It has become relatively common for plaintiffs’ counsel to add ERISA claims to wage and hour class actions under the Fair Labor Standards Act alleging off the clock work or failure to comply with minimum wage and overtime requirements. (This phenomenon is reminiscent of the now dwindling wave of ERISA “stock drop” suits that were for several years routinely filed on the heels of 10b-5 securities fraud class actions.) Such claims in FLSA cases have had limited success to date. On March 7, 2012, in DeSilva v. North Shore-Long Island Jewish Health System Inc., Case No. 2:10-cv-1341, a district court in the Eastern District of New York granted a motion to dismiss ERISA claims contained in an FLSA class action.
Plaintiffs in DeSilva claimed to represent a class of 38,000 current and former employees at thedefendantHospital who were allegedly harmed by the Hospital’s meal and break deduction policy, its unpaid training policy and its pre- and post-schedule work policy. Plaintiffs asserted that these policies caused them to be underpaid in violation of the FLSA. They further alleged that this wage underpayment led to a breach of ERISA’s fiduciary duty rules. Specifically, they claimed that the Hospital’s retirement plans improperly credited plaintiffs’ accounts based on compensation earned rather than on hours actually worked (and for which compensation allegedly should have been, but was not, paid). The Court rejected this claim finding that the controlling plan documents tied benefits earned to compensation actually paid, not hours worked. Specifically, the plans at issue all determined benefits based upon”compensation”, which was defined “compensation” as equivalent to wages actually paid.
DeSilva joins a growing number of decisions in which courts have rejected attempts to tack ERISA claims onto FLSA class/collective actions. The Hospital in DeSilva succeeded largely due to the applicable plan language, which made clear that that plaintiffs’ ERISA claims had no traction. Moreover, a number of courts have found more generally that ERISA’s fiduciary duty rules do not require plan fiduciaries to independently examine the employer’s records to determine whether additional wages should have been paid, which might lead to additional benefits.
Most, though not all, courts have found that no ERISA fiduciary obligation arises in this situation. See, e.g., Winfield v. Citibank, N.A., 2012 U.S. Dist. LEXIS 10808, * 25 (S.D.N.Y. Jan. 27, 2012) (“If ERISA imposed a fiduciary duty to ensure that all overtime hours worked were properly recorded and compensated, irrespective of how benefits are calculated under the applicable plan, then every violation of the FLSA would give rise to a violation of ERISA. This was not the intent of Congress in enacting ERISA”); Barrus v. Dick’s Sporting Goods, Inc., 732 F. Supp. 2d 243, 258 (W.D.N.Y. 2010)(dismissal of ERISA fiduciary breach claim alleging failure to credit hours because neither the crafting of compensation policies or the reporting of hours worked are fiduciary functions); c.f. Stickle v. SCI Western Mkt. Support Ctr., L.P., 2008 U.S. Dist. LEXIS 83315, *53 (D. Ariz.Sept. 29, 2008), (“[u]nder ERISA, crediting hours is a fiduciary function, independent of the payment of wages, [and] necessary to determine participants’ participation, vesting and accrual of rights”).
Besides keeping up on this developing area of the law, plan sponsors should also check their plan language to ensure that it is written in a way that helps safeguard against hybrid FLSA/ERISA actions. In addition, plan administrations should be mindful thatalthough the benefits at issue in DeSilva were based on compensation actually paid rather than hours worked, the proper crediting of hours worked may be relevant for certain purposes with respect to certain retirement plans. For example, under certain circumstances, plan administrators may need to adjust hours of service for vesting purposes following a judgment that awards back pay. Therefore, although the DeSilva line of cases holds that an ERISA fiduciary does not have an independent fiduciary duty to audit the employer’s time records, if in fact additional hours are awarded as a result of an FLSA case or otherwise, the plan may need to review and update plan records, which could lead to additional plan benefit obligations.”