Amicus Curiae Brief — Inter-Modal Rail Employees Ass'n v. Atchison, Topeka & Santa Fe Railway Co.

"

i3 (997

No. 96-491

In the Supreme Court of the United States

OCTOBER TERM, 1996

INTER-MODAL RAIL EMPLOYEES ASSOCIATION, ET AL.,

PETITIONERS

v.

ATCHISON, TOPEKA AND SANTA FE RAILWAY

COMPANY, ET AL.

ON WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF FOR THE

UNITED STATES AS AMICUS CURIAE

SUPPORTING PETITIONERS

WALTER DELLINGER

Acting Solicitor General

EDWIN S. KNEEDLER

Deputy Solicitor General

CORNELIA T.L. PILLARD

Assistant to the Solicitor

J. DAVITT MCATEER

Acting Solicitor of Labor

ALLEN H. FELDMAN

Associate Solicitor

MARK S. FLYNN General

Senior Appellate Attorney Department of Justice

Department of Labor Washington, D.C. 20530-0001

Washington, D.C. 20210 (202) 514-2217

QUESTION PRESENTED

Section 510 of the Employee Retirement Income

Security Act of 1974 (ERISA), 29 U.S.C. 1140, makes

it unlawful for any person to take specified adverse

action against an employee benefit plan participant

“for the purpose of interfering with the attainment of

any right to which such participant may become en-

titled under the plan.” The question presented is:

Whether Section 510 applies to an employer’s deci-

sion to discharge employees and to contract out their

jobs to another company for the purpose of interfering

with the employees’ attainment of rights to welfare

benefits.

TABLE OF CONTENTS

Interest of the United States .................cccccccceceeeeeeees

Statutory provision involved ................ccccccccceeeeeeeeees

Section 510 of ERISA prohibits discharging

employees for the purpose of interfering with

their attainment of rights under an ERISA-

covered employee welfare benefit plan ..............

TABLE OF AUTHORITIES

Cases:

Adickes v. S.H. Kress & Co., 398 U.S. 144

EE ere

Ahng v. Alisteel, Inc., 96 F.3d 1033 (7th Cir.

ESE SETI a

Andes v. Ford Motor Co., 70 F.3d 1332 (D.C.

EEE re

Bidlack v. Wheelabrator Corp., 993 F.2d 603

(7th Cir.), cert. denied, 510 U.S. 909 (1993) .....

Conkwright v. Westinghouse Elec. Corp.,

933 F.2d 231 (4th Cir. 1991) ...........ccccccccccceeeeees

Conley v. Gibson, 355 U.S. 41 (1957) ................

Curtiss-Wright Corp. v. Schoonejongen, 115 S.

ria trae ntceeencesenes

Dister v. Continental Group, Inc., 859 F 2d

1108

Ee

Dytrt v. Mountain State Tel. & Tel. Co.,

921 F.2d 889 (9th Cir. 1990) ...........cccccccccceeeeeees

Firestone Tire & Rubber Co. v. Bruch, 489 U.S.

EE eee

Gavalik v. Continental Can Co., 812 F.2d 834

(3d Cir.), cert. denied, 484 U.S. 979 (1987) ......

(IIT)

IV

Cases—Continued: Page

Hazen Paper Co. v. Biggins, 507 U.S. 604

PRUE? ‘sherienietselinstiietensinseiteiesienicietenaiteieadeacaiiniaededlaeesia ni 3,4

Heath v. Varity Corp., 71 F.3d 256 (7th Cir.

SENEIET deemettteriesatiaideeanisimieeniieniantabisiisincentinds 12, 13, 18, 19, 20

Ingersoll-Rand Co. v. McClendon, 498 U.S. 133

GENTE ‘aheemuictnteeternitennantictesiiinad teeetaceinien ine 3, 8, 15, 17

Jenkins v. Anderson, 447 U.S. 231 (1980) ........ 24

Kross v. Western Elec. Co., 701 F.2d 1238

lf Se eee 12, 14, 15

MeGann v. H & H Music Co., 946 F.2d 401 (5th

Cir. 1991), cert. denied, 506 U.S. 981 (1992) .... 18, 19

Owens v. Storehouse, Inc., 984 F.2d 394 (11th

IU TR ertetetnetneinenidihientthiatiitiee ti 18

Seaman v. Arvida Realty Sales, 985 F.2d 543

(11th Cir.), cert. denied, 510 U.S. 916 (1993) ... 9, 13, 14,

19, 22

Shahid vy. Ford Motor Co., 76 F.3d 1404 (6th

GIR, ED winsehiccttienertnsiirietniactidinnsiitnianteint hid teen 15, 18, 20, 21

Shaw v. Delta Air Lines, Inc., 463 U.S. 85

a Se lee 2

Tolle v. Carroll Touch, Inc., 977 F.2d 1129 (7th

as GENUINE seaiclitematinies. seastniintieteceries aieta teat iste a 9

Unida v. Levi Strauss & Co., 986 F.2d 970

ee eS eee 21, 22

Varity Corp. v. Howe, 116 S. Ct. 1065 (1996) ... 20

Statutes, regulations and rule:

Americans with Disabilities Act of 1990, 42 U.S.C.

SEEETIIE? sntcinisienrsinenitinatnsittaieiieieniiatinatianniia titi 19

Employee Retirement Income Security Act of

1974, 29 U.S.C. 1001 ef 86g. .......cccccccceeceeessesecees 2

§ 3(1), 2B U.S.C. 2OOB(2) ............cccecccccsceceeess 3,4

§ B(2A), 29 U.S.C. 1002(2)(A) ooo... ccccccceeeees 3

§ 3(2)(B), 29 U.S.C. 1002(2)(B) ...0.....ccc 4

§ 33), 29 U.S.C. 100B(B) .............0000............ 3, 12

§ 3(19), 29 U.S.C. 1002(19) ..........cccccccceceeeeees 4

§ 3(23), 29 U.S.C. 1002(23) oo... ccccccccceeecceeees 4

§ 3(25), 29 U.S.C. 1002(25) ...........cccecceecceeeees 4

§ 3(29), 29 U.S.C. 100B(Z9) .............ccc0cccceees. 4

Vv

Statutes, regulatic 3s and rule—Continued:

§ 3(34), 29 U.S.C. 1002(84) .........ccccceccceeeeeeees

§ 3(35), 29 U.S.C. 1002(85) ........ccccccccececceeeeee

$§ 201-211, 29 U.S.C. 1051-1061 «000000000...

