Sav. Employee Stock Ownership Plan, 102 F.3d 1435, 1439‑ 1440 (7th
Cir.1996) (where the
Seventh Circuit found the plaintiffs were not common law employees as they had
signed individual agreements designating themselves as independent contractors
for all purposes). [FN18]
FN18. To the contrary, in Vizcaino v. Microsoft Corp., 120 F.3d 1006 (9th Cir.1997) (en banc), a class action was brought by
eight "freelancers" seeking to participate in Microsoft's retirement
plans although they had previously waived plan benefit coverage and agreed to
non‑employee status. The class was paid via invoices submitted to the
accounts payable department as independent contractors, rather that through the
payroll department as employees. Id. at 1009‑13. The Ninth Circuit, construing
a perceived plan ambiguity against Microsoft, held that the group satisfied the
first prong of participant status, as the freelancers were actually common law
employees and entitled to retroactively participate in one of the plans that
covered "all employees." Id. at 1013.
It remanded for a limited determination of the second prong, whether of not the
freelancers were, under the restrictive terms of the plan, "on the United
States payroll of the employer." Id.
b. Leased Employees
1. The Fifth Circuit‑‑Abraham
In Abraham
v. Exxon Corp., 85 F.3d 1126 (5th Cir.1996), individuals who worked as leased employees were
specifically excluded under the terms of Exxon's plans. Id. at 1128. The plan administrator denied the
plaintiffs' benefit claims on this basis. The Fifth Circuit affirmed the
district court's grant of summary judgment for Exxon. The court concluded that
the minimum participation requirements of ERISA § 1052(a) did not preclude an employer from denying
participation in an ERISA plan if the employer does so for reasons other
than age or length of service, stating:
Section 1052(a) does nothing more than forbid employers
to deny participation in an ERISA plan to an employee on the basis of age or
length of service if he is at least twenty‑one
years of age and has completed at least one year of service. Section 1052(a) does not prevent employers from denying
participation in an ERISA plan if the employer does so on a basis other than
age or length of service.
Id. at 1130 (emphasis added).
[FN19]
FN19. The Abraham court rejected outright as incorrect the
analysis used as to leased employees by the district court in Renda v. Adam Meldrum & Anderson Co., 806 F.Supp. 1071 (W.D.N.Y.1992). There the Renda district court found that the leased
employee was an employee who had met the minimum participation requirements of 29 U.S.C. § 1052(a) merely because she was over the age of
twenty‑one and had completed one year of service. The Western District
of New York district court found she was a participant entitled to benefits
under 29 U.S.C. §
1132(e). See also
Crouch v. Mo‑Kan
Iron Worker Pension Fund, 740 F.2d 805 (10th Cir.1984) (involving excluded union employee).
We do not follow Renda or Crouch. Unless a plan violates ERISA, judicial
amendments are not authorized. See also Burrey v. Pacific Gas & Elec. Co., 159 F.3d 388 (9th Cir.1998) (distinguishing Abraham as the question was not whether the
employer could bar a leased employee from participating in its ERISA plan, but
whether the plaintiffs qualified as common
law employees under IRC § 4145(n)).
Similar results were reached by the Fourth Circuit in Clark v. E.I. Dupont De Nemours and Co., 1997 WL 6958, 105 F.3d 646 (4th Cir. Jan.
9, 1997) (table), the
Tenth Circuit in *165Bronk v. Mountain States Tel. & Tel., Inc., 140 F.3d 1335 (10th Cir. 1998), and the Eleventh Circuit in Wolf v. Coca‑Cola, 200 F.3d 1337 (11th Cir.2000).
2. The Fourth Circuit‑‑Clark
In Clark, the Fourth Circuit found that neither
the minimum participation requirements of ERISA, nor the tax provisions
requiring that leased employees be counted in determining whether the plan met
ERISA's non‑discrimination requirements, were sufficient authority to
mandate that leased employees be included in the company's plan. Clark, 1997 WL 6958 at **4. The Fourth Circuit specifically held that
an employer may exclude some categories of employees from participation in
ERISA plans, provided that the plan distinguishes among employees based upon
factors other than age or length of service. Id. (emphasis added).
