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August 04, 2005

Off-payroll employees excluded from ERISA plan

Three employees sued under the Employment Retirement Income Security Act (ERISA) claiming that the employer violated ERISA by placing them on the payroll of third-party payroll agencies with the result that they were excluded from the employer's ERISA plans. The trial court dismissed the claims; the 1st Circuit affirmed. Edes v. Verizon Communications (1st Cir 08/02/2005)

When the plaintiffs were hired in April 1994 the employer required them to sign on with independent payroll agencies who issued their paychecks during the entire time of their employment. In 1998 the employer terminated the plaintiffs' employment. In 1999 the plaintiffs demanded ERISA plan benefits, and the employer refused. The ERISA plans were expressly limited to employees who were paid directly by the employer, and the plaintiffs sued in October 2001 alleging that this violated ERISA.

• (1) Plaintiffs were not entitled to benefits under ERISA Section 502(a)(1)(B) because, although they may have been common law employees, they were explicitly excluded from the ERISA plans because they were not paid directly by the employer.
• (2) Plaintiffs' Section 510 claim (that the employer failed to move them to the employer's payroll after they were hired) was time-barred under the state's three-year statute of limitations. The claimed wrong was a misclassification that occurred in April 1994, and there was no "continuing violation" based on each subsequent paycheck.
• (3) Plaintiffs' ERISA Section 404 claim (breach of fiduciary duty) was time-barred by the ERISA three-years statute of limitations. Although there is an apparent split of opinion among the circuits as to how to analyze questions of "actual knowledge" of a breach or violation, these plaintiffs had actual knowledge in April 1994, even though they did not have actual knowledge of the plans' eligibility criteria.
• (4) The employer did not violate ERISA's minimum participation standards, as there is "no statutory provision that prohibits the use of such arbitrary eligibility criteria." Even if the employer failed to comply with certain tax regulations, that would not permit a court to re-write a plan.

Posted August 04, 2005 by Ross Runkel, Editor at LawMemo, publisher of Employment Law Memo. Try it.

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