§ 201(1), 29 U.S.C. 106101) ...........2000....0000000

§ 203(aX2)(A), 29 U.S.C. 1053(a)(2)(A) ........

§ 203(a(2)B), 29 U.S.C. 1053(a(2\B) ........

§ 203(a2\C), 29 U.S.C. 1053(aK2\C) ........

|) 8 | 4

§ 204(g), 29 U.S.C. 1054(g) .0......cccccccccceeeeeeee

$§ 301-308, 29 U.S.C. 1081-1086 000000000000...

§ 301(a)(1), 29 U.S.C. 1081May(1) o.oo.

§ 408(e), 29 U.S.C. 120B(e) ............000000c.000eee

8 | ke a

§ 502(a(3), 29 U.S.C. 1132(aX(3) .....0...0....

§ 502(aX(5), 29 U.S.C. 1132(aX5) ..................

§ 502(h), 29 U.S.C. 1132) ....-..ccccccccccccceeeess

I

§ 4043(c), 29 U.S.C. 1343(c) ....................

Federal Employers’ Liability Act, 45 U.S.C. 51

0 OD eteetestrctnciitairenermeitinintimanaaniinaitiin

Railroad Retirement Act of 1974, 45 U.S.C. 231

ection GOGSG(0) ccccccecncnoccnccccccsscssssssseesesessssecc

Section 4022.21(a)(2)(ii) ................ccceceeeeeccececeeeees

I a

Miscellaneous:

119 Cong. Ree. (1973):

CS ae

SD, SERED snastsunsensnssmencanesneninessemmmenndanentedteriens

Dy, CERN cnensensnsennnsessinetiiinanntnentinieninnnemnamemisenmnmam

1 GERI ciicinscsnnertnnneennpenensnesimensntinetincnmnsameansns

H.R. Rep. No. 807, 93d Cong., 2d Sess. (1974) ....

é

>>

~ —

SBeaatacaartBace

es

: -

-— © Ww

Miscellaneous—Continued:

Staff of Subcomm. on Labor of the Senate Comm.

on Labor and Public Welfare, 94th Cong., 2d

Sess., Legislative History of the Employee

Retirement Income Security Act of 1974 (Comm.

PUREE TEUED cccccccsssseccssscssssccsseccnssnncnscscvenscoesessese

13

In the Supreme Court of the United States

OCTOBER TERM, 1996

No. 96-491

INTER-MODAL RAIL EMPLOYEES ASSOCIATION, ET AL.,

PETITIONERS

v.

ATCHISON, TOPEKA AND SANTA FE RAILWAY

COMPANY, ETAL.

ON WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF FOR THE

UNITED STATES AS AMICUS CURIAE

SUPPORTING PETITIONERS

INTEREST OF THE UNITED STATES

This case raises an important issue concerning the

interpretation of Section 510 of the Employee Retire-

ment Income Security Act of 1974 (ERISA), 29 U.S.C.

1140. The Secretary of Labor is authorized to bring

actions to redress violations of Section 510, see 29

U.S.C. 1132(a)(5), and to intervene in such actions

brought by private parties, see 29 U.S.C. 1132(h).

(1)

STATUTORY PROVISION INVOLVED

Section 510 of ERISA, 29 U.S.C. 1140, provides:

It shall be unlawful for any person to discharge,

fine, suspend, expel, discipline, or discriminate

against a participant or beneficiary for exercising

any right to which he is entitled under the pro-

visions of an employee benefit plan, this sub-

chapter, section 1201 of this title, or the Welfare

and Pension Plans Disclosure Act [29 U.S.C. 301

et seq.], or for the purpose of interfering with the

attainment of any right to which such participant

may become entitled under the plan, this subchap-

ter, or the Welfare and Pension Plans Disclosure

Act. It shall be unlawful for any person to dis-

charge, fine, suspend, expel, or discriminate

against any person because he has given infor-

mation or has testified or is about to testify in any

inquiry or proceeding relating to this chapter or

the Welfare and Pension Plans Disclosure Act.

The provisions of section 1132 of this title shall be

applicable in the enforcement of this section.

STATEMENT

1. The Employee Retirement Income Security Act

of 1974 (ERISA), 29 U.S.C. 1001 et seq., “is a compre-

hensive statute designed to promote the interests of

employees and their beneficiaries in employee benefit

plans.” Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90

(1983). Section 510 of ERISA, 29 U.S.C. 1140, is a

central component of the Act’s protections of em-

ployee benefits. Section 510 protects employee bene-

fit plan participants from retaliation for exercising

rights to which they are entitled under their em-

ployee benefit plans, and it prohibits “discharge” of a

3

participant “for the purpose of interfering with the

attainment of any right to which such participant

may become entitled under the plan.” 29 U.S.C. 1140.

“Congress viewed [Section 510] as a crucial part of

ERISA because, without it, employers would be able

to circumvent the provision of promised benefits.”

Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 143

(1990); see also Hazen Paper Co. v. Biggins, 507 U.S.

604, 612 (1993).’

ERISA defines the term “employee benefit plan”

or “plan” as “an employee welfare benefit plan or an

employee pension benefit plan,” or a plan which is

both. 29 U.S.C. 1002(3). A welfare plan is a plan that,

“through the purchase of insurance or otherwise,”

provides “(A) medical, surgical, or hospital care or

benefits, or benefits in the event of sickness, accident,

disability, death or unemployment, or vacation bene-

fits, apprenticeship or other training programs, or

day care centers, scholarship funds, or prepaid legal

services, or (B) any benefit described in section 186(c)

of this title (other than pensions on retirement or

death, and insurance to provide such pensions).” 29

U.S.C. 1002(1). A pension plan is “any plan, fund, or

program [that] * * * (i) provides retirement income

to employees, or (ii) results in a deferral of income by

employees for periods extending to the termina-

tion of covered employment or beyond.” 29 U.S.C.

