Appeals Court Upholds Employee Outsourcing Challenge

April 26, 2005 ( - A federal appeals court has ruled that a division of Honeywell International holding a US Department of Energy (DoE) contract didn't violate federal benefits law by outsourcing the division's responsibilities to a subcontractor.

The US 8 th Circuit Court of Appeals ruled that Honeywell was within its rights when it made the outsourcing move for its Honeywell Federal Manufacturing & Technologies unit in order to save money so that it could make a more competitive bid to the DoE to keep the government contract to operate a DoE plant. The decision upheld a lower court ruling by US District Judge Howard Sachs of the US District Court for the Western District of Missouri.

Focusing on Honeywell’s stated reasons for the outsourcing, Sachs and the appeals court both found that Honeywell had not violated Section 510 of the Employee Retirement Income Security Act (ERISA). That section forbids employers to discharge employees in order to interfere with their rights to receive pensions and other benefits. A group of former Honeywell workers sued the company, alleging their division was outsourced so the company wouldn’t have to give them pension benefits. The employees appealed the Sachs ruling.

According to the appeals court decision written by Circuit Judge Diana Murphy, Honeywell’s evidence that it hadn’t set out to deprive the outsourced workers of their pensions included that the company had worked with the subcontractor to make its benefits equal to or better than Honeywell’s benefits package.   That came after Honeywell had commissioned a study of how its benefits package compared to the one offered to the outsourced employees, the appeals court pointed out.

The appeals court opinion said that the prospective DoE contract required limitation of the DoE’s long-term liability from employee benefits. Honeywell submitted to the DoE a portable pension plan for new hires and an option for existing employees to terminate their participation in their old pension plan and join a new one. The new plan provided earlier vesting of benefits than Honeywell’s existing plan, but featured substantially lower retirement benefits for long-term employees.

The DoE selected Honeywell as the contractor and approved the subcontract. The appeals court ruling said that the plaintiffs had accepted jobs with the subcontractor, whose benefits package included a defined contribution plan, but not a defined benefit plan as Honeywell offered. The outsourced employees sued Honeywell, claiming that they had been outsourced in order to deny them the right to earn future retirement benefits and to cut them off from retiree medical benefits.

The ruling in Register v. Honeywell Fed. Mfg. & Techs. LLC, No. 04-1902, (8th Cir. 2/17/05) is  here .