3. The Tenth Circuit‑‑Bronk
Bronk also rejected statutory grounds for
determining benefit program eligibility. In succinct language, the Tenth
Circuit disagreed with the district court that ERISA's minimum participation
standards required that leased
employees who met the test for common law employee status be automatically
included in the company's plan, whether or not they were excluded under the
terms of the plan. Bronk, 140 F.3d at 1338. The Tenth Circuit emphasized, while that
plans could not discriminate based upon age or length of service, the employer
"need not include in its pension plans all employees who meet the test of
common law employees." Id.
As statutory support for this conclusion, the Tenth Circuit cited
the language found in 29
U.S.C. § 1052(a)(4),
referring to employees who were "otherwise entitled to participate in the
plan." See Part IV.B.2 and note 17 supra. It concluded
that this language "would be superfluous unless Congress intended that
plans could impose other participation requirements besides age or length of
service." Id. at 1338. We agree.
4. The Eleventh Circuit‑‑Wolf
Most recently, the Eleventh Circuit in Wolf followed the rationale of Abraham, Bronk and Clark. It held that while a computer
programmer and analyst, leased by Coca‑Cola from an independent staffing
company, may have a legitimate argument that she was a Coca‑Cola common
law employee under the first prong of the participant status test, she was
nevertheless not entitled to benefits under the second prong, the terms of Coca‑Cola's
plan itself. Wolf, 200 F.3d at 1339.
D. The Present Case
Bauer's novel argument has apparently
never been resolved specifically in the context of salaried‑only plans. See
Lynn, 84 F.3d at 973‑74 (discussed in note 18 supra). His
argument is unsupported by any authority other than an unpublished case from
the Southern District of New York involving a motion to dismiss, see Ambris, 1997 WL 107632 at *1, and Bauer's isolation of 29 U.S.C. § 1052(a) from the rest of ERISA. Neither has
Bauer cited to any contrary directive in ERISA that forbids Summit to exclude
hourly employees from the Plan. See Bellas, 221 F.3d at 522.
As the benefits committee denial letter to Bauer originally
stated:
"The first citation [provided to the
committee by Bauer], 29
U.S.C. § 1052(a)(1)(A)(ii) ... provides that a Plan may not impose [a] waiting period of
more than one year for an otherwise eligible employee. It does not have any
bearing in determining which classes of employees are eligible. Your
second citation, 29
U.S.C. § 1052(a)(3)(A)
... provides that a 'year of service' means a *166 year in which at
least 1000 hours are worked. This also has no bearing on the ability of the
Plan to exclude a class of employees, in this case hourly employees."
(Emphasis added).
Summit had no duty to create the Plan in this case. See Shaw, 463 U.S. 85, 91, 103 S.Ct. 2890, 77
L.Ed.2d 490 (1983).
It also had no duty to provide benefits to every employee. Id. Summit could limit plan participation to
certain groups or classifications of employees, as long as that limitation was not based upon age or length of service.
[FN20] 29 U.S.C. § 1052(a)(4); 26 U.S.C. §§ 410(a), 401(a)(5).
FN20. Examples of legitimate exclusions may
include employees who are hourly; those who are leased; those who are part‑timed;
or those who are independent contractors. In fact, an employer could even
exclude all persons whose names begin with the letter "H," as long as
this was not deemed to be discriminatory in application.
We consider the case law considering leased employees as
analogous to the case before us and align our reasoning with that of the
Fourth, Fifth, Tenth and Eleventh Circuits, following the logic set forth in Clark, Abraham, Bronk and Wolf. See Clark, 1997 WL 6958 at *4; Abraham, 85 F.3d at 1130; Bronk, 140 F.3d at 1335; Wolf 200 F.3d at 1339. Barring a contrary directive, we are required to enforce the
Plan as written, as our judicial amendment is not authorized.
V. CONCLUSION
The judgment of the district court is affirmed.
325 F.3d 155, 30 Employee Benefits Cas. 1225, Pens. Plan Guide
(CCH) P 23982M
