Court: Employers Can Bar Hourly Workers from Benefit Plans

March 27, 2003 ( - Employers can shut the door on hourly employees from participating in company benefit plans as long as such exclusions aren't based on age or length of service, a federal appeals court ruled.

>In what is apparently the first federal appellate case of its kind, the US 3 rd Circuit Court of Appeals ruled that ERISA allows employers to preclude certain workers from benefits-plan participation, according to a Legal Intelligencer report.

>The appeals judges agreed with arguments by the employer, Summit Bancorp of Princeton, New Jersey. Summit claimed that a plan requirement that employees must work at least 1,000 hours per year to be eligible for benefits doesn’t bar the company from denying benefits for reasons other than age or service length.

“Summit had no duty to create the plan in this case,” wrote Circuit Judge James Hill. “It also had no duty to provide benefits to every employee. Summit could limit plan participation to certain groups or classifications of employees, as long as that limitation was not based upon age or length of service.”

An Hourly Worker Goes on Salary

>The appeals court ruling gives this case background:

Plaintiff John Bauer worked as a Summit hourly employee from 1977 to 1995. Between 1995 and 1999, Bauer was paid on a salaried basis. He retired in 1999.

Bauer applied for Summit retirement benefits and was told by Summit’s benefits administrators that he was only eligible for benefits for his 3.667 years of employment as a salaried worker. The 18 years Bauer worked on an hourly basis were counted only toward satisfying the plan’s five-year vesting period.

Bauer appealed unsuccessfully to Summit’s benefits committee and then filed a federal court suit, alleging Summit had violated ERISA by keeping hourly workers from its benefits plans. A federal judge granted the bank company’s request to throw out Bauer’s case and Bauer appealed, arguing that ERISA required the company to allow him to participate in benefits programs for the whole time he worked for it.  

The plan’s minimum participation requirements stated an employee could participate in the plan on the first of the month following his or her 21st birthday or his or her completion of one year of service, whichever came later.   Bauer argued that any employee who worked at least 1,000 hours per year was eligible for benefits for that year and that the bank company could not propose a third minimum participation requirement after the 21st birthday or one-year-of-service requirements.

Bauer’s argument, that the plan violated ERISA’s minimum participation requirement, was a novel question for the courts, Hill said in the opinion.