1002(2)(A).? Disability coverage can be provided

| Participants and beneficiaries are authorized to file civil

actions to obtain relief for violations of Section 510 under Sec-

tion 502(aX(3) of ERISA, 29 U.S.C. 1132(a)(3), and the Secre-

tary is authorized to bring such actions under Section 502(a)(5),

29 U.S.C. 1132(a)(6).

2 ERISA divides pensions into one of two types: defined

contribution plans and defined benefit plans. In a defined con-

4

through either a welfare or a pension plan. See 29

U.S.C. 1002(1); 29 C.F.R. 4022.21(a)(2)(ii), 4022.6(a).

Severance pay benefits and cost-of-living retirement

supplements also can, under specified circumstances,

be treated either as welfare or pension plans. See 29

U.S.C. 1002(2)(B).’

ERISA regulates the accrual and vesting of pen-

sion benefits. Accrual refers to the manner in which

an employee earns increased benefits over time. See

29 U.S.C. 1002(23) and (29). Every pension plan must

define its accrual method consistent with ERISA’s

specifications. 29 U.S.C. 1054. Vesting refers to the

method by which benefits become nonforfeitable. See

29 U.S.C. 1002(19) and (25); see Hazen Paper, 507

U.S. at 611. ERISA requires that a pension plan

provide for vesting at least by the time an employ-

ee has completed five years of service, 29 U.S.C.

1053(a)(2)(A),* or, if the plan provides for “incre-

mental” vesting, pension benefits must, at a mini-

tribution plan, the employer makes contributions into accounts

established on behalf of individual employees, and the value of

the pension benefit is the sum of the contributions plus any

investment returns. 29 U.S.C. 1002(34). Defined benefit plans

are all other pension plans. 29 U.S.C. 1002(35). Defined benefit

plans generally pay a dollar amount at retirement based upon a

formula, which usually takes into account the employee’s age,

years of service, and average salary during the final years of

service.

8 With respect to pension plans, but not welfare plans, see

29 U.S.C. 1051(1), 1081(a)(1), Congress established minimum

funding, participation and vesting requirements, as well as an

insurance program to pay benefits promised by employers who

become insolvent. 29 U.S.C. 1051-1061, 1081-1086, 1301-1461.

4 Multi-employer plans, in contrast, are required to pro-

vide for vesting by the time an employee has completed ten

years of service. 29 U.S.C. 1053(a)(2)(C).

5

mum, vest at a rate of 20% per year beginning when

the employee has completed three years of service, 29

U.S.C. 1053(a)(2)(B). Vesting gives an employee a

nonforfeitable right to benefits accrued, and, once

the employee is fully vested, additional accruals are

gained on a nonforfeitable basis.

In contrast to pension benefits, welfare bene-

fits typically are funded on a “pay-as-you-go” basis.

ERISA does not require vesting of welfare benefits

and does not regulate their accrual. For example,

whether an employer self-insures for the costs of

employee medical care or purchases insurance, the

employer ordinarily pays for treatments or pays

premiums for current emplovees during the period of

their employment. Welfare benefits may also, how-

ever, have contractually imposed minimum years-of-

service eligibility criteria analogous to the criteria

for accrual or vesting of pension benefits. For ex-

ample, employees may be eligible under the terms of

the plan for severance pay, health benefits during

their retirement, disability benefits, or supplemental

retirement income benefits only if they have worked

for the employer a minimum number of years.

2. Petitioners are five former employees of respon-

dent Santa Fe Terminal Services (SFTS), a wholly

owned subsidiary of respondent Atchison, Topeka and

Santa Fe Railroad (Atchison). Pet. App. 5a, 7a, 22a-

23a (4% 8-9), 24a (¥ 13).2 SFTS performed “inter-

5 A sixth plaintiff, Inter-Modal Rail Employees Association

(IMREA), is a non-profit mutual benefit corporation formed by

former employees of SFTS to conduct this litigation. Pet.

App. 22a (¢ 6). The court of appeals held that IMREA lacks

standing. Jd. at 6a. Although petitioners sought review of that

holding (see Pet. i (Question 2)), this Court’s grant of certiorari

did not include that issue.

6

modal” (loading and unloading) work exclusively for

Atchison at its Hobart rail yard. Jd. at 25a (4 15).

SFTS employed approximately 200 persons at the

Hobart Yard. /d. at 23a (Compl. 4 12).°

While employed by SFTS, petitioners were covered

by a Teamsters’ Union employee benefit program

adopted pursuant to a collective bargaining agree-

ment with the Teamsters’ Union. Pet. App. 26a (4 19).

The employee benefits included a health and wel-

fare plan, a pension plan, and a supplemental benefit

plan. /bid. SFTS made substantial contributions on

petitioners’ behalf to those benefit funds. J/bid. In

addition, petitioners were covered by the Railroad

Retirement Act of 1974, 45 U.S.C. 231 et seq., and

SFTS made required contributions on their behalf

to the Railroad Retirement Board. Pet. App. 7a, 26a

(¥ 19).

From 1974 to 1990, SFTS performed Atchison’s

intermodal work at the Hobart Yard subject to Atchi-

son’s day-to-day management and control. Pet. App.

23a ( 9), 25a (FF 15-16). On January 1, 1990, Atchison

and SFTS for the first time entered into a written

contract for the intermodal work. /d. at 26a (4 21).

The contract provided that Atchison could terminate

it in the event that SFTS’s services became unsatis-

factory. /bid. During January 1990, SFTS manage-

ment met with petitioners to assure them of their job

security and to outline SFTS’s plans to become “the

leading ‘piggy-back’ and container hauler in the coun-

® This case was decided on respondents’ motion to dismiss

under Federal Rule of Civil Procedure 12(b)(6), and the allega-

tions of petitioners’ complaint therefore must be taken as true.

