Most employers and human resources professionals are well aware of the various federal discrimination statutes, including Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, and the Age Discrimination in Employment Act. Less well-known are the employee protections found in Section 510 of the Employee Retirement Income Security Act of 1974 (ERISA). Section 510 prohibits an employer from discriminating against an employee (1) in order to prevent the employee from receiving ERISA-protected employment benefits or (2) in retaliation for the employee’s use of his employment benefits.
If an employer provides health insurance, long- or short-term disability benefits, pension plans, or other benefits to its employees, then those benefits may be protected by ERISA. Section 510 states that it is unlawful for an employer to “discharge, fine, suspend, expel, discipline, or discriminate against” an employee for exercising his ERISA-protected benefits or in order to interfere with an employee’s use of ERISA-protected benefits.
Section 510 claims can arise in a number of scenarios and are often filed in connection with other employment claims. For example, if an employer terminates an employee after learning that the employee is about to incur significant medical bills on the employer-sponsored healthcare plan, then the employer may see an ERISA Section 510 claim, in addition to any disability or FMLA discrimination claims. Similarly, if an employer terminates an employee whose pension benefits are close to vesting, the employer may see an ERISA Section 510 claim, in addition to a possible age discrimination claim.
ERISA Section 510 claims may also arise when an employer:
- Attempts to reclassify employees as independent contractors, who would not be entitled to benefits (see In re Allstate Ins. Co., 400 F.3d 505, 506 (7th Cir. 2005));
- Closes a plant with the alleged motivation of depriving employees of benefits (see Crawford v. TRW Automotive U.S. LLC, 560 F.3d 607, 612 (6th Cir. 2009); or
- Bases a termination on outsourcing of the employee’s job duties to a contractor in order to avoid paying benefits (see Register v. Honeywell Federal Mfg. & Technologies, LLC, 397 F.3d 1130, 1137 (8th Cir. 2005)).
In any of these cases, the employee would have to prove that the employer acted with the specific intent of depriving him of benefits and that the lost benefits were not a tangential result of a legitimate employment decision or a general cost-saving measure. In other words, an employee must prove that the loss of benefits was the reason for the employer’s decision, not merely an incidental result of the decision. Employees who prevail in an ERISA Section 510 claim may be awarded reinstatement to their previous employment position, reinstatement of the ERISA-protected benefits that were denied, attorneys’ fees, and possibly other damages.
For employers, the possibility of an ERISA Section 510 claim calls for caution in making personnel decisions relating to employees who have received, or are expected to receive, ERISA-protected employment benefits. In making layoffs or other staffing decisions that affect employee benefits, such as using independent contractors over salaried employees with benefits, employers should be prepared to show that their decisions were not based on avoiding payment of employee benefits.