No ERISA Whistleblower Protection for Unsolicited Internal Complaints

Not long before she was fired last year, Shirley Edwards complained to her bosses that the company was mishandling its employee benefit plans. The human resources director for A.H. Cornell and Son Inc. accused the family-owned Jamison, Pa., construction company of violating the Employee Retirement Income Security Act of 1974 (ERISA).

She alleged that the company was misrepresenting the cost of group health coverage to some employees in an effort to dissuade them from opting into benefits, and enrolling noncitizens in its ERISA plans by providing false Social Security numbers and other fraudulent information to insurance carriers.

After she was fired on Feb. 11, 2009, Edwards sued the company and two of its managers. She claimed she was terminated because of her complaints, in violation of ERISA's anti-retaliation provision.

Last year the U. S. District Court for the Eastern District of Pennsylvania granted her ex-employer's motion to dismiss the case because her actions did not qualify for whistleblower protection.

Section 510 of ERISA prohibits an employer from retaliating against any person who "has given information or has testified or is about to testify in any inquiry or proceeding" in relation to rights safeguarded by ERISA.

According to the district court, Edwards' internal complaint was not made as part of an "inquiry or proceeding" since no one at the company had ever requested information from her, or initiated contact with her in any way. Her complaint was therefore not protected.

In its first decision on the point, a 3rd Circuit panel recently divided 2-1 in affirming "that unsolicited internal complaints are not protected."

That decision will assist employers, says John Thompson, a partner at Oberman Thompson & Segal. "Many, many whistleblower complaints are unsolicited," he notes, "and few employees will know they need to generate an inquiry or proceeding before their whistleblowing would be protected under ERISA."

Circuits Split

The Supreme Court is likely to weigh in eventually on a growing circuit split over whether ERISA protects employees who make unsolicited internal complaints of ERISA violations. So far, the 5th and 9th Circuits have held that such employees are protected from retaliation. The 2nd, 3rd and 4th Circuits have held they are not.

Roy Harmon III, a attorney who writes a blog on U.S. health plan law, thinks the latter view will prevail.

"The federal courts have long ago decided in favor of the uniformity of ERISA administration as the governing policy goal," he explains. "In furtherance of that goal, the federal courts, following the Supreme Court's lead, have given ERISA's civil remedies provisions a narrow construction."

The Department of Labor (DOL) complains, in its amicus curiae brief in support of Edwards' request for a panel rehearing or en banc review, that the 3rd Circuit's "narrow reading" of s. 510 will encourage employers to ignore possible ERISA violations and/or fire employees who make such allegations.

Yet Circuit Judges D. Michael Fisher and Thomas Hardiman insisted it was impossible for them to ignore ERISA's clear language. "An 'inquiry' is generally defined as 'a request for information,'" Fisher wrote. "Edwards does not allege that anyone approached her requesting information regarding a potential ERISA violation. Rather, she made her complaint voluntarily, of her own accord. Under these circumstances, the information that Edwards relayed to management was not part of an inquiry under the term's plain meaning."

Christie Flamm, co-counsel for A.H. Cornell and Son. Inc., says the majority "refreshingly" interpreted the law just as it is written. "The court seems to say that an employee bringing up a concern to management isn't an 'inquiry or proceeding,'" she says. "But once management identifies a problem and they start looking into it, formally or informally, that may be the start of an 'inquiry or proceeding,' but it won't go back any sooner in time than that."

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That result was deplored by dissenting Judge Robert Cowen, who accused the majority of giving the "ambiguous" provision an "ultimately unsustainable interpretation." ERISA is supposed to be liberally construed to protect workers who participate in employee benefit plans, he reminded his colleagues.

"Like the 9th Circuit, I find it difficult to believe that Congress could have ever intended to exclude from the protection of its remedial anti-retaliation provision employees who are terminated because they bring an ERISA-related problem to the attention of their superiors," Cowen wrote.

But Thompson points out that an unsolicited complaint may gain ERISA protection along the way once the employer pursues the allegations. He also suggests that an employer's failure to conduct an inquiry, once the company learns of possible ERISA violations, could hurt later in other situations because "it would tend to show that the employer doesn't care about problems with their ERISA plans."

The 3rd Circuit has certainly given employers more "breathing room" to knock out bogus ERISA retaliation claims early in litigation, Flamm adds. "If an employee sues you, and there was no inquiry or proceeding going on, then you can cut that lawsuit off," she says.

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