Blowing the whistle: protection for employees who informally report ERISA violations.

• Date: 22 March 2012
• Author: Balch, Emily M.

1. Introduction II. Background A. ERISA Generally B. Section 510: Anti-Retaliation Provision C. Circuit Split: Whether Section 510 Includes Unsolicited, Internal Complaints 1. Fifth and Ninth Circuits: Unsolicited, Internal Complaints Included Under Section 510 a. Ninth Circuit Includes Unsolicited, Internal Complaints Within ERISA Protection b. Fifth Circuit Includes Unsolicited, Internal Complaints Within ERISA Protection 2. Second, Third, and Fourth Circuits: Unsolicited, Internal Complaints Excluded Under Section 510 a. Fourth Circuit Excludes Unsolicited, Internal Complaints From ERISA Protection b. Second Circuit Excludes Unsolicited, Internal Complaints From ERISA Protection c. Third Circuit Excludes Unsolicited, Internal Complaints From ERISA Protection III. Analysis A. Means of Reporting ERISA Violations That Do Not Risk Retaliation B. State Law Remedies to Retaliation C. Section 510 Remedies to Retaliation D. Does State Law or ERISA Provide Greater Protection? E. Consequences of the Circuit Split and Their Impact on Future Corporate Behavior F. Likely Resolution of the Issue by Future Circuits IV. Recommendation A. Benefits of Including Unsolicited, Internal Complaints Outweigh the Consequences of Exclusion B. Courts Should Protect the Important Interests of the Secretary of Labor V. Conclusion I. INTRODUCTION

   Suppose Employee A works for Corporation X. During the course of her work, she thinks she discovers her employer violating various provisions of the Employee Retirement Income Security Act (ERISA) (1) regarding an employee benefit plan. Employee A then contacts the Department of Labor's Employee Benefits Security Administration and files a complaint reporting the violations. A formal investigation ensues looking into the merits of Employee A's complaint. It is clear that ERISA prohibits corporation X from firing or otherwise taking punitive action against Employee A in retaliation for her act as a whistleblower. (2)

   Now, suppose Employee B also works for corporation X and similarly discovers what she suspects to be ERISA violations. Employee B is not absolutely certain a violation has occurred, or if corporation X is even aware of the potential problem. She is hesitant to file a formal complaint without more information. Instead, Employee B decides to bring the suspected ERISA violations to the attention of her supervisor, who assures her that corporation X will deal with the problem.

   Because Employee B reported the violation within the company rather than to an outside enforcement agency, the complaint was internal. Additionally, since corporation X did not seek out the information from Employee B, the complaint was unsolicited. Within a week of her complaint, Employee B's supervisor fires her. Having always been a good employee with no previous problems, Employee B suspects her discharge was in retaliation of her unsolicited, internal complaint. Employee B brings a wrongful discharge action against Corporation X under Section 510 of ERISA--the provision giving protection to whistleblowers. (3) The district court dismisses the claim, saying Section 510 does not protect unsolicited, internal complaints such as the one she made.

   Employee B then brings a wrongful discharge action under state law. unfortunately for Employee B, the state court dismisses her claim as well because the state law does not contain an express statement of public policy in favor of protecting unsolicited, internal reports of suspected statutory violations. Although she was merely trying to contribute to the enforcement of ERISA, Employee B finds herself jobless with no remedy under either ERISA federal law or state law.

   Congress intended Section 510 to be a crucial method for enforcing the terms of ERISA (4)--but did they mean for it to include unsolicited, internal reports of ERISA violations? This is the issue currently causing a split in the circuit courts. While three circuits (5) feel that Congress never intended this breadth of protection, two other circuits (6) have held that Congress did in fact intend to protect those in situations similar to Employee B.

