Supreme Court Backs Workers in Benefits Case
Employees who feel they’ve been unfairly denied benefits won a victory Tuesday when the U.S. Supreme Court gave judges broader authority to review instances when benefit claims have been rejected.
Until now, federal judges have generally refused to overturn the decisions of company benefit plan administrators unless employees could show that the denial of employee benefits claims was made in an arbitrary or capricious manner.
Some attorneys representing workers said the court decision will give judges a more active role in determining the fairness of pension and health benefits decisions.
“This is obviously a liberalization of the review standards. Any liberalization of the standards is a benefit to employees,” said Louis G. Fazzi, a Rancho Cucamonga attorney who has represented workers denied benefits claims.
Involved Firestone
“This means that a judge can make his own decision on the facts.”
The court’s ruling came in a case involving employees of a former Firestone Tire & Rubber Co. unit. A suit was filed by about 500 salaried workers of the unit who claimed that they were wrongly denied a total of more than $6 million in severance pay when Firestone sold its plastics division to Los Angeles-based Occidental Petroleum in November, 1980.
Although the workers kept their jobs, they charged that Firestone’s severance pay plan guaranteed them payments if the division were sold, in part because they lost certain benefits by becoming Occidental employees.
A U.S. District Court in Philadelphia rejected the workers’ claim, stating that the denial of benefits wasn’t arbitrary or capricious and thus couldn’t be overturned. But the U.S. 3rd Circuit Court of Appeals ordered a fresh review of the workers claims, citing a conflict of interest on the part of the plan’s administrator.
The Supreme Court’s opinion, written by Justice Sandra Day O’Connor, rejected Firestone’s argument that a more liberal standard for review “would impose higher administrative and litigation costs on plans.” She also wrote that Firestone’s argument that it would discourage employers from creating benefits plans was “unpersuasive” and not sufficient to outweigh the reasons for a more liberal standard.
According to O’Connor, the more liberal standard for judicial review applies regardless of whether the benefits plan at issue is funded or unfunded and whether or not its administrator is operating under a conflict of interest.
Philadelphia attorney Martin Wald, who argued the case for Firestone, declined comment because he had not had an opportunity to read the decision Tuesday afternoon.
