Current Developments
Bureau of National Affairs

October 10, 1990

 

Employer Claims Wrongful Termination Suit Poses Federal Question Under ERISA

 

An attorney for Ingersoll-Rand Co. asked the Supreme Court Oct. 9 to treat a wrongful discharge claim, filed under the common law of Texas, as a federal matter preempted by the 1974 Employee Retirement Income Security Act.

 

Hollis T. Hurd of Pittsburgh told the justices in oral argument that the issue before them is to assess the intent of Congress. He urged that the state law cause of action against his client treats the same conduct outlawed by ERISA (Ingersoll-Rand Co. v. McClendon, US Sup.Ct. No. 89-1298, 10/9/90)

 

Justice Anthony Kennedy asked Justice Department attorney Christopher J. Wright whether the entire case should have been transferred to federal district court. He questioned whether the federal court would have pendent jurisdiction over the remaining state law issues presented in the complaint. Wright agreed, warning that ERISA's enforcement scheme and remedies are intended to be exclusive. He added that Congress did not leave any room for suits parallel to those enforcing the federal law.

 

Attorney John Tavormina of Houston argued that his client, Perry McClendon, was the victim of a wrongful discharge and that his cause of action does not relate to the terms of a pension plan and therefore is not preempted. He contended that Congress was concerned with guaranteeing uniformity of interpretation with respect to pension plans administered by employers throughout the states. If ERISA is allowed to determine the extent of damages, then federal law would govern virtually every discharge case, he said.

 

McClendon had alleged that he was fired about four months before his 10-year anniversary for the express purpose of defeating the vesting of his pension rights. McClendon had worked for Ingersoll-Rand Co from 1972 until his discharge in 1982. The employer maintained that the firing was part of a company-wide reduction-in-force.

 

Section 510 of ERISA forbids the discharge of an employee in order to prevent the vesting of pension rights. The act grants the employee a right to sue in federal court and to receive remedies including reinstatement and back pay.

 

McClendon chose instead to sue in state court, alleging violations of Texas law. Under Texas law, the plaintiff could receive punitive damages and damages for emotional distress if he prevailed on the wrongful discharge claim. Although the lower state courts blocked the lawsuit, the Texas Supreme Court reinstated the claim and remanded the case to trial.

 

At the one-hour debate, Justice John Paul Stevens probed for differences between the federal and state remedies. He asked whether an executive who had a 20-year written contract and a guaranteed pension could recoup lost salary if he were fired in his 19th year of employment. Hurd insisted that the claim would be preempted and that ERISA provides a remedy for lost wages.

 

Justice Sandra Day O'Connor asked whether any right to punitive damages existed under federal scheme. Hurd acknowledged that most courts that have addressed the question have rejected punitive damages under ERISA. Asked whether attorney's fees are available under ERISA, Hurd replied that they may be awarded to a prevailing plaintiff at the discretion of the court.

 

Kennedy inquired whether the presence of a possible ERISA motive triggers preemption as to the whole cause of action even if the employer had other reasons favoring discharge. Stevens asked what happens if the party discovers during pretrial proceedings that the true motive for the firing was the pension. The entire cause of action "goes out the window," said Hurd.

 

Justice Antonia Scalia asked about an employer who threatens that if the worker doesn't quit, "We'll break your legs." Can the employee sue in state court for assault? Scalia inquired. To counsel's reply that the assault claim is preempted, Scalia asked whether a wrongful death action can be pursued when "they blow him away," Hurd replied that the claim would be preempted and would have to be removed to the federal court.

 

Chief Justice William Rehnquist observed that an assault claim does not require proof of any particular motive on the defendant's part. Justice Byron White asked whether the claim is preempted if it is proved that the reason for the assault was to deprive the employee of pension benefits.

 

During the government's presentation, Stevens suggested that the case may fall outside ERISA because the case was filed against the employer, but not against the pension plan. Wright observed that Section 510 creates a remedy against the employer, He added that ERISA remedies were intended to be comprehensive in nature. In this case, he said, the state law remedy is identical to the one Congress set forth in ERISA.

 

Several justices probed whether the existence of state remedies interferes with the federal scheme and undermines the intent of Congress to encourage employers to establish benefit plans. Stevens asked the employee's counsel whether there is a federal interest in maintaining the soundness and fiscal integrity of the plan by precluding state law claims for punitive damages and mental anguish.

 

Tavormina explained that the employer's conduct is challenged in the suit and that the pension plan is not a party. But Steven rejoined that employers go bankrupt and that such events bear on the soundness of the plan.

 

Tavormina acknowledged that the remedies are serious, but he stressed that the state is dealing with a serious wrong.

 

Scalia asked whether McClendon is entitled to a jury trial under Texas law. To counsel's affirmative reply, the justice said that an employer would be less likely to set up a pension plan if it knew that it would be exposed to a jury trial. He asked counsel to acknowledge that Congress might have intended to protect employers by denying jury trials and by keeping such suits in the federal courts.