Employment law - Third Circuit denies ERISA whistleblower protection to employee discharged after making unsolicited internal complaint - Edwards v. A.H. Cornell & Son, Inc.

• Author: Baxter, George G., IV

Employment Law--Third Circuit Denies ERISA Whistleblower Protection to Employee Discharged After Making Unsolicited Internal Complaint--Edwards v. A.H. Cornell & Son, Inc., 610 F.3d 217 (3d Cir. 2010), cert. denied, 131 S. Ct. 1604 (2011)

The Employee Retirement Income Security Act (ERISA) established certain rights and protections for employee benefit plan participants. (1) In Edwards v. A.H. Cornell & Son, Inc., (2) the Court of Appeals for the Third Circuit considered whether Section 510--ERISA's anti-retaliation, or "whistleblower," provision--protected from termination employees who make unsolicited internal complaints about their employer's ERISA violations. (3) In a matter of first impression, the court held that Section 510 does not protect employees who voluntarily complain to their superiors about the employer's ERISA violations outside the context of an "inquiry" or "proceeding," and, in so doing, split with several of its sister circuits. (4)

In March 2006, Shirley Edwards began working at A.H. Cornell and Son, Inc. (Cornell), a family-owned construction company, as its Director of Human Resources. (5) She participated in Cornell's group health plan, which fell under ERISA's purview. (6) After discovering what she believed to be multiple ERISA violations committed by Cornell, Edwards notified her supervisor of the violations and her objections to them. (7) Cornell terminated Edwards shortly thereafter, an action Edwards believed was a direct result of her complaints about the alleged ERISA violations. (8)

Edwards filed suit in federal court approximately one month later, asserting that Cornell violated her rights under Section 510. (9) Cornell answered with a motion to dismiss for failure to state a claim, arguing Edwards's internal complaints were not protected under Section 510. (10) Persuaded by precedent from the Second Circuit, the district court granted Cornell's motion to dismiss, reasoning that Section 510 only protects employees who give information during an "inquiry" or "proceeding," neither of which, according to the court, accurately described Edwards's actions. (11) Edwards appealed that decision, arguing that unsolicited internal complaints were protected under Section 510. (12)

For many years, police officers in England blew their whistles when they observed the commission of a crime in order to alert the public to the existence of danger, a practice from which the name "whistleblower" is derived. (13) In an employment context, "internal" whistleblowers are employees who report to their superiors suspected or observed wrongdoing within the organization; however, many potential whistleblowers do not report misconduct because they fear their employer will retaliate by terminating their employment. (14) In 1912, the federal government passed the first anti-retaliation law to protect whistleblowers, acknowledging that various state common-law wrongful termination protections were insufficient for at-will employees. (15) Since that time, Congress has passed more federal laws protecting whistleblowers from retaliation--including ERISA and the Sarbanes-oxley Act--suggesting that public concern for whistleblower protection has grown over time. (16)

ERISA often conflicts with, and preempts, relevant state laws because the federal government designed ERISA to be consistently applied in each state. (17) Although state laws that "relate to" benefit plans covered by ERISA are preempted by it, some courts contend that employees whose activity is not protected by ERISA are nonetheless allowed to bring state law claims. (18) However, courts disagree over what activities fall under ERISA's purview, evidenced by the existing circuit split regarding the status under ERISA of voluntary or unsolicited internal complaints, with the Courts of Appeals for the Fifth and Ninth Circuits considering them protected activities and the Courts of Appeals for the Second and Fourth Circuits taking the opposite view. (19)

Section 510 only protects information given by whistleblowers during an "inquiry or proceeding," and courts disagree about what those words mean. (20) For example, in Nicolaou v. Horizon Media, Inc., (21) the Second Circuit held that, to constitute an inquiry, internal complaints need to have been solicited from the employee by someone at the company--preferably a manager--who was in the process of "gathering information," even if only informally. (22) In contrast, in Hashimoto v. Bank of Hawaii, (23) the Ninth Circuit noted that the "normal first step" in an inquiry occurs when an employee notifies an employer of misconduct, and that denying protection to unsolicited internal complaints would strip Section 510 of its "clearly" intended effect of protecting whistleblowers, thereby discouraging the whistleblower "before the whistle is blown." (24) As a result, the success of a whistleblower's Section 510 claim has often turned upon how narrowly or broadly courts construe the phrase "inquiry or proceeding," and the related issue of when an inquiry or proceeding begins. (25)

In Edwards v. A.H. Cornell & Son, Inc., the Third Circuit addressed whether Section 510's requirement that information be given during an "inquiry or proceeding" provides protection for employees who make unsolicited internal complaints. (26) Recognizing the existing circuit split over this issue, and noting the lack of controlling precedent, the court relied heavily on Section 510's "plain meaning." (27) In particular, the court concurred with the Fourth and Second Circuit that unsolicited statements, without more, do not constitute an "inquiry" because an inquiry is generally defined as a "request for information," and Edwards did not allege that her employer sought any information from her. (28) Additionally, the court held that Edwards's complaint was not part of a "proceeding" because that term relates to a lawsuit or other means of seeking redress and no evidence suggesting Edwards initiated such a "formal action" existed. (29)

The Edwards court stressed that the existence of different statutes with broader whistleblower protections than Section 510 meant that Congress could have extended similar protections under ERISA, but "declined to do so." (30) Although conceding that ERISA is a remedial statute whose protections for employees should be construed liberally, the court noted that such a posture does not allow it to ignore "clear statutory language" evidencing congressional intent. (31) In dissent, Justice...