April 1999, Vol. 122, No. 4
The law at work
Other employment cases
Equal Pay Act claim
Extension of job benefits
Charles J. Muhl
Office of Publications and Special Studies, Bureau of Labor Statistics
Pension plansReversing a ruling by the U.S. Court of Appeals for the Ninth Circuit, the U.S. Supreme Court held that a corporation does not violate the Employee Retirement Income Security Act (ERISA) by amending its defined-benefit pension plan, as long as those workers who participated in the plan before it was amended remain entitled to the same level of benefits. In Hughes Aircraft Co. v. Jacobson,1 the High Court found that the addition of new, noncontributing participants to the defined-benefit plan did not affect the rights of previous participants who were required to contribute. Thus, the companys action was deemed to be an amendment, rather than a termination of the existing pension plan.
Hughes Aircraft decided to use a surplus of more than $1 billion to add a new set of participants to its defined-benefit pension plan, except that the corporation did not ask the new participants to contribute to the plan, as previous participants had been required to. The appellees claimed that the surplus should have been distributed only to those employees who made contributions. The ninth circuit had ruled that the employees had an actionable claim, because, assuming that the companys action qualified as a termination of the plan, ERISA required the plans assets to be distributed to contributing members and a new plan established for new participants.
The appellees brought six causes of action in their complaint. First, they alleged that Hughes had violated ERISAs prohibition against using employees vested, nonforfeitable benefits to meet its obligations by depleting the surplus to fund the new noncontributory pension plan. They also alleged that Hughes had violated ERISAs "anti-inurement" prohibition by benefiting itself at the expense of the pension plans surplus. Three other claims related to alleged breaches of fiduciary duties by the company. Finally, the employees claimed that the corporation had failed to distribute the residual assets of the pension plan upon its terminationwhich the employees claimed occurred when the noncontributory employees were brought under the plans scope.
Justice Clarence Thomas unanimous opinion for the Court rejected the appellees arguments with respect to vested benefits and anti-inurement. The Court found that the rights of the earlier participants in the plan had not been affected by the changes in it and that the company did not use the surplus money for its own benefit. The surplus money in the defined-benefit plan did not belong to members who had contributed to the plan; thus, it was appropriate for Hughes to use the surplus to fund benefits of other employees who had never contributed. The key factor behind this determination was the difference between defined-benefit and defined-contribution pension plans. Defined-benefit plans, regardless of whether they require employee contributions, provide employees with a fixed benefit amount. In contrast, employee pensions in a defined-contribution plan are based on the contributions made by both the employer and employee to the plan. Justice Thomas opinion noted that employers who fund defined-benefit plans bear the entire investment risk and must cover any underfunding of the plan resulting from a poor investment performance, because employees covered by such plans are entitled to a specific benefit. Individual members of the plan cannot claim a particular portion of the fund used to pay the benefitthat is, the contributions that the individual made. The employees did not claim that they had been denied their accrued benefits.
The Court rejected the claims regarding breach of fiduciary duty, relying on a previous decision that employers who alter the terms of a pension plan do not fall into the category of fiduciaries. The Court noted that the type of plan being offered did not affect this finding, as the ninth circuit had thought. Generally, the Court said, an employers decision to amend a pension plan concerns the design of the plan itself and does not implicate the employers fiduciary duties. Such duties apply to the administration of the plans assets, but not to its composition.
The Court concluded by ruling that Hughes had not voluntarily terminated the pension plan by means of its amendments. ERISA identifies two methods of voluntary termination, which the challenging employees conceded had not occurred in their case. However, they argued that the change to the plan was effectively a termination on the basis of the common-law theory of a "wasting trust," which is a trust whose purposes have been accomplished, so that its continuation would frustrate the settlors intent. The Court rejected this contention, noting that ERISA comprehensively identified how voluntary termination occurs and that the statute should not be supplemented by extratextual remedies.
Student profanityThe U.S. Supreme Court refused to review, and thereby finalized, a decision by the U.S. Court of Appeals for the Eighth Circuit that threw out a jurys award to a teacher who was fired after her students used profanity in plays written for her English class. In Lacks v. Ferguson Reorganized School District R-2,2 the eighth circuit ruled that a school district does not violate the first amendment to the Constitution for disciplining a teacher who allows students to use profanity repetitiously and egregiously in their schoolwork. The court also ruled that the termination was supported by substantial evidence and that race was not a motivating factor for the dismissal.
