Ruling Protects Retiring Workers in Buyouts
For 34 years, James F. Mullins worked as a lab technician for the same company, in the same town, doing much the same thing--testing the chemical makeup of drugs manufactured by what was fast becoming one of America’s premier pharmaceutical concerns, Pfizer Inc.
He wasn’t on the corporate fast track. He never aspired to be president. But he showed up for work each day, did his job well and took home about $35,000 annually. His children grew up in the shadow of Pfizer’s manufacturing facility in Groton, Conn.
By 1990, Pfizer had become a giant. Mullins, then age 57, lamented the loss of the company’s family atmosphere and decided it was time to retire. But rumors had been circulating that Pfizer might be planning to offer economic incentives to induce people like Mullins to retire early. These buyouts--generically termed voluntary separation programs--were still fairly rare in 1990, but literally hundreds of companies have used them to jettison hundreds of thousands of workers since then.
Mullins asked whether the rumors were true. He said the company told him no. Employees shouldn’t delay their retirement plans hoping for such a package, the benefits representatives told him. Nothing was in the offing.
Mullins retired. Six weeks later, Pfizer announced a voluntary separation program that would have entitled him to a separation gift of $39,000--more than a year’s salary. But because he had retired a few weeks too soon, he was ineligible.
“Until then, he felt he had a good-faith relationship with this company,” says Thomas Moukawsher, partner at Moukawsher & Moukawsher in Groton, Conn., and Mullins’ attorney. “He felt his trust had been grossly violated by the deception over the severance package.”
Mullins asked Moukawsher to talk to the head of personnel to see what could be done. The company refused to respond.
So, Mullins sued. Five years later, he won. Pfizer vows to appeal. But, in the meantime, Mullins may have made an indelible mark on employee benefits law, expanding the rights of workers who retire in the months preceding a buyout.
A federal judge in Connecticut ruled that when a voluntary separation plan is being seriously considered, companies not only can’t deny it’s coming, they may have to disclose the plan regardless of whether the employee asks.
Specifically, the judge ruled that companies couldn’t misrepresent their intentions in this area “by either words or silence.” Once a voluntary separation program is under “serious consideration,” the company must disclose it, the ruling said.
The case falls under the Employee Retirement Income Security Act, or ERISA, which regulates company-sponsored retirement plans, notes Moukawsher. It is a unique body of law.
In most areas, companies have broad discretion on when to disclose changes in corporate direction to employees. In most cases, the good of the company comes first. But when it comes to retirement programs governed by ERISA, the company’s duty is to the employee first and the company second, he said.
“What was wrong was that the company thought it could lie to employees about what they were doing,” he said. “What they didn’t realize is that these packages are pensions. And with pensions, their No. 1 loyalty has to be to the employee.”
Pfizer spokesman Brian McGlynn said the company will appeal, partly because the court didn’t define what constituted serious consideration. Pfizer’s opinion is that a plan isn’t serious until the company’s six-member executive committee starts debating it. McGlynn didn’t know precisely what date that happened, but it was after Mullins retired, he said.
In any case, benefits consultants believe the Mullins case could have broad repercussions. Hundreds of thousands of people have been affected by early retirement programs over the past several years as corporate America took steps to restructure in the wake of a weak economy.
Of course, no one knows for sure how many people have retired while a buyout plan was under serious consideration. However, Moukawsher says the Mullins trial gave a glimpse of how prevalent the problem may be. Six potential jurors were thrown off the Mullins panel because they had personal experience with the same problem and said they couldn’t decide the case fairly.
However, the statute of limitations is long in this area too. Employees have six years after their date of retirement to make a claim under this provision of the law, Moukawsher said.
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Kathy M. Kristof welcomes your comments and suggestions for columns but regrets that she cannot respond individually to letters and phone calls. Write to Personal Finance, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053, or message kristof@news.latimes.com on the Internet.
