Monday, July 16, 2007

Mind your (mis)represenations - part 3

The Sixth Circuit has recently published two opinions on the issue of employer misrepresentations under ERISA and COBRA: Thurman v. Pfizer, Inc. (reported here) and Thomas v. Miller (reported here). The latter expressly recognizes a claim for equitable estoppel under COBRA. The former holds that ERISA does not preempt a state law misrepresentation claim when the misrepresentation relates to the benefits provided by ERISA-governed plan. Last week, the First Circuit (which covers federal courts in Maine, Massachusetts, New Hampshire, Rhode Island, and Puerto Rico), in Zipperer v. Raytheon Co., reached the opposite result, and held that ERISA does preempt state law claims of negligence, equitable estoppel, and negligent misrepresentation stemming from an erroneous estimate of retirement benefits that led to an employee's voluntary early retirement.

Factually, Zipperer is no different that Thurman. Both deal with an improper calculation of retirement benefits, albeit at different stages (acceptance of employment versus retirement). In both cases the employee took action in direct reliance upon that calculation. And yet, the cases reach the exact opposite conclusion. The Zipperer court certainly seems to get the better of the argument. ERISA preempts any state law causes of action that "relate to" an ERISA plan, because Congress has determined that employee benefit plans need uniform administration. As the magistrate judge concluded in the case below in Zipperer:

Allowing a cause of action to proceed for the negligence in making the representation or the negligence in maintaining and transferring the pertinent records amounts to an alternative enforcement mechanism to enforce (or estop the employer from denying) extra-contractual benefits. Such claims inevitably and directly conflict with the carefully chosen and carefully limited remedies provided under ERISA.... Regardless of the label of the state law claims, in essence they seek extracontractual benefits not authorized by the terms of the Plan. Such an end run around the carefully crafted benefits Raytheon chose to provide amounts to an attempt to authorize remedies beyond those provided by the Plan.

In other words, a claim that alleges misrepresentation about benefits owed under an ERISA plan must relate to that plan. While I understand the Sixth Circuit's concern about holding employers to their representations, the issue is not whether an employer can escape liability at all, but whether liability will be imposed under state law or ERISA.

Regardless of whether the claim must be brought under state law or ERISA, the lesson for employers does not change: companies must judiciously select their words when talking to employees about benefits or other terms and conditions of employment, and misrepresentations should be avoided at all costs.