Alert June 25, 2009

Independent Contractor ERISA Suits Demonstrate Plan Terms’ Paramountcy

A number of states – including New York, Massachusetts, Michigan, New Hampshire and Iowa – have recently formed task forces directed at identifying and prosecuting companies that misclassify workers as independent contractors rather than employees, thereby escaping the responsibilities to withhold taxes from the workers’ wages, contribute to workers’ compensation, pay for unemployment insurance and provide benefits such as health care and retirement. On a parallel track, the plaintiffs’ bar has continued to bring lawsuits alleging that workers were misclassified as independent contractors and wrongfully denied employee benefits – including benefits under plans governed by ERISA.  

In Curran v. FedEx Ground Package System, Inc., 593 F. Supp. 2d 341 (D. Mass. 2009), the plaintiffs brought a putative national class action, claiming that the defendant misclassified them as non-employees and wrongfully denied them benefits. Based solely on this allegation of misclassification, they sought to enforce their rights to ERISA benefits “in whatever [employee benefit] plan for which they were eligible.”  Id. at 343 (quoting Compl. 5). The defendant, represented by Goodwin Procter in this matter, argued that employment status alone could not establish the plaintiffs’ entitlement to relief under ERISA, and that the plaintiffs were required to plead facts establishing they were entitled to benefits under an identifiable benefits plan. The court agreed and dismissed the case. The court stated that while participants in a plan are employees, not all employees are necessarily participants in a plan. “Consequently, the plaintiffs must set forth sufficient factual allegations to make plausible a conclusion that they fall within the terms of a particular ERISA plan and, thus, are entitled to seek to enforce those terms under § 1132(a)(1)(B). They have not done so.”  Id. (emphasis added).

In Estate of Suskovich v. Anthem Health Plans of Virginia, Inc., 553 F.3d 559 (7th Cir. 2009), the estate of a worker brought an action requesting a declaration that the decedent was an “employee” of the company and not an independent contractor, and seeking recovery of overtime pay and employment benefits. The estate sought damages for the company’s failure to enroll the decedent in retirement benefit plans for which he was eligible. The court examined the employee benefit plans at issue, which provided that “anyone not treated as an employee who is later ruled to be a common law employee in a lawsuit remains ineligible for benefits.”  Id. at 571-72. The court noted that the company had always treated the decedent as an independent contractor, and he had signed an independent contractor agreement. Though the court did not reach the issue because it found that the decedent was an independent contractor, it noted that this alternative ground would also provide a basis for entering summary judgment in the defendants’ favor. Id. at 572. See also Martin v. Public Service Utility Electric & Gas Co., 2008 WL 857934 (3d Cir. 2008) (where a plan’s definition of employee carved out independent contractors since at least as early as 1998, a complaint claiming independent contractors were wrongfully denied participation in pension and employee welfare plans is time-barred); Olpchenski v. Parfums Givenchy, Inc., 2009 WL 440959 (N.D. Ill. Feb. 19, 2009) (granting summary judgment, in part, as to so much of independent contractors’ claim that sought retirement plan benefits, where the retirement plan’s definition of employee excluded those who did not receive W-2 Forms and who were treated as independent contractors).

These cases address issues of broad concern to all employers sponsoring employee benefit plans, and also shed light on how courts evaluate claims against any entity under ERISA. Consistent with the statute, courts put great emphasis on the plan documents and the plan definitions. The caselaw is quite clear that ERISA does not provide a right to benefits for all employees; it merely provides a mechanism for an eligible participant under the terms of the plan to enforce his or her rights. Where the plan strictly defines the participants to exclude those whom the employer did not treat as an employee, the courts respect and apply that definition. The commitment of interpreting plan terms strictly will have an impact on many cases involving ERISA claims. See, e.g., Bauer v. Summit Bancorp., 325 F.3d 155, 166 (3d Cir. 2003) (upholding plan administrator’s denial of retirement benefits for time an employee spent as an hourly worker, where the plan limited participation to salaried workers, stating, “[b]arring a contrary directive, we are required to enforce the Plan as written . . . .”).