Suits to Recover Lost Benefits Held Legal

Workers and retirees who say they lost benefits because their employers cheated or deceived them won the right Tuesday to seek recovery in federal court.

The U.S. Supreme Court, reversing course, said a federal law designed to protect medical and pension benefits gives people a right to sue their employer for a breach of trust.

The 6-3 decision overturns the prevailing rule in much of country, including states in the West.

Lawyers said the decision will have a direct impact in cases involving retirees who say they were promised continued medical benefits, only to learn later that the company had revoked the promise. In the future, employees also may say they lost money in their retirement investment accounts because of misleading advice from their employers.

“This is a powerful decision for retirees. Now, if an employer lies about what will happen with benefits, a retiree can bring a suit to vindicate his rights,” said Los Angeles lawyer Dennis Roddy, who represented McDonnell Douglas Corp. retirees in a suit against the aircraft manufacturer.

Until Tuesday, most federal courts--including the Supreme Court--had given a narrow reading to the Employee Retirement Income Security Act of 1974. Congress passed the measure to protect workers from loss of promised pension or health benefits, but the court has often interpreted it to protect employers, not workers.

For example, the justices agreed in a previous ruling that upon learning that an employee has AIDS, a company could suddenly cancel its medical coverage for the treatment of the disease. In such cases, the federal law gave the employee no protection, yet it also prevented him from suing for damages in state court.

But Tuesday’s court opinion, written by Justice Stephen G. Breyer, takes a different approach. Breyer stressed that the original purpose of the law was to protect workers and their benefits.

Employers who administer the employee benefit plans must do so “solely in interest of participants and their beneficiaries,” Breyer said. “Given those objectives, it is hard to imagine why Congress would want to immunize” employers from lawsuits if they cheat their workers, he concluded.

The case, Varity Corp. vs. Howe, 94-1471, began when a corporate owner tried to cut his losses by splitting off his failing businesses into a separate corporation. He lured some employees to switch to the new corporation by promising “pay levels and benefit programs will remain unchanged [and] there will be no loss of seniority or pensionable service.”

In reality, the new company was heavily in debt from the start and failed a year later. The employees were out of work and, despite the promise, left with no benefits.

They sued. A judge called the company’s action “a sucker punch on loyal employees.” Breyer called it a scheme of “deliberate deception.”

The court agreed that the employees, including retirees, could recover money to pay for the loss of medical benefits and any loss in pension benefits.

Justice Clarence Thomas dissented in an opinion joined by Justices Sandra Day O’Connor and Antonin Scalia.

An official of the U.S. Chamber of Commerce said she was dismayed by the ruling, and predicted it will lead to more lawsuits over benefits.

“It is hard to predict how big this will turn out to be, but there is certainly a potential for more litigation,” said Mona Zeiberg, a lawyer for the chamber. Companies said costly litigation could force them to reduce spending on benefits.

But an attorney for the American Assn. of Retired Persons praised the ruling, calling it very significant.

“I hope this is seen as a shot at employers, to make them get back to treating employees with honesty and respect,” pension specialist Mary Ellen Signorille said.

In a second ruling, the court said Tuesday that a 20-year-old environmental law does not give people a right to recover money for past cleanups of hazardous waste.

The law was intended to deal only with an “imminent” threat to public health, not past threats, the court said.

The 9-0 ruling is a victory for a brother and sister who inherited a lot in Los Angeles where the parents once had once run a gasoline station. It is a setback for a Kentucky Fried Chicken franchise that operated a restaurant on the land and in 1988 spent $211,000 to clean up oil-tainted soil.

KFC sought to recover the money from Alan Meghrig and his sister, and the U.S. 9th Circuit Court of Appeals agreed they could do so.

But in Meghrig vs. KFC, 95-83, the court reversed that decision.