Section 510 of ERISA makes it illegal to take any job action for the purpose of interfering with an employment benefit that would otherwise have been due to the employee. The classic formulation of such a claim is terminating an employee right before a pension would have vested, simply to avoid owing the benefit; some observers believe that Section 510 was originally included in the statute specifically to address the concern that employers might respond to ERISA’s vesting requirements by terminating employees before vesting could occur. The statute’s language itself, of course, captures far more than just that circumstance, and in fact the provision is written broadly enough that it can be read to include within its scope some of the more creative theories that a plaintiff’s lawyer might come up with.
But here’s the thing – by definition, so long as a job offers benefits at all, you cannot have a termination that doesn’t negatively impact the employee’s ERISA protected benefits: everything from 401(k) contributions, to pension accrual, to employer provided health insurance, end or become limited by the fact of the termination. So the mere fact of the termination and the resulting deprivation of benefits can only be the beginning, but not the end, of the inquiry.
The statute, though, doesn’t address what more is needed for actionable retaliation to lie, and that is the interesting aspect of a recent decision, Joffe v. King & Spalding, by the Southern District of New York. In Joffe, a fired big law associate alleged that his employer retaliated against him in violation of ERISA by terminating him shortly before a 401(k) contribution otherwise would have vested. He lost, after the Court held that there wasn’t a scintilla of evidence indicating that the firm ever considered the vesting date of the contribution in deciding when to terminate his employment.
The Court in Joffe borrowed the classic employment discrimination burden shifting structure of McDonnell Douglas to decide whether the terminated employee was retaliated against in violation of ERISA because he was terminated before the contribution vested, when the employer could have simply terminated him a few weeks later and thereby allowed the contribution to vest. Under this test, as applied in the context of a Section 510 claim, the terminated employee must establish a prima facie case; if he does so, then “the burden shifts to [the employer] to articulate a legitimate reason for his termination unrelated to the interference with his ERISA rights;” and if the employer satisfies that burden, then it becomes the terminated employee’s burden to show that the reason depicted by the employer was pretextual.
So what happens in a case, like Joffe, where the employee is terminated right before vesting, thus causing forfeiture of the benefit, when there is no good reason that the employee couldn’t have just as easily been terminated a short time later, after the benefit had already vested? Does the employer have to be able to present a good reason for having terminated the employee when it did, or is the date of termination irrelevant so long as the employer didn’t subjectively pick the date of termination for the purpose of avoiding being stuck with funding the benefit?
The answer is driven by the burden shifting standard. As the Joffe court explained, “[c]lose temporal proximity between an employee’s discharge and the pension vesting date is sufficient to support an inference of intentional interference.” In other words, the employee meets his initial burden of proving his prima facie case simply by showing that the benefit was lost directly because of the date of termination selected by the employer and the employer could have simply selected a different, but not too distant, date of termination, which would have avoided the loss of the benefit. Under the burden shifting structure, that, however, is not enough to recover for retaliation, and the employee only recovers if the employer cannot then present a legitimate reason for the termination itself. That’s the key point, in my view, of Joffe – the focus is on the reason for the termination, not on the reason for the timing of the termination. As the Court put it, “[t]o dispel the inference of discrimination arising from the [termination prior to vesting, the employer] is required to articulate — but not prove — a legitimate, nondiscriminatory reason for the discharge” itself, rather than for the timing of the discharge.