By:  Amanda A. Sonneborn and Jim Goodfellow

Recently, former unionized employees cried foul over their failure to receive defined benefit pension plan benefits subsequent to their termination.  Relying on clear, unambiguous documents contradicting the employees’ claims, the Third Circuit concluded was entitled to judgment as a matter of law (the decision can be found here).

The plaintiffs were unionized employees who worked in Union Labor Life Insurance Company’s (“ULLICO”) claims department and participated in a defined benefit pension plan.  In May 2004, ULLICO outsourced its claims administration services to Amalgamated Life Insurance Company Co. (“ALICO”).  In its agreement with ULLICO, ALICO agreed to retain the plaintiffs’ employment, but ALICO was not required to maintain the employee’s pension benefit.  During the transition, the plaintiffs received numerous documents informing them that their benefits at ALICO would not include a defined benefit pension plan.  Additionally, during union negotiations, the union inquired as to whether the plaintiffs could participate in a defined benefit pension plan.  ALICO never agreed during the relevant time. 

In October 2010, due to a decline in business, ALICO laid off the plaintiffs.  Following their termination, they filed suit against ULLICO, ALICO, and their union, and alleged that they improperly had been denied benefits under ALICO’s defined benefit pension plan.  The complaint alleged, among other claims, violations of ERISA and sought equitable relief under the theories of unjust enrichment and equitable estoppel.  The gravamen of the plaintiffs’ complaint was that they would not have accepted ALICO’s offer of employment had they not been able to participate in a defined benefit pension plan.  Ultimately, the district court granted ALICO’s motion for summary judgment as to the plaintiffs’ ERISA claims. 

The plaintiffs appealed the district court’s judgment to the Third Circuit, which affirmed the district court’s decision.  The court likened the plaintiffs’ claims to those situations where employees know a plan sponsor reserves the right to amend or eliminate benefits at any time.  The court concluded that “there were several subsequent communications making it clear that no defined benefit plan participation was offered until 2010.”  The court emphasized: “We have said that a participant’s reliance on employer representations regarding benefits may never be ‘reasonable’ where the participant is in possession of a written document notifying him of the conditional nature of such benefits.”  The Court also rejected the plaintiffs’ assertion that extraordinary circumstances required judgment in their favor, concluding that there was no misrepresentation about the benefits at issue, let alone a network of misrepresentations that would give rise to such extraordinary circumstances.

Particularly in the post-Amara world, in which we are seeing a continued increase in breach of fiduciary duty and estoppel claims based on alleged misrepresentations about benefits, this case is another illustration of the importance clarity in benefits communications.  Absent such clear documentation plan sponsors face an uphill battle in attempting to defend such claims.