Interference with Employee Benefits

A recent decision by the Sixth Circuit Court of Appeals provides some guidance to employers to avoiding unlawful interference with employees' benefits. The Circuit Court ruled that even though the unionized employer did not deny that its desire to reduce pension benefits played a role in its decision to shut down a plant, this desire, in and of itself, was not enough for the employees to satisfy their burden of proof that the employer's other reasons for shutting the plant down were merely a pretext.

In Crawford v. TRW Automotive U.S. LLC, the employer closed one of its manufacturing plants due to overcapacity. The employer was using only 10% of the plant's square footage, but still paying high fixed costs and overhead to maintain the plant. At the time of its closure, three employees at the plant were less than one year away from being fully vested in the pension plan and four other plant employees were less than two years away from fully vesting. Most of the plant's employees needed more than five years for their pension benefits to fully vest. The employer did recall two of the laid-off employees, based upon seniority, to work at another plant owned by one of the employer's subsidiary. The recalled employees established their pension benefits eligibility while working at the other plant.

Despite the employees' contention that the employer poorly ran their plant and could have placed some new work at that plant instead of at another plant, the Circuit Court found that the employer's stated reason for closing the plant - unused capacity and high maintenance costs - was not a pretext for interfering with the employees' pension benefits. Even though the reduction of the pension benefits was incidental to the employer's decision to close the plant, the employees were unable to prove that the reduction in pension benefits was a motivating factor in that decision.

Crawford provides valuable lessons for employers in the present economic climate. It is unfortunate that due to circumstances beyond an employer's or employee's control, an employer may have to lay off many loyal, hard-working employees. To reduce the risk that some of the laid-off employees might sue the employer for wrongful interference with pension benefits, an employer should consult with an employment attorney and consider offering severance packages to the laid-off employees.