Over the past twenty years, I have litigated many hundreds of cases under the Employee Retirement Income Security Act, 29 U.S.C. 1001, et seq. ("ERISA"). Though I have never lost an ERISA case, I have settled many. Many of those settlements resulted from a mistake at some point in the pre-suit process that gave the opposing party sufficient leverage to force a settlement. The spectrum of the ERISA litigation is far too diverse to allow me to deal with many specifics in this article. I can, however, provide an overview that will serve to guide corporate counsel in ways to maximize their chances of prevailing when confronted with an ERISA dispute.
To effectively deal with an ERISA dispute, one first must recognize that a matter involves ERISA. In the early years of ERISA, I saw many instances in which neither the parties nor their counsel recognized that their dispute involved ERISA. Thanks to recent high profile ERISA cases and the gradual education of attorneys, most attorneys know when a given matter involves ERISA. Yet, some ERISA matters still go unrecognized. As ERISA generally benefits the employer, let me begin by giving a brief description of ERISA, and explaining how to recognize that a matter implicates ERISA.
Congress enacted ERISA in an effort to give employers a uniform set of laws pertaining to employee benefits. Prior to the enactment of ERISA, each of the 50 states had different laws, rules and regulations concerning such benefits. Such was the difficulty in keeping all pertinent laws straight, Congress perceived that many corporations decided to do without benefits. In devising one, unified system, Congress hoped to encourage employers to provide benefits to their employees. As a result, Congress attempted to devise a simple statutory scheme that would provide employees with one uncomplicated set of rules. While two reasonable people could dispute the simplicity of the ERISA scheme, they cannot dispute that its enactment made it easier to provide employee benefits.
As I noted, ERISA applies to employee benefits. In the context of ERISA, "employee benefit" means any benefit provided by an employer to an employee. (ERISA does not, however, apply to monetary compensation unless that compensation is designed to provide retirement income to the employee or results in deferred income earmarked for periods after the employee terminates). Thus, if a matter involves such things as health benefits, disability benefits, pension benefits, retirement benefits, profit-sharing, vacation accrual, or any other employee benefit not related to immediate compensation, ERISA most likely is implicated. Thus, as a general rule, corporate counsel should always suspect ERISA involvement any time a claim or lawsuit in any way implicates such employee benefits. Should there be any doubt, the best policy is to consult with an attorney specializing in ERISA.
The ERISA statutory scheme is a fairly unique Congressional creation. Rather than enact a multitude of rules as to what ERISA plans must do and how they must operate, Congress left that detailed work largely to the employers. It did so by virtue of the requirement of a written "plan." Generally speaking, a plan consists of a document (or documents) that spells out the particular benefits that the employer provides to its employees, when employees become eligible for those benefits, and how the employees can obtain those benefits. To a large extent, the employer-created plan is the applicable law in ERISA matters. As a result, the first step in winning an ERISA case is to devise a proper plan document.
Most companies will need to hire a professional to draft a plan or, in the alternative, use the plans offered by insurance companies, financial companies and the like. A company should not scrimp on preparing the plan documents. Drafting the plan is the company's opportunity to formulate the rules that will apply to the benefits dealt with by the plan and claims arising therefrom. Thus, the plan should be written in a manner that will maximize the company's chances to prevail should a lawsuit arise from the plan.
Let me give an example. As a result of a U.S. Supreme Court decision, every Federal Circuit Court in the county has held that if the plan document grants discretionary authority to the entity making claims decisions on behalf of the plan, trial courts must review that decision under the arbitrary and capricious standard of review. If, on the other hand, the plan document does not confer discretion, the decision maker's decision will be decided on a "de novo" basis.
Under the "arbitrary and capricious" standard, a trial court will uphold the decision maker's determination so long as it had a reasonable basis for making the decision it did. A court will uphold the decision maker's finding even if the court finds that the determination was wrong, so long as the decision maker had a reasonable basis for the decision. Importantly, under the arbitrary and capricious standard of review, most courts severely limit discovery (and therefore litigation costs).
Under the de novo standard of review, on the other hand, the decision maker receives no deference and the court will decide the case under the preponderance of the evidence standard. Moreover, many courts allow more extensive discovery as well as a broader range of evidence to be introduced into the trial in de novo cases. Thus, employers are more likely to lose these cases and spend more time and money in doing so. Amazingly, I still run across plans that do not have the appropriate discretionary language.
The mere inclusion of the appropriate plan language can confer a tremendous litigation advantage to the employer and the plan. It is critical, therefore, that a company's plan contains such favorable language.
Operation Of The Plan
Having a good plan in place is only half the battle. The other half is operating the plan in accordance with its terms. As noted above, the plan in effect constitutes the law. A violation of the requirements of the plan, therefore, usually constitutes a violation of ERISA. For this reason, a company must have a detailed familiarity with the plan and a system designed to ensure that the plan works in the stated manner. If a company cannot or will not do this, the company should retain a third party who can and will. As many companies do not have the internal resources to devote to this area, retaining a third party to manage the plan is often the best choice.
The failure to properly manage and operate the plan is the source of the majority of litigation problems. ERISA plans typically contain many intricacies. Failure to follow the plan requirements can easily change a winning ERISA case to a questionable or losing one. Another example may prove constructive. ERISA requires that, upon written request to the plan administrator, the plan provide participants with the requested documents within 30 days. If the plan administrator fails to provide those documents within the 30 days, the court must impose a fine that can range up to $110 per day. This is a well-known requirement and has been the subject of much litigation. Yet, I still routinely see cases in which the plaintiff seeks - and is entitled to - this statutory fine.
Plaintiff attorneys who specialize in ERISA litigation know case law very well. These attorneys are often adept at forcing plans into mistakes during the claim process and subsequently arguing that those mistakes rendered the plan's decision incorrect. Employers, therefore, need to have a system in place that ensures such mistakes do not happen.
When Problems Arise
Quite often, ERISA litigation can be won before it even begins. On countless occasions, a case will come to me that an employer could have avoided had it taken reasonable steps when the claim first arose. Many ERISA participants retain lawyers only after they perceive that they are being frustrated by corporate bureaucracies. Often times, these individuals merely want fair treatment. Every company should try to set up a system that allows the company to deal with its employees in a personable and human way. A little consideration often goes a long way in avoiding lawsuits.
A company also can do well for itself by consulting with an outside expert when a potential problem arises. Many companies I work for contact me when they see a potential situation brewing. On many such occasions, I have been able to resolve the problem with no payment and, importantly, no litigation. Taking the preventative approach often saves much time and expense down the road.
When Litigation Occurs
Once a lawsuit has been filed, the die is largely cast. At the point a lawsuit is filed, about the only thing a company can do to better its odds is to hire an attorney that specializes in ERISA litigation. ERISA's complexities and quirks are such that a litigator with no ERISA litigation experience may overlook many important advantages and, therefore, increase the chances of losing as well as the costs of litigation.
More so than most litigation, the outcome of ERISA litigation can be shaped before the occurrence of the actions giving rise to the lawsuit. Thus, a company that maintains ERISA plans should take the appropriate steps to confer upon itself the advantages that ERISA allows. If it does so, the chances of prevailing on ERISA lawsuits increase markedly and the cost of those lawsuits will decrease markedly.
Published July 1, 2006.