The facts in this Statement are based on the allegations in the

complaint.

7

try.” Jd. at 26a (¥ 20). In February 1990, however,

Atchison terminated its contract with SFTS and

solicited bids for the work. /d. at 27a (44 22-23). On

March 16, 1990, Atchison awarded the contract to

respondent In-Terminal Services, Division of Mi-Jack

Products, Inc. (ITS). /d. at 27a (4 26). Three days

later, ITS informed petitioners that it had been

awarded the contract to operate the Hobart Yard

facility, and ITS and Atchison invited petitioners to

apply for positions with ITS. Jbid. SFTS then sold

its Hobart Yard assets to ITS for a nominal sum on

concessional credit terms and discharged its employ-

ees, including petitioners. /d. at 27a (¢4 25, 27). ITS

thereafter hired petitioner Franks and many other

former SFTS employees to perform the same work

they had previously performed for SFTS. /d. at 28a

(¥ 29).

ITS, which the Railroad Retirement Board found

was not an “employer” covered by the Railroad

Retirement Act of 1974, does not make contributions

to the Railroad Retirement Board. Pet. App. 28a, 29a

(¥4 30, 32). Managers of respondents Atchison and

SFTS told petitioners that the reason they had

contracted out the intermodal work was to avoid

making contributions to the Railroad Retirement

Board. Id. at 28a (¥§ 28, 31). In addition, petitioners

receive lower contributions to and benefits from their

pension plan and their health and welfare plan as the

result of their discharge from SFTS and reem-

ployment by ITS. /d. at 28a, 29a, 30a (44 30, 33, 38).

3. Petitioners brought this action in the United

States District Court for the Central District of

California, alleging that respondents viclated Section

510 of ERISA by conspiring to discharge them “for

the express purpose of depriving [petitioners] of most,

8

if not all of the substantial, ERISA-protected ‘fringe’

benefits of their employment with SFTS.” Pet. App.

30a (4 37); see also id. at 7a, 29a (§ 33). The district

court, without written opinion, granted respondents’

motion to dismiss the Section 510 allegations for fail-

ure to state a claim. Jd. at 16a-17a."

4. The court of appeals affirmed in part and re-

versed in part. Pet. App. la-15a. The court reversed

the district court’s dismissal of the Section 510 claim

insofar as it was based on alleged interference with

petitioners’ attainment of rights to pension benefits.

The court held that because ERISA “ ‘protects plan

participants from termination motivated by an em-

ployer’s desire to prevent a pension from vesting,’”

petitioners “clearly stated a claim under section 510.”

Pet. App. 8a (quoting Jngersoll-Rand, 498 U.S. at

143).° Respondents did not seek review of that holding

with respect to interference with pension benefits.’

7 Petitioners also brought class action claims under the

Federal Employers’ Liability Act (FELA), 45 U.S.C. 51 et seq.,

alleging that Atchison and SFTS unlawfully exposed class

members to harmful levels of noise and toxic chemicals. Pet.

App. 30a-35a ({¥ 41-56). The district court dismissed those

claims as well. Jd. at 17a. The court of appeals remanded for

consideration of the class claims. /d. at 12a-i3a. Respondents

did not seek review of the court of appeals’ disposition of the

FELA claims.

8 The court rejected respondents’ contention that “inciden-

tal or consequential loss of future, unaccrued pension benefits is

not actionable,” concluding that “questions of motivation and

intent are not to be resolved at the pleading stage.” Pet. App.

8a.

% The court affirmed the dismissal of petitioners’ Section

510 claim of interference with attainment of retirement bene-

fits governed by the Railroad Retirement Act of 1974, reason-

ing that plans covered by that Act are “governmental plan{s!”

9

By contrast, the court of appeals affirmed the

dismissal of petitioners’ Section 510 claim insofar as

it was based on interference with petitioners’ welfare

benefits. Pet. App. 8a-9a. The court observed that,

“{ujnlike pension benefits, welfare benefits do not

vest,” and that an employer accordingly may unilater-

ally amend or eliminate welfare benefits without con-

sidering its employees’ interests. /d. at 8a. Because,

in its view, “existence of a present ‘right’ is prereq-

uisite to section 510 relief, and employees have no

present ‘right’ to future, anticipated welfare bene-

fits,” the court of appeals concluded that no claim lies

under Section 510 for interference with attainment of

rights to welfare benefits. Jd. at 9a. The court

acknowledged that other courts of appeals have

reached a contrary conclusion and have held that

“(t]he validity of a § 510 claim does not hinge upon

whether the benefits involved are vested but upon the

purpose of the discharge,” id. at 8a n.6 (quoting

Seaman v. Arvida Realty Sales, 985 F.2d 543, 546

(11th Cir.), cert. denied, 510 U.S. 916 (1993)), and that

“(t]he emphasis of a Section 510 action is to prevent

persons and entities from taking actions which might

cut off or interfere with a participant’s ability to col-

lect present or future benefits,” ibid. (quoting Tolle v.

Carroll Touch, Inc., 977 F.2d 1129, 1134 (7th Cir.

1992)). 5

excluded from ERISA coverage. Pet. App. 9a-12a. Although

petitioners sought review of that holding (Pet. i (Question 1)),

the Court’s grant of certiorari did not include that question.

10

SUMMARY OF ARGUMENT

1. Petitioners have stated a claim under Section

510 of ERISA of “interfer[ence] with the attainment

of a{] right” to which they might have “become en-

titled” under their employee welfare benefit plan. In

rejecting that claim, the court of appeals erroneously

reasoned that Section 510 covers only rights to pen-

sion or vested benefits, and that, because welfare

benefits do not vest, employees lack any “right” to the

“future, anticipated” attainment of such benefits

within the meaning of Section 510. The text of

Section 510 cannot be squared with that construction.

It expressly applies to “employee benefit plan{s],”

which ERISA defines to include both pension plans

and welfare plans. Section 510 also is not limited to

vested rights, or to rights capable of vesting, but

refers to “any right.” Finally, Section 510 cannot be

limited to pension benefits on the ground that only

such rights are subject to statutory vesting and

accrual under ERISA, because Section 510 protects

contractual rights conferred under a “plan” as well as

statutory rights guaranteed by ERISA.

