The U. S. Court of Appeals for the Seventh Circuit has affirmed a trial judgment against a class of former employees of Abbott Laboratories (“Abbott”), ruling against their claim that Abbott used a corporate spin-off process to interfere with the employees’ rights to pension benefits under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and breached its fiduciary duties by failing to disclose the impact of the spin-off on the former employees’ pension benefits.
Abbott owned the Hospital Products Division (“HPD”) that had previously employed the plaintiffs. Turning HPD into the defendant Hospira, Inc. (“Hospira”), Abbott then spun off the new company and its roughly 15,000 employees in 2004. The affected Abbott employees were terminated from Abbott and hired the next day by Hospira. The terms of the spin-off included reciprocal no-hire policies, under which Abbott would not hire Hospira employees or retirees for two years, and Hospira would not hire Abbott employees or retirees for that same period. Abbott had long sponsored a pension plan. Hospira’s employees were not offered such a plan. Instead, after the spin-off Hospira offered a 401(k) plan with an employer-matching provision. Because of the reciprocal “no hire” policies, the former employees of Abbott lost their non-vested pension rights in the Abbott plan when they ceased employment with Abbott. In addition, the retirement-eligible HPD employees were prevented from retiring from Abbott before the spin-off, in order to collect an Abbott pension, and then seeking employment with Hospira, thus collecting both a pension and a salary.
The plaintiffs asserted that Abbott intentionally spun off the HPD employees and adopted the no-hire policies with the intention of interfering with the employees’ rights to ERISA pension benefits under the Abbott plan. In particular, they claimed that Abbott created Hospira and spun it off in order to shed some of its pension liability. They also alleged that Abbott and Hospira failed to inform plaintiffs of material information about the Hospira plan before the spin-off.
ERISA Section 510 prohibits any person from discharging, suspending, fining or taking retaliatory action against a plan participant for exercising that participant’s rights under a plan, or for the purpose of interfering with the participant’s attainment of any right to which he may become entitled under a plan. However, a Section 510 plaintiff must show that the defendant acted with the specific intent of preventing or retaliating for the plaintiff’s use of benefits.
Both the district court and the Seventh Circuit held that the plaintiffs failed to show Abbott’s or Hospira’s specific intent to interfere with their ERISA rights. The courts held that employee benefits simply played no part in Abbott’s decision to create Hospira and spin it off. Moreover, the record from the nine day trial did not show that the no-hire policy was motivated by any intention to interfere with the plaintiffs’ plan benefits. Rather, the policy was established to promote stability and productivity at both companies following the spin-off.
On appeal, the plaintiffs also argued that Abbott and Hospira colluded to adopt no-hire policies that discriminated against retirees, who were allegedly viewed as non-productive employees, and prevented their re-hiring by the other company. The Seventh Circuit gave this argument short shrift, noting that the plaintiffs in fact did not retire and were hired by Hospira after being terminated from Abbott. Nothing in the record showed the court the necessary evidence that the no-hire policies had been motivated by an intent to interfere with the employees’ benefits.
The Seventh Circuit likewise upheld the trial judgment against the plaintiffs’ claim of fiduciary breach. The plaintiffs argued that Abbott had helped to create the post-spin-off Hospira 401(k) plan, allegedly causing the affected employees to think that the Hospira plan would be similar to the existing Abbott plan. The trial record defeated that argument, showing that prior to the spin-off Abbott consistently informed its employees that Hospira would set up its own retirement plan and that the benefits would be entirely different from Abbott’s. In addition, the record showed that Hospira made its own decisions about its employee benefit plans after the spin-off.
The Abbott Laboratories decision is a timely reminder of the potentially potent scope of ERISA Section 510 and also of the essential requirements of a Section 510 claim. The evidence in the case was extensively collected and weighed in a nine day trial, and the absence of convincing evidence of specific intent to frustrate the employees’ attainment of benefit rights was fatal to the claim. The evidence of Hospira’s decision-making process, as well as the record of Abbott’s representations to its employees prior to the spin-off, likewise enabled the companies to demonstrate their fidelity to their respective fiduciary obligations.