High Court to Decide Key Case on Wrongful Firings

The Supreme Court agreed Monday to decide whether an employee who says he was fired so his employer could save on pension costs can seek a large damage claim before a state court jury or must instead simply try to recover lost wages before a federal judge.

This case, to be heard in the fall, concerns whether the 1974 federal law governing pension benefits preempts state court suits by fired employees.

But while that may seem a dry legal issue, the stakes are high for businesses, which find themselves increasingly on the losing end of “wrongful discharge” suits. The U.S. Chamber of Commerce said the average jury award in a wrongful firing case was $311,000 in 1987. A study in California put the figure at $486,812.

As a result, corporate lawyers often seek the shelter of the more conservative federal courts. Most state court suits are heard by juries, who can award damages to employees for “emotional distress” and can seek to punish a company. But federal suits are generally heard by a judge, and the remedies are limited.

For example, under the federal Employee Retirement Income Security Act of 1974, a fired employee can win back lost wages and pension benefits, but not huge damages for emotional distress or punishment. Not surprising, business lawyers want such cases steered into the federal courts, while most plaintiffs want to go before a state court jury.

Recently, however, the California Supreme Court has also put sharp limits on wrongful discharge suits. In a December, 1988, ruling, the state court said fired employees can seek only lost pay and other economic benefits, not damages for emotional distress or punishment.

Since more than 1,000 wrongful discharge suits were filed each year by employees in California, this ruling was considered a major victory for business.

But in most states, employees can still gain far more before a state jury than before a federal judge.

In October, the Texas Supreme Court, on a 5-4 vote, said it violates “public policy” there to fire an employee to save on pension benefits. It ordered a trial in a lawsuit filed by a salesman for the Ingersoll-Rand Co. who was dismissed just before he earned a vested pension for 10 years of service.

Under the Texas ruling, dismissed employees could take their claims to a state court jury and seek damages against the company.

But lawyers for Ingersoll-Rand said the 1974 law governs pension matters and requires that all such suits go to a federal judge. They argue that the measure was a compromise between employees and employers. The employers accepted uniform national standards for pensions that could be enforced in federal courts. However, employees had to accept the limited remedies offered by ERISA.

The U.S. Chamber of Commerce joined lawyers for Ingersoll-Rand in urging the justices to hear the appeal and overturn the Texas court decision. If the decision is upheld, they argued, thousands of employees who lose their jobs can claim that the real reason was to save on pension benefits.