2. There likewise is no merit to the court of

appeals’ suggestion that welfare benefits are not

covered by Section 510 because employers retain

rights to amend or terminate welfare benefit plans

that they lack with respect to pension plans. The

established power to amend or terminate a plan, which

can result in a prospective loss of welfare benefits,

does not abrogate Section 510’s express prohibition

against discharging employees (or taking other ad-

verse action against them) to achieve the same end

without amending or terminating the plan. Section

510 reflects Congress’s judgment that an employee’s

Ny

-./|

11

job should not be placed at risk based on an employer's

acceptance of what turn out to be overly burdensome

welfare benefit obligations. The proper way for em-

ployers to reduce benefits-related costs is to amend

or terminate the plan, according to the procedures

prescribed in ERISA and the plan itself.

3. Section 510 requires allegations of a specific

intent to interfere with benefit rights to which a

participant may become entitled. Petitioners ade-

quately alleged that their discharges were in fact

motivated by respondents’ desire to deprive them of

welfare benefits, in violation of Section 510. The

court of appeals found those allegations of intent

sufficient to support petitioners’ pension benefits-

related claim, and respondents have not cross-

petitioned to challenge that holding. There is no

reason why the same allegations should not suffice to

support the parallel claim based on interference with

rights to welfare benefits.

ARGUMENT

SECTION 510 OF ERISA PROHIBITS THE DISCHARGE

OF EMPLOYEES FOR THE PURPOSE OF INTER-

FERING WITH THEIR ATTAINMENT OF RIGHTS

UNDER AN ERISA-COVERED EMPLOYEE WELFARE

BENEFIT PLAN

The court of appeals erred in holding that Section

510 of ERIS. is categorically inapplicable to claims

of interference with the attainment of rights under an

employee welfare benefit plan. The court held that

petitioners “clearly stated a claim under section 510”

insofar as their pension benefits are concerned, but

distinguished their otherwise identical claim of inter-

ference with attainment of welfare benefits on the

ground that, unlike pension benefits, welfare benefits

12

do not vest and therefore cannot constitute present

“rights” to benefits protected by Section 510. Pet.

App. 8a-9a. The court’s decision limiting Section 510

protection to pension benefits, or to vested rights, is

insupportable and should be reversed.

1. The text of Section 510 makes no distinction

between pension and welfare ‘enefits. It refers ge-

nerically to rights under “employee benefit plan(s},”

and prohibits interference with the attainment of

rights to which a person may become entitled under

such a “plan.” 29 U.S.C. 1140. ERISA defines the

term “employee benefit plan” or “plan” as “an em-

ployee welfare benefit plan or an employee pension

benefit plan” (or a plan which is both). 29 U.S.C.

1002(3). Thus, under Section 510, “‘{pjlan’ includes

both pension and welfare-plans.” Heath v. Varity

Corp., 71 F.3d 256, 258 (7th Cir. 1995); see, e.g., Kross

v. Western Elec. Co., 701 F.2d 1238, 1243 (7th Cir.

1983) (applying Section 510 to claim of discharge for

the purpose of interfering with rights under medical,

dental and life insurance plans).

In distinguishing welfare benefits from pension

benefits, the court below relied on the fact that,

“(ujnlike pension benefits, welfare benefits do not

vest.” Pet. App. 8a. According to the court, “exis-

tence of a present ‘right’ is prerequisite to section

510 relief, and employees have no present ‘right’ to

future, anticipated welfare benefits.” Jd. at 9a. The

court’s limitation of Section 510 to statutorily vested

rights cannot, however, be squared with the statutory

text. Section 510 expressly prohibits interference

with the attainment of “any right to which [a]

participant may become entitled.” 29 U.S.C. 1140 (em-

phasis added), not merely vested rights. If Congress

had intended to limit Section 510’s coverage in the

13

manner the court of appeals believed, “it easily could

have referred to ‘vested rights.” Conkwright v.

Westinghouse Elec. Corp., 933 F.2d 231, 237 (4th Cir.

1991)." Section 510 is therefore correctly read to

provide that “an employer may not discharge em-

ployees to prevent them from taking advantage of

benefits even if those benefits are not yet vested.”

Seaman v. Arvida Realty Sales, 985 F.2d 543 (11th

Cir.), cert. denied, 510 U.S. 916 (1993).

_ Consistent with Section 510’s reference to “any

right,” the courts of appeals have rejected an inter-

pretation of Section 510 that would deny its pro-

tection to rights that will vest in the future. They

have thus uniformly held that Section 510 protects

employees whose pension benefits have already vested

from discharges designed to prevent them from

becoming eligible to obtain additional benefits in the

future. See, e.g., Heath, 71 F.3d at 257-259 (discharge

did not affect vested pension, but Section 510 trig-

gered because discharge rendered employee ineligible

” A principal sponsor of the legislation, introducing the

Conference Report on the Senate floor, explained that Section

510 provides protection for employees by prohibiting “dis-

charge, or other discriminatory conduct toward participants

and beneficiaries which is designed to interfere with attain-

ment of vested benefits or other rights under the bill.” 120

Cong. Rec. 29,933 (1974) (Sen. Williams) (emphasis added).

The court of appeals’ interpretation cannot be squared with

that explanation of Section 510.

There is, by contrast, nothing in the legislative history that

suggests that Section 510 prohibits only interference with the

attainment of pension benefits, or benefits subject to vesting.

See generally Staff of Subcomm. on Labor of the Senate Comm.

on Labor and Public Welfare, 94th Cong., 2d Sess., Legislative

History of the Employee Retirement Income Security Act of

1974 (Comm. Print 1976).

14

for early retirement package); Seaman, 985 F.2d at

545 (discharge did not affect contributions already

made under 401(k) plan, but Section 510 prohibited

discharge for purpose of interfering with health

insurance coverage and future participation in 401(k)

plan); Conkwright, 933 F.2d at 236-238 (Section 510

gives fully vested employees a cause of action against

employers who take adverse action in order to pre-

vent accrual of additional pension benefits); Dister v.

