The Third Circuit Court of Appeals has ruled that the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) does not prohibit an employer from refusing to rehire former employees so as to prevent them from accruing additional vested pension benefits. The Court held, in a case of first impression, that this type of discrimination is not prohibited by section 510 of ERISA (Becker v. Mack Trucks, Inc., 3rd Cir., No. 00-4414, 2/21/02).

FACTS

In 1987, Mack Truck, Inc. (“Mack”) decided to lay off a number of its union employees (including the 78 plaintiffs) due to poor economic conditions. In 1997, Mack decided to hire more employees due to rising production demands and attrition in the workforce. Mack soon determined that by rehiring former employees who had accrued benefits (vested or non-vested) under its union pension plan it would incur significant additional pension costs. Therefore, it stopped hiring such former employees including the plaintiffs. None of the plaintiffs had any contractual “recall” rights (based on seniority or otherwise) at this time. The facts were not in dispute and the District Court granted summary judgment in favor of Mack by finding that there was no violation of ERISA and the plaintiffs appealed.

DECISION: THE RIGHT OF VESTED FORMER EMPLOYEES TO BE REHIRED

The Court noted that section 510 of ERISA provides, in part, as follows:

“It shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary... for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan . . . .”

Thus, the decision of the Court hinged on a determination of what “discriminate” means under section 510 of ERISA. The Court found that Congress did not intend to extend the term “discriminate” to decisions by an employer regarding hiring or rehiring. First, the Court pointed out that section 510 does not refer to the terms “hire” or “rehire.” Second, the Court emphasized that when Congress intended to prohibit discriminatory hiring practices in passing labor legislation (such as, the Age Discrimination in Employment Act) it clearly did so. Finally, the Court noted that the intent of ERISAwas to protect benefits promised to an employee that arose from a pre-existing employment relationship. Therefore, the Court concluded that Congress intended to limit “discriminate” under section 510 of ERISA to actions affecting a pre-existing employment relationship. Since the plaintiffs did not allege any deprivation of ERISA or recall rights that arose out of their former employment with Mack, the Court affirmed the granting of summary judgment to Mack.

OBSERVATION

The decision of the Third Circuit Court of Appeals in Becker was correctly decided. The Court, however, stated (in footnote 4) that it was not considering “what impact, if any, an enforceable right to recall might have on the standing issue.” In addition, the Court stated that it declined “to expand the reach of §510 to cover rehiring of former employees with no right or expectation of future employment.” Therefore, the issue remains open as to whether a former employee with (i) accrued benefits under a former employer’s pension plan and (ii) enforceable recall rights has a claim to be rehired by that employer under section 510 of ERISA.