Opinion ID: 3013299
Heading Depth: 2
Heading Rank: 3

Heading: Plan Classifications of Employees

Text: Neither party disputes that Bauer is a common law employee. He thus satisfies the first prong necessary to obtain participant status. See Wolf, 200 F.3d at 1340. We must turn, therefore, to an analysis of the second prong, that is, whether Bauer is an employee eligible for benefits under the terms of the Plan itself. Id.

There has been considerable litigation involving salaried-only plans that exclude employees who are paid by the hour. Perhaps due to the clear language of the statute, 26 U.S.C. 410(a)(1)(A) and 401(a)(5)(A), the case law has focused, not on whether the salaried-only plan classification was allowable under the statute, but whether it discriminated in favor of highly compensated employees (to the detriment of the excluded hourly workers) as it was applied. b. Bauer’s Argument Regarding Minimum Participation Standards under ERISA as applied to Salaried-Only Plan Classifications Here Bauer does not contend that the hourly plan classification discriminates in favor of those who are highly compensated in application. Neither does he dispute that, under the express terms of the Summit plan, he is ineligible for benefits for the years he was classified as an hourly employee. What Bauer alleges is that Summit’s salaried-only Plan violates ERISA’s minimum participation requirements, 29 U.S.C. 1052(a)(1), by restricting its definition of an employee to those who were salaried. By not crediting his years of hourly employment, the Plan, Bauer argues, imposed an additional requirement not sanctioned by any statute or regulation. Bauer claims that any employee, however compensated, who works 1,000 hours a year or more is entitled to pension benefits for that year. Bauer contends that, once an employee meets the minimum standard of participation, the latter of reaching age 21 or completing one year of service, he or she is eligible to participate, and Summit cannot impose a third requirement that an employee be salaried. Other than to cite 29 U.S.C. 1052(a), Bauer does not point to any contrary directive in the ERISA statute that would forbid Summit to limit participation in its Plan to its salaried employees. See Bellas, 221 F.3d at 522. The case authority offered in support for Bauer’s proposition is an unpublished, unreported, yet factually similar, case from the Southern District of New York. There the issue was raised on a motion to dismiss. Ambris v. Bank of New York, 1997 WL 107632 (S.D.N.Y. 1997). In Ambris, the employee argued that the hourly classification functioned as an impermissible additional service requirement. In denying the defendant’s motion to dismiss, the Ambris court heard no evidence, was limited to the four corners of the complaint, and owed deference to the plaintiff. Even given this procedural setting, Bauer argues that Ambris is sound and correctly reasoned and that its reasoning is grounded in basic principles of statutory and regulatory construction, i.e., that what Congress says in a statute is what it means . . . . (citations omitted). The district court in the Southern District of New York did not reason in Ambris. It merely found that, in ruling on a Rule 12(b)(6) motion, it did not appear that the plaintiff had not stated a claim upon which relief could be granted. Ambris, 1997 WL 107632 at . From a precedential standpoint, nothing more can be inferred. Unlike the case before us, the merits of the Ambris plaintiff’s claim were never reached. c. Summit’s Argument Summit argues that 29 U.S.C. 1052(a)’s minimum participation standards do not prevent an employer from denying an employee’s participation in an ERISA plan as long as that exclusion is made on a basis other than age or length of service. Summit has consistently excluded non-salaried employees from participation. This exclusion is not premised upon an employee’s age or length of service. In support of its position, Summit cites Lynn v. CSX Transp., 84 F.3d 970, 973-74 (7th Cir. 1996)(plan limited participation to non-union, salaried employees, excluding hourly employees from coverage). In addition, Summit contends that the district court correctly dismissed Ambris as unpersuasive. 