Continental Group, Inc., 859 F.2d 1108, 1110-1111,

1115 (2d Cir. 1988) (employee with vested basic pen-

sion rights had prima facie case under Section 510 of

interference with ability to earn additional pension

benefits); see also Kross, 701 F.2d at 1242-1243 (reject-

ing argument that, because employee was already a

participant in medical and dental insurance plans, his

discharge could not interfere with his attainment of

rights under those plans). There is no relevant dis-

tinction under Section 510 between non-vested em-

ployees’ rights to welfare benefits and vested pension

beneficiaries’ rights to accrue additional benefits; in

either case, the employer could prevent the accrual of

additional benefits by amending the plan on a prospec-

tive basis. See pages 18-21, infra.

Section 510’s explicit protection of rights to which

a participant “may become entitled” further confirms

that interference with the attainment of future,

anticipated benefits is not, as the court of appeals

held, excluded from its scope. The quoted phrase dem-

onstrates that Section 510 protects not only rights

to which a participant is already entitled, but also

“permits suits for interfering with rights not yet

earned.” Conkwright, 933 F.2d at 237. Indeed, dis-

charging non-vested employees in the anticipation

that they are about to attain vested rights is a quin-

15

tessential Section 510 violation. Ingersoll-Rand Co.

v. McClendon, 498 U.S. 133, 143 (1990)." By the

same token, the terms of Section 510 plainly bar the

discharge of an employee for the purpose of pre-

venting him from making future claims for welfare

benefits to which the employee would become entitled

had he remained employed. See, e.g., Shahid v. Ford

Motor Co., 76 F.3d 1404, 1411 (6th Cir. 1996) (right to

participate in voluntary termination plan in the

future is a right to which an employee “may become

entitled,” and is thus covered by Section 510 even

though it is not a right that vests); Kross, 701 F.2d at

1241-1243 (rights to continued participation in life and

medical insurance plans are covered by Section 510).

Reading Section 510 to prohibit interference with

a participant’s future entitlement to welfare benefits

is essential to serving the congressional purpose un-

derlying the provision. If the attainment of future

benefits under an existing welfare plan were not

protected from interference, an employer would be

free to discharge employees because it believed they

were likely to claim benefits under the plan. For

example, under the court of appeals’ reasoning, an

employer could, consistent with Section 510, dis-

The comments of legislators supporting the legislation

cited discharge of employees about to vest in diy tees

as an example of conduct Congress intended to proscribe by

enacting Section 510. See, e.g., 119 Cong. Rec. 30,044 (1973)

(Sen. Javits); 120 Cong. Rec. 29,935 (1974) (same). As Senator

Hartke stated, “[t)he key to effective pension reform is early

—s A tach wee provision is no better than the protec-

em ve against improper discharge—includin

layoff—discipline or other discrimination that puts an em

ployee out of a job before vesting is achieved, thereby defeating

his pension claim.” 119 Cong. Rec. 29,563 (1973).

16

charge an employee who it knew needed surgery, for

the purpose of preventing the employee from making a

claim for surgical coverage under a health benefits

plan—or could discharge a terminally ill employee in

order to prevent him from attaining a death benefit.

The reasoning of the court below would also permit an

employer to discharge the group of employees who

had filed the most claims under the employer’s health

plan during the previous year, based on projections

that those employees would file the most claims in the

future.” In each of those circumstances, the dis-

charge would allow the employer to circumvent prom-

ises that it had made in its benefit pian. Section 510’s

reference to benefits to which an employee “may

become entitled” makes clear that the discharge of

employees for those purposes is precisely the evil

that Section 510’s interference clause was designed to

prevent.

Section 510 also cannot, consistent with its terms

and this Court’s precedents, be limited to protecting

rights that, although not yet vested, are subject to

accrual or vesting under ERISA itself. The section

expressly protects not only rights that a participant

may attain under “this subchapter” of ERISA—such

as statutory rights to pension vesting, or statutory

anti-cutback rights against the reduction of accrued

benefits, see 29 U.S.C. 1054(g); Ahng v. Allsteel, Inc.,

96 F.3d 1033, 1036-1037 (7th Cir. 1996)—but more

2 Similarly, under the court’s reasoning, an employer that

had contractually bound itself to pay health benefits to retired

employees for life, see, e.g., Bidlack v. Wheelabrator Corp., 993

F.2d 603, 604-605 (7th Cir.) (en banc), cert. denied, 510 U.S. 909

(1993), could, consistently with Section 510, render such bene-

fits illusory by firing employees before they reached retire-

ment age.

17

broadly protects all rights that a participant may

attain under a “plan.” Thus, Section 510, like ERISA

generally, protects contractually defined rights to

benefits, as well as statutory rights such as the

vesting and accrual rights guaranteed by the Act. Cf.

Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101,

113 (1989) (“ERISA was enacted ‘to promote the inter-

ests of employees and their beneficiaries in employee

benefit plans’ and ‘to protect contractually defined

benefits’”) (citation omitted). Section 510 applies to

“promised benefits,” Ingersoll-Rand, 498 U.S. at 143,

as well as those that are statutorily required. For

example, in the pension context, although ERISA

generally requires that the right to a pension benefit

must vest after five years, 29 U.S.C. 1053(a)(2)(A), an

employer may adopt a more generous plan providing

for full vesting after three years. An employer’s dis-

charge of an employee shortly before she has attained

three years of service—for the purpose of preventing

her attainment of her contractual right to vest—runs

afoul of Section 510 just as clearly as does a discharge

for the purpose of preventing vesting under a plan

adopting the statutory-minimum five-year schedule.

In the welfare benefits context, a discharge motivated

by the desire to prevent an employee from taking

advantage of non-pension disability, severance, or

health benefits similarly violates Section 510.

