Misrepresentation of Benefit Eligibility Violates ERISA

Personnel Journal, August 1993 | Go to article overview

Misrepresentation of Benefit Eligibility Violates ERISA


The U.S. Supreme Court has denied review of a decision of the U.S. Court of Appeals for the Sixth Circuit that General Motors Corp. misled 270 former employees about their eligibility for a voluntary termination-benefit plan. The plaintiffs were former employees of GM's Norwood, Ohio, assembly plant who had 10 or more years of seniority. GM closed the Norwood plant in August 1987 and placed the plaintiffs on layoff status. On September 15, 1987, GM notified all laid-off employees of their right to participate in a Supplemental Unemployment Plan Separation (SUB buyout), sic! which provided eligible employees with a lumpsum payment in exchange for the employees' agreement to forfeit their seniority and layoff status with GM voluntarily.

At the time, GM also was considering offering other employees on layoff status another benefit buyout plan, which it called the Voluntary Separation of Employment Program (VTEP), sic! providing lumpsum payments that were nearly twice that of the SUB buyout. GM management had discussed the VTEP with other Norwood employees and negotiated with the United Auto Workers on that plan. When asked about the VTEP, GM plant managers told the plaintiffs that the VTEP plan was unavailable to them. The plaintiffs opted for the SUB buyout plan after being told that it was running out of money and that they should sign up soon. After the plaintiffs opted for the SUB buyout, GM agreed with the union to offer the VTEP to other laidoff employees.

Alleging that GM had breached its fiduciary duties under the Employee Retirement Income Security Act (ERISA) by misrepresenting that plaintiffs would not be eligible for the VTEP, the plaintiffs sued GM to recover the difference between the two plans. A federal district court agreed that GM had violated ERISA and ordered GM to pay damages of $3.6 million plus attorneys' fees.

On appeal, the Sixth Circuit rejected GM's argument that because the plaintiffs had no standing to participate in the VTEP plan, GM had no fiduciary responsibilities to them. Because the plaintiffs were eligible to participate in the firm's benefit plans, the court said that they had standing to bring suit under ERISA.

The Sixth Circuit also rejected GM's contention that GM was under no ERISA fiduciary duty to disclose its considerations to permit other employees to participate in the VTEP plan.

The court recognized that an employer's duty to avoid material misrepresentation does not require the employer to predict an ultimate decision to offer a plan, so long as the employer fairly discloses the progress of its serious considerations to make a plan available to affected workers. …

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Misrepresentation of Benefit Eligibility Violates ERISA
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