Early Retirees Can Lose Rights, Justices Rule

WASHINGTON — In a victory for companies that have been shedding employees, the Supreme Court ruled Monday that workers can be required to waive rights to sue their employers in exchange for bonuses to retire early.

The 9-0 decision reverses the more liberal U.S. appeals court in California that said pension funds held in trust by a company cannot be used, in effect, to bribe workers to give up their legal rights.

The justices, disagreeing, said corporate directors are free to use some pension money for early retirees so long as they do not jeopardize the pensions of future retirees.

Management experts praised the decision and said it will allow companies to ease out workers with a minimum of pain.

“You want to end the relationship with a clean slate,” said Los Angeles attorney David E. Gordon, who represented Lockheed Corp. in the case. “Employees see it as a fair trade-off. They are getting extra benefits [for retiring early] but they are giving up the right to bring litigation afterwards.”

Had the decision gone the other way, hundreds of companies around the nation could have faced legal claims from workers who took buyouts to leave their jobs early, he said.

A lawyer for a 78-year old Lockheed retiree, however, called the decision outrageous and unjust.

“This means that if you learn you were exposed to asbestos while you were working for Lockheed, you would have given up your right to file that claim,” said Bert Voorhees, a Pasadena attorney. “I think it is a really irresponsible opinion to say a company can dip into that [pension] money and use it to buy off lawsuits.”

The case highlights the dual role that companies have in handling pensions under federal law. Companies are both the sponsors and trustees of pension plans.

As sponsors, they create pension plans in the first place, paying most or all expenses. But after plans are created and funded, the companies have a “fiduciary” duty to act in the best interest of the workers.

In 1974, Congress enacted the Employee Retirement Income Security Act to protect the pension rights of workers. One provision bars employers from transferring money out of the pension plan for use by the business.

But the Supreme Court has recently interpreted the law in a way that leaves companies with considerable freedom to do as they please.

“Nothing in ERISA requires employees to establish employee benefit plans. Nor does ERISA mandate what kind of benefits an employer must provide,” began Justice Clarence Thomas in the opinion (Lockheed vs. Spink, 95-809).

In 1990, the aerospace manufacturer, then based in Burbank, amended its pension plans to offer bonuses to salaried employees who retired early. Paul L. Spink retired then, but did not take the bonus or sign away his rights. He had left Lockheed and returned at age 61 and contended that the company discriminated against when it refused to award him pension credits for those later years.

But the facts of his individual case nearly got lost in the ensuing legal struggle. A federal judge in Los Angeles dismissed his suit but the U.S. 9th Circuit Court of Appeals revived it in a broad ruling. It said managers are not free “to disregard the prohibitions of ERISA” and cannot use pension funds to relieve the company of “potential liabilities to thousands of employees.”

The U.S. Chamber of Commerce and the National Assn. of Manufacturers urged the court to hear Lockheed’s appeal. The justices used the case to give employers broad leeway to dip into surplus pension accounts.

“Employers or other plan sponsors are generally free under ERISA, for any reason at any time, to adopt, modify or terminate” their employee benefit plans, including pensions, Thomas said. “When employers undertake those actions, they do not act as fiduciaries.”

Transferring money to pay extra benefits for early retirees “does not constitute a prohibited transaction,” he said.

In other actions, the court:

* Said routine traffic violations give police authority to stop cars and to seize drugs or guns that they see (Whren vs. United States, 95-5841). Lawyers for two drug suspects in the District of Columbia maintained that officers were stopping cars as a “pretext” for searching for drugs. Maybe so, the justices said in a 9-0 ruling, but a traffic violation still justifies the stop.

* Agreed to temporarily block a landmark ruling allowing doctor assisted-suicide while officials in Washington state prepare an appeal to the high court (Washington vs. Glucksberg, A-974). The justices are not likely to act on the appeal until October.