2. Contrary to the court of appeals’ suggestion

(see Pet. App. 8a-9a), the right to amend or terminate

a welfare benefits plan does not remove such plans

from Section 510 coverage. To be sure, ERISA does

not preclude a plan sponsor, as settlor of a plan trust,

from terminating or amending a welfare plan (unless

the employer has promised not to do so). 29 U.S.C.

1343(c); Curtiss-Wright Corp. v. Schoonejongen, 115

18

S. Ct. 1223, 1228 (1995); Owens v. Storehouse, Inc., 984

F.2d 394, 396-398 (11th Cir. 1993); McGann v. H & H

Music Co., 946 F.2d 401, 405-408 (5th Cir. 1991), cert.

denied, 506 U.S. 981 (1992); see also 29 U.S.C. 1051(1)

(exempting welfare plans from ERISA’s vesting and

participation requirements). But as Judge Easter-

brook has observed, “(t]he greater power to abolish

the plan” does not include “the lesser power to deny

benefits to particular persons.” Heath, 71 F.3d at

257." The mere fact “[t)hat [the employer], by

8 Heath reversed a district court decision that relied, as

did the court of appeals here, on the power to amend or termi-

nate welfare benefit plans as a basis for excluding rights under

such plans from Section 510 coverage. The Seventh Circuit

persuasively rejected that rationale:

The district court thought that the statute as a whole

contains a contradiction: why must an employer that is

free to modify or abolish a plan ensure that each employee

receives its full benefits? To resolve this supposed con-

tradiction the district court limited § 510 to the sort of

benefits that an employer cannot affect by changing or

abrogating the plan. Yet a court should endeavor to apply

all parts of a statute whenever possible. * * * Legislation

reflects compromise among competing interests. That

employers won a attle and secured the right to modify

plans, while employees prevailed in a different skirmish

and secured the right to qualify for benefits under existing

plans, shows no more than that each side could claim some

victories. It upsets the legislative balance to push the

outcome farther in either direction. Just as a court should

not use § 510 and ERISA’s other fiduciary obligations to

curtail the employer’s right to modify a plan, so a court

should not use the employer’s power to amend as a reason

to curtail § 510.

71 F.3d at 258 (citation omitted). See also Shahid, 76 F.3d at

1412 (“According to the balance struck by Congress, employ-

ees’ reliance on ERISA plans is protected until an employer

19

changing the terms of its plan, lawfully could have

deprived its [employees] of these benefits does not

allow it to offer benefits but prevent its [employees]

from taking advantage of those benefits on pain of

discharge.” Seaman, 985 F.2d at 547. For example,

it might not violate Section 510 to amend a plan

prospectively to eliminate coverage of certain health

conditions, see H & H Music Co., supra," but it

would violate Section 510 to discharge employees

known to have those health conditions while con-

tinuing to maintain a plan purporting to provide such

coverage.

There are sound reasons why ERISA generally

permits plan sponsors to amend welfare plans pro-

spectively to modify the types or levels of bene-

fits provided, but at the same time prohibits taking

adverse employment actions against participants to

prevent them from attaining rights under such plans.

By declining to subject employee welfare plans to

statutory vesting requirements, Congress provided

employers with flexibility that would permit them to

offer generous benefits, without fearing that they

would be “stuck with terms that in retrospect proved

to be excessively costly.” See Heath, 71 F.3d at 258;

see also H.R. Rep. No. 807, 93d Cong., 2d Sess. 60

(1974) (vesting requirements for welfare plans would

complies with the applicable amendment or termination pro-

cedure.”) (footnote omitted).

4 Such action might, however, violate other state or federal

laws, such as the Americans with Disabilities Act of 1990,

42 U.S.C. 12112(a) (prohibiting discrimination against persons

with disabilities with respect to compensation and “other terms,

conditions, and privileges of employment”). See U.S. Amicus

Br. in Greenberg v. H & H Music Co. at 8, 17-18 (No. 91-1283).

20

seriously complicate administration and increase cost

of such plans).

On the other hand, Section 510 is one of the stan-

dards of conduct that Congress imposed in order to

ensure that the furnishing of employee benefits, once

undertaken, is fair and ordered. ERISA’s incorpora-

tion of fiduciary standards ensures that plan admin-

istrators and others manage plan assets prudently

and in the sole interest of participants, and that

participants’ claims for benefits are evaluated impar-

tially and in accordance with plan provisions. Heath,

71 F.3d at 258; see ERISA §§ 403(c) and 404, 29 U.S.C.

1103(c) and 1104; Varity Corp. v. Howe, 116 S. Ct.

1065, 1074-1075, 1078-1079 (1996). Section 510 comple-

ments those provisions by ensuring that persons with

power over participants’ employment do not take

employment actions against them that prevent the

terms of the plan from being realized. Thus, Section

510 “makes employers’ promises of benefits credible”

and, along with other ERISA provisions, protects

“employees’ reliance on ERISA plans * * * until an

employer complies with the applicable amendment or

termination procedure.” Shahid, 76 F.3d at 1412; see

also Heath, 71 F.3d at 258.

This Court recently recognized that “proposed plan

amendments” are “fairly serious events” that must be

“given the special consideration they deserve.” See

Curtiss-Wright, 115 S. Ct. at 1230; see also Heath, 71

F.3d at 259 (referring to need to “use[] the amendment

procedure laid out in the plan or proper under general

corporate law”). Amendment or abolition of plans

must follow any plan and statutory procedures regu-

lating such changes. The allegations of the complaint

in this case support an inference that Atchison

sought to contract out its Hobart Yard work to ITS in

21

order to avoid its obligations to the Hobart Yard em-

ployees under the collectively bargained Teamsters’

employee benefit program without negotiating an

amendment to that program. Section 510 should be

read to reinforce rather than undermine the prereq-

uisites for plan amendments and terminations.

3. Respondents asserted below that any inter-

ference with petitioners’ ERISA-covered benefits was

a mere consequence of, as opposed to a motivating

factor behind, petitioners’ discharge. Atchison &

SFTS C.A. Br. 10; ITS C.A. Br. 9; Resp. Br. in Opp. 6

(“[NJo court has ever held that a Section 510 claim

can be established based on a mere reduction in

employee benefits resulting from a lawful change in

contractors.”). That assertion, however, does not

support affirmance of the dismissal of petitioners’

claim of interference with their attainment of rights

under the welfare plan.