Cecilia Lacks, a white high school teacher with 20 years experience, began teaching English and journalism at Berkeley Senior High School in Missouri in the fall of 1992. Lacks gave her students an assignment in the fall of 1994 in which they were required to write short plays and perform them in class while they were videotaped. The plays contained profanity used more than 150 times in approximately 40 minutes. The teacher had reviewed the plays content prior to their performance, so she knew of the profanity in the scripts. Later, one of Lacks students complained about the language, and the principal of Berkeley High School, Vernon Mitchell, conducted an investigation using the videotapes and interviews. Mitchell, who is black, passed his findings on to the districts school board. The all-white board conducted a hearing and found that Lacks was aware of the schools policy prohibiting profanity, that alternative teaching methods not using profanity were available, and that her failure to use such methods was a "willful and persistent practice violative of Board policy to a degree that cannot be tolerated." The school board terminated Lacks teaching contract.
The U.S. District Court for the Eastern District of Missouri granted summary judgment in favor of Lacks regarding her claim that the termination was not supported by substantial evidence under Missouri law. On that claim, the trial judge ordered the school district to reinstate Lacks, to pay her $76,000 in back wages, to pay her attorneys fees, and to remove all references to the disciplinary actions from her employment file. A jury also awarded the teacher $500,000 on her first-amendment free-speech claim and $250,000 on her racial discrimination claim under Missouri law and Title VII of the Federal Civil Rights Act.
In throwing out the district courts verdict, the eighth circuit ruled that Lacks termination was reasonable and supported by substantial evidence. Acceptable terminations by the school board must demonstrate that the teacher violated the policy prohibiting profanity and that the board policy applied to the profanity used by the students. Lacks claimed that the profanity ban applied only to student behavior. However, principal Mitchell had told Lacks that profanity was not to be used in the school newspaper and had pointed out signs to Lacks in her classroom that read "No Profanity." Based on these findings, the court held that the profanity policy was clear and unambiguous, that Lacks had notice of that policy, and that the policy had been violated.
On the first-amendment claim, the eighth circuit answered two questions: Did Lacks have reasonable notice that allowing students to use profanity in creative writing was prohibited? and Did the school district have a legitimate academic interest in prohibiting profanity by students in their creative writing, regardless of any other competing interests? In answering in the affirmative to both questions, the court held that, as a matter of law, the school board had a legitimate academic interest in prohibiting profanity by students in their creative writing, because "A flat prohibition on profanity in the classroom is reasonably related to the legitimate pedagogical concern of promoting generally accepted social standards."3 The court also found that Lacks had reasonable notice that the schools profanity policy applied to creative activities, even though at times in the past such language was tolerated in those activities.
With regard to the racial discrimination claim, the eighth circuit found that, even considering evidence in the light most favorable to Lacks, race was not a motivating factor in the school boards decision to terminate her. The court noted that, although school administrators did show some signs of bias towards her based on a concern that a white teacher was permitting a largely black class to use "street language," no evidence was introduced suggesting that the school board relied on the administrators views in reaching its decision to fire Lacks.
The same day, the Court also heard oral arguments in the case of unum Life Insurance Co. of America v. Ward,5 in which the Justices must decide whether the Employee Retirement Income Security Act preempts a California law governing the timeliness and adequacy of notice of a claim for long-term disability benefits.
On March 31, the Court heard oral arguments in Alden v. Maine, in which the legal issue is whether a State court can throw out a Federal suit brought by a private party against the State under the doctrine of sovereign immunity. In 1996, in Seminole Tribe of Florida v. Florida,6 the Court held that States are immune from Federal causes of action brought against them in Federal court. The variation in Alden is that the suit was brought in State court.7
Decisions in the above three cases are expected this summer.
Finally, on January 15, the Court, in West v. Gibson, agreed to review the 7th circuits decision8 that the Equal Employment Opportunity Commission does not have authority to order Federal agencies to award employees compensatory damages for violations of Title VII of the 1964 Civil Rights Act. The Justice Department argued that the Commission has the power to grant "appropriate remedies" to Federal employees who are victims of employment discrimination and that compensatory damages are permissible for violations of Title VII by the Federal Government under the Civil Rights Act of 1991. The 11th circuit recently joined the 7th circuit in ruling that the Commission lacked such authority, while the 5th circuit permitted it to award compensatory damages.
The Atlantis Casino in Atlantic City experienced a myriad of financial difficulties in the late 1980s, culminating in 1988 with a series of financial conditions imposed on it by the New Jersey Casino Control Commission in order for the casino to have its gaming license renewed. However, the casinos financial condition did not improve, and on April 7, 1989, the Commission refused to renew the gaming license and indicated that it would appoint a conservator to run the casino and arrange for its sale. On April 14, the Commission appointed a conservator, but just prior to the appointments becoming effective, Elsinore Shore Associatesthe owners of the Atlantisagreed to sell the casino to Donald Trump. The Commission refused to approve the sale, so Elsinore told casino employees that it was unable to make "firm plans" until the issue was resolved. The Commission ordered the casino closed on May 22, and employees were immediately notified of the closing and elimination of their jobs.