   This Note details the current circuit split on the issue of whether Section 510 of ERISA protects unsolicited, internal complaints and will recommend how the split should be resolved. Part II explains Congress's purpose in enacting ERISA and Section 510, in addition to discussing the specific cases in each circuit relating to this issue. (7) Part III analyzes state law (8) and Section 510 remedies (9) available to victims of retaliation and which remedies afford the greatest protection. (10) In addition, Part III predicts the consequences of both sides of the circuit split, how these consequences will affect future corporate behavior, (11) and how future circuits will likely decide the issue. (12) Finally, Part IV recommends how future circuit courts and the Supreme Court should resolve the issue and why. (13)

2. BACKGROUND

   In order to determine whether Congress intended to protect unsolicited, internal reports of ERISA violations, it is important first to understand Congress's purpose behind enacting ERISA and its whistleblower provision. Parts A and B examine this purpose, in addition to exploring the interplay between ERISA federal law and state law. Part C then discusses the logic behind each decision within the circuit courts that have addressed the issue.

   1. ERISA Generally

      Congress enacted the Employee Retirement Income Security Act (ERISA) in 1974. (14) ERISA sets federal standards for private pension and health care plans. (15) Congress found regulating the increasing number of employee benefit plans to be within the national public interest. (16)

      As the number of private pension plans grew rapidly, Congress found their regulation to be minimal and ineffective. (17) Congress desired "to promote interests of employees and their beneficiaries in employee benefit plans" and "to ensure that plans would be subject to uniform body of benefit law." (18) Congress designed ERISA to effectuate this intent by establishing "standards for the administration of retirement plans" and giving "participants in retirement plans access to the federal courts to ensure appropriate remedies and sanctions." (19) Stated broadly, ERISA's purpose is to protect the employment relationship that gives rise to pension rights. (20)

      The statute defines the employee benefit plans covered under ERISA to include employee pension plans and employee welfare plans. (21) An employee pension plan includes a plan, fund, or program that "(i) provides retirement income to employees, or (ii) results in a deferral of income by employees for periods extending to the termination of covered employment or beyond." (22) An employee welfare plan includes any plan that "provides benefits such as healthcare benefits or long-term disability plans." (23) Essentially, a pension plan provides retirement benefits, while a welfare plan provides fringe benefits such as health insurance. (24) The exceptions to ERISA's broad scope include coverage of plans established or maintained by government entities, churches, unfunded excess benefit plans, plans for nonresident aliens maintained outside of the United States, and plans solely regarding workers' compensation, unemployment, or disability laws. (25) ERISA "impos[es] participation, funding, and vesting requirements on pension plans. It also sets various uniform standards, including rules concerning reporting, disclosure, and fiduciary responsibility, for both pension and welfare plans to regulate employee benefit plans." (26)

      Due to the interstate nature of employee benefit plans, (27) ERISA expressly supersedes any state law related to the employee benefit plans the Act covers. (28) Under its general preemption provision, ERISA forecloses any related state law claim in either federal or state court. (29) A state law relates to an ERISA subject matter, and is thus preempted, if it has a broad connection to the ERISA plan, even if the effect of such connection is indirect. (30) The same is true even if the state's substantive requirements are consistent with those in ERISA. (31) In addition, ERISA impliedly preempts state action claims of wrongful discharge because such claims directly conflict with an ERISA cause of action. (32) Even if ERISA does not expressly preempt such claims, they conflict with the clear congressional intent to make ERISA the exclusive remedy. (33)

      This congressional intent is relevant in statutory interpretation of ERISA as well. Statutory interpretation should typically begin by examining the statute's language, as the plain meaning of the statute's language is assumed to be indicative of congressional intent. (34) However, courts have found that when interpreting ERISA they need not rely only on the literal meaning of the statute, but should also look to the statute's intent. (35) Additionally, because ERISA is a remedial statute, it "should be liberally construed in favor of protecting the participants in employee benefit plans." (36)

   2. Section 510: Anti-Retaliation Provision

      Section 510 of ERISA, codified as Section 1140 in the U.S. Code, (37) provides an anti-interference provision which states: "It shall be unlawful for any person to discharge, fine, suspend, expel, or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan ... or for the purpose of interfering with the attainment of any [such] right...." (38) Congress enacted this section to prevent "unscrupulous employers from discharging or harassing their employees in order to keep them from obtaining vested pension benefits." (39) For this reason, Congress viewed this section of ERISA as crucial to preserving the benefits and protections that the statute's landmark reform produced. (40)

      This section includes an anti-retaliation provision, otherwise known as a whistleblower...