2. Recent ERISA Litigation Regarding Worker Classifications Recent litigation regarding the use of statutory ERISA standards to provide benefit plan coverage to certain classifications of workers has centered upon freelancers/independent contractors, leased employees and temporary employees. a. Freelancers, Agents or Other Independent Contractors In Capital Cities/ABC, Inc. v. Ratcliff, 141 F.3d 1405 (10th Cir. 1998), the Tenth Circuit upheld the denial of claims for benefits coverage sought by a class of newspaper carriers/delivery agents for the Kansas City Star newspaper. The class of plaintiffs had signed an agency agreement acknowledging that they were independent contractors, not employees, and therefore excluded from participation in the benefits plan. The court, deferring to the terms of the ERISA plans, found that there was no dispute that the carriers had knowingly agreed to be excluded. See also Trombetta v. Cragin Fed. Bank for Sav. Employee Stock Ownership Plan, 102 F.3d 1435, 1439-1440 (7th Cir. 1996)(where the Seventh Circuit found the plaintiffs were not common law employees as they had signed individual agreements designating themselves as independent contractors for all purposes).
1. The Fifth Circuit - Abraham In Abraham v. Exxon Corp., 85 F.3d 1126 (5th Cir. 1996), individuals who worked as leased employees were specifically excluded under the terms of Exxon’s plans. Id. at 1128. The plan administrator denied the plaintiffs’ benefit claims on this basis. The Fifth Circuit affirmed the district court’s grant of summary judgment for Exxon. The court concluded that the minimum participation requirements of ERISA 1052(a) did not preclude an employer from denying participation in an ERISA plan if the employer does so for reasons other than age or length of service, stating: Section 1052(a) does nothing more than forbid employers to deny participation in an ERISA plan to an employee on the basis of age or length of service if he is at least twenty-one years of age and has completed at least one year of service. Section 1052(a) does not prevent employers from denying participation in an ERISA plan if the employer does so on a basis other than age or length of service. Id. at 1130 (emphasis added). Similar results were reached by the Fourth Circuit in Clark v. E. I. DuPont de Nemours and Co., 1997 WL 6958 (4th Cir. Jan. 9, 1997), 105 F.3d 646 (table), the Tenth Circuit in Bronk v. Mountain States Tel. & Tel., Inc., 140 F.3d 1335 (10th Cir. 1998), and the Eleventh Circuit in Wolf v. Coca-Cola, 200 F.3d 1337 (11th Cir. 2000).
In Clark, the Fourth Circuit found that neither the minimum participation requirements of ERISA, nor the tax provisions requiring that leased employees be counted in determining whether the plan met ERISA’s non-discrimination requirements, were sufficient authority to mandate that leased employees be included in the company’s plan. Clark, 1997 WL 6958 at . The Fourth Circuit specifically held that an employer may exclude some categories of employees from participation in ERISA plans, provided that the plan distinguishes among employees based upon factors other than age or length of service. Id. (emphasis added).
Bronk also rejected statutory grounds for determining benefit program eligibility. In succinct language, the Tenth Circuit disagreed with the district court that ERISA’s minimum participation standards required that leased employees who met the test for common law employee status be automatically included in the company’s plan, whether or not they were excluded under the terms of the plan. Bronk, 140 F.3d at 1338. The Tenth Circuit emphasized, while that plans could not discriminate based upon age or length of service, the employer need not include in its pension plans all employees who meet the test of common law employees. Id. As statutory support for this conclusion, the Tenth Circuit cited the language found in 29 U.S.C. 1052(a)(4), referring to employees who were otherwise entitled to participate in the plan. See Part IV.B.2 and note 17 supra. It concluded that this language would be superfluous unless Congress intended that plans could impose other participation requirements besides age or length of service. Id. at 1138. We agree.
Most recently, the Eleventh Circuit in Wolf followed the rationale of Abraham, Bronk and Clark. It held that while a computer programmer and analyst, leased by CocaCola from an independent staffing company, may have a legitimate argument that she was a Coca-Cola common law employee under the first prong of the participant status test, she was nevertheless not entitled to benefits under the second prong, the terms of CocaCola’s plan itself. Wolf, 200 F.3d at 1339.