In ruling against the employees, the court stated that, although the warn Act generally prohibits employers from closing shop without giving employees 60 days notice, the Act does not require such notice when a closing is caused by "business circumstances that were not reasonably foreseeable as of the time that notice would have been required." Because the owners were determined to keep the casino open or to sell it to Trump, and because the commission had never before failed to renew a casinos gaming license, it was not reasonably foreseeable that the casino would be closed.
The court noted that the Acts language suggests that the Act covers only closings that are ordered by employers, as opposed to those ordered by a government entity, as was the case in Elsinore. However, the legislative history behind the warn Act and Department of Labor regulations implementing the Act suggested to the court that a government-ordered closing would be covered by the Act. A concurring judge felt that the Act does not apply at all to government-ordered closings.
Associated Grocers distributes groceries to retail stores in Alaska and in Seattle, Washington. The International Brotherhood of Teamsters represents most of the corporations employees, negotiating separate contracts for the warehouse workers and the clerical workers. On the basis of those contracts, warehouse workers receive higher wages.
The female plaintiffs in this case argued that their clerical jobs were "substantially equal" to certain warehouse jobs performed by men. The clerical workers claimed that their data entry work in an office was substantially similar to the work performed in a warehouse position called the "Alaska lead." Comparable work on both jobs included pulling orders from a computer database and transferring the orders to warehouse workers who gathered the products for shipment to a local destination, making inventory adjustments to the database, preparing invoices and billing documents, scheduling truckdrivers to make deliveries, and answering telephones. Agreeing that the 14 female employees had stated a claim and had a prima facie case, the court denied Associated Grocers motion for summary judgment. The Equal Pay Act requirement is not that the jobs be found identical, but that they require "equal skill, effort, and responsibility. . .performed under similar conditions." Associated Grocers had argued that the Alaska lead positions required additional expertise, skill, and familiarity with the product, given the extended distances the products were shipped to, and that such employees also operated warehouse machinery as needed. The court found these differences to be minor.
The case was remanded so that a trial on the pay discrimination claim could begin.
The city adopted the ordinance in March 1997. Under the law, qualifying same-sex partners of city employees may receive the same benefits available to those employees, including health, dental, and eye care insurance benefits. The statutory qualifications are that both the employee and the partner file an affidavit attesting to the fact that they are each others sole domestic partner and that they meet certain criteria with respect to being responsible for each others welfare and for sharing assets. City taxpayers sued following the adoption of the ordinance, seeking to stop the city from implementing it. They argued that the city lacked the authority to permit the extension of benefits.
The Illinois high court ruled that the States constitution grants broad powers to home rule municipalities like Chicago, which the State can preempt only under narrow circumstances. One such circumstance is when a State law "occupies the field," or so covers a subject matter as to indicate that the State did not wish localities to legislate on the subject. However, the court found that the State and home rule municipalities could act concurrently with regard to this subject, because the Illinois legislature had not specifically limited local power or declared that State power would be exclusive in that regard. The court reasoned that, unlike the situation in many other States, the Illinois legislature has preferred to work in concert with its home rule municipalities. Furthermore, the domestic partnership ordinance does not infringe on the States power to define a couples marital status by creating same-sex, common-law marriage, and no State law specifically prohibits domestic partners from receiving employee benefits. The court also noted the increasing tendency of private employers to offer such benefits to their employees domestic partners and the need for localities to remain competitive with those employers in trying to attract and retain workers.
1 119 S.Ct. 755 (1999).
2 147 F.3d 718 (8th Cir. (Mo.), Jun. 22, 1998).
3 Id. at 724.
4 120 F.3d 513 (5th Cir. (Tex.), Aug. 14, 1997).
5 See also Ward v. Management Analysis Co. Employee Disability Ben. Plan, 135 F.3d 1276 (9th Cir. (Cal.), Feb. 3, 1998).
6 517 U.S. 44, 116 S.Ct. 1114, 134 L.Ed.2d 252 (1996).
7 Alden v. State, 715 A.2d 172, 1998 me 200 (Me., Aug 4, 1998).
8 See Gibson v. Brown, 137 F.3d 992 (7th Cir. (Ill.), March 3, 1998).
9 1999 WL 198489 (3rd Cir. (N.J.), Mar. 31, 1999).
10 W.D. Wash., No. C971670C, Mar. 12, 1999.
11 Ill. App. Ct., No. 1980920, Mar. 31, 1999.
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