. We agree with respondents that a specific intent to

interfere with a participant’s rights is a necessary

element of a Section 510 claim, and the courts of

appeals have uniformly so held. See, e.g., Shahid, 76

F.3d at 1411; Conkwright, 933 F.2d at 238; Unida v.

Levi Strauss & Co., 986 F.2d 970, 979-980 (5th Cir.

1993); Dytrt v. Mountain State Tel. & Tel. Co., 921

F.2d 889, 895-896 (9th Cir. 1990); Dister, 859 F.2d at

1111; Gavalik v. Continental Can Co., 812 F.2d 834,

851 (3d Cir.), cert. denied, 484 U.S. 979 (1987). Where

a decision to discharge a large group of employees—

such as in connection with a plant closing or a deci-

sion to contract out work—is motivated by a desire to

save money, the employer may usually be indifferent

to whether its savings will result from lower benefits

costs or from other factors. In such a case, the

employer likely would lack the requisite intent to

22

support a Section 510 claim. See, e.g., Unida, supra.

Where, however, there is evidence that an employer

has contracted out its work, and thus discharged its

employees, for the specific purpose of escaping obliga-

tions to pay benefits, the intent requirement is met.

See, e.g., Seaman, supra; Gavalick, supra. Fiabe

This case was decided on a motion to dismiss the

complaint for failure to state a claim, which must be

denied unless it appears beyond doubt that the plain-

tiffs can prove no set of facts in support of their claim

that would entitle them to relief. Conley v. Gibson,

355 U.S. 41, 45-46 (1957). Petitioners allege that re-

spondents entered into a scheme to interfere with

their employment relationship with SFTS—in es-

sence, to effect their discharge from SFTS—in order

to deprive them of ERISA-covered pension and

welfare benefits. Pet. App. 29a ({ 33), 30a (11 37, 38).

Those allegations clearly state a claim under Section

510, as the court of appeals recognized in reversing

the district court’s dismissal of the complaint insofar

as it alleged interference with petitioners’ rights

under the pension plan. See id. at 8a. And as the

court of appeals further recognized in reinstating

that claim, “questions of motivation and intent are

not to be resolved at the pleading stage.” Jbid. ,

The court of appeals reached a different result with

respect to petitioners’ claim of interference with

their welfare benefits only because it believed that

the non-vested nature of those benefits took them

outside the protection of Section 510. As we have

explained above, that conclusion is erroneous. |

Respondents did not file a cross-petition for a writ

of certiorari to challenge the determination that un-

lawful intent had been adequately pleaded in support

of petitioners’ claim of interference with their rights

23

under the pension plan. That claim therefore has

been remanded to the district court for further pro- -

ceedings. Because the allegations of unlawful intent

that support petitioners’ claim of interference with

their welfare benefits are identical, the welfare bene-

fits claim should also be reinstated and remanded for

further proceedings in the district court.”

In the context of an organizational change such as a deci-

sion to sell or close down an operation, the District of Columbia

Circuit requires Section 510 plaintiffs to show—in addition to a

motive specifically to interfere with the attainment of bene-

fits—a targeting of particular employees. Andes v. Ford Mo-

tor Co., 70 F.3d 1332, 1337-1338 (1995). The Andes court rea-

soned that the term “discharge” in Section 510 refers only to

individualized “discriminatory, viz targeted, actions,” and does

not generally apply to discharges that are part of “a corporate

organizational change,” because the statutory terms “dis-

charge, fine, suspend, expel, discipline, [and] discriminate” are

“all words that connote actions aimed directly at individuals.”

Id. at 1337. If Congress had intended Section 510 routinely to

apply to such decisions, the D.C. Circuit stated, “it would

surely have included the terms ‘layoff’ and ‘termination.’ ”

Id. at 1337-1338. Andes thus held that, “as applied to sale or

closure of an entire unit, the plaintiffs can satisfy § 510 only by

showing that some ERISA-related characteristic special to the

unit * * * was essential to the firm’s selecting the unit for

closure or sale.” Jd. at 1338.

We do not believe that the term “discharge” in Section 510

can properly be read in such a limited fashion. In any event,

petitioners’ claim was dismissed at the pleading stage, and, be-

cause the Andes standard does not apply in the Ninth Circuit,

it remains unclear whether, had they been confronted with the

question, petitioners could have alleged that respondents’ dis-

charge and contracting-out decisions were motivated by “some

ERISA-related characteristic special to” the Hobart Yard em-

ployees. At this stage, the precise nature of the welfare bene-

fits at issue remains unclear, as do the relative expectations of

Hobart Yard employees and other Atchison employees regard-

24

CONCLUSION

The judgment of the court of appeals, to the extent

it affirms the dismissal of petitioners’ Section 510

claim based on interference with respondents’ at-

tainment of rights to welfare benefits, should be re-

versed, and the case should be remanded for further

proceedings.

Respectfully submitted.

WALTER DELLINGER

Acting Solicitor General

J. DAVITT MCATEER

Acting Solicitor of Labor » Deputy Soliton Gonoval

ALLEN H. FELDMAN CORNELIA T.L. PILLARD

Associate Solicitor Assistant to the Solicitor

MARK S. FLYNN General

Senior Appellate Attorney

Department of Labor

JANUARY 1997

ing their eligibility for those benefits. Given the preliminary

state of the proceedings in this case, and the fact that the issue

whether petitioners were “discharged” within the meaning of

Section 510 was not raised or passed on in the court of appeals

nor asserted in the Brief in Opposition, this Court should de-

cline to consider it. See, e.g., Jenkins v. Anderson, 447 U.S.

231, 234 n.1 (1980); see also Adickes v. S.H. Kress & Co., 398

U.S. 144, 147 n.2 (1970) (“Where issues are neither raised be-

fore nor considered by the Court of Appeals, this Court will not

ordinarily consider them.”).