The 7th U.S. Circuit Court of Appeals agreed with a lower court that employees’ Employee Retirement Income Security Act (ERISA) § 510 interference claims failed because Abbott and created-company Hospira did not act with the requisite intent to interfere with the plaintiffs’ pension benefits. The district judge specifically found that employee benefits played no role in the decision to spin the Hospital Products Division (HPD) and implement a no-hire policy.
The employees’ breach-of-fiduciary-duty claim failed because Abbott had nothing to do with the Hospira benefits plan and because Abbott reported truthfully to HPD employees that their benefits might change after the spin.
According to the court opinion, prior to the spin, HPD employees had access to Abbott’s pension plan, but after the spin, HPD employees became employees of Hospira, which did not offer a pension plan, but instead offered an enhanced 401(k) plan with an employer-matching provision. The terms of the spin included reciprocal no-hire policies, meaning that for two years post-spin, Abbott would not hire Hospira employees or retirees, and Hospira would not hire Abbott employees or retirees. Thus, when HPD employees ceased employment with Abbott and became employees of Hospira, their non-vested pension rights in the Abbott plan were eliminated. In addition, retirement-eligible HPD employees were effectively prevented from retiring from Abbott before the spin to begin collecting an Abbott pension, then joining Hospira.
The employees alleged that Abbott violated § 510 of ERISA by using the spin and the no-hire policy to get rid of unwanted pension liability.
The court found that the decision to make HPD a separate entity was on the advice of several financial advisers, and was made because HPD's experience had slower growth than Abbott.
As for the no-hire policy, the court found the decision was made to retain the roughly 15,000 HPD employees at Hospira, to ensure its success. The question arose whether an exception would be made for retirement-eligible HPD employees, but Abbott decided against it because its tax advisers believed it would violate tax law and therefore cause the relevant benefits plans to lose their tax-deferred status. In addition, Abbott worried that it would affect employee productivity; some employees receiving both a pension and a salary for the same job might not work as hard.
The employees alleged that prior to the spin, Abbott helped create the Hospira benefits plan and thus had a fiduciary duty to disclose the Hospira plan’s details to employees. They claimed that instead of disclosing what it knew, Abbott misled employees into believing that the Hospira plan would be similar to the Abbott plan.
The appellate court noted that the district court judge made several factual findings that defeated the employees’ claim. Specifically, the judge found that pre-spin, Abbott consistently told employees that Hospira would set up its own employee-benefits plan and that its benefits could be entirely different from Abbott’s. The judge also found that consistent with these representations, Hospira indeed made its own decisions regarding employee benefits after the spin. Accordingly, the judge concluded that Abbott owed no duty to the plaintiffs with respect to the Hospira plan. Even assuming otherwise, the judge found that Abbott committed no breach because its communications were entirely truthful.The decision in Nauman v. Abbott Laboratories and Hospira, Inc. is here.