Judge Rules that Employee Can Sue Under State Laws in Pension Dispute

June 1, 2006 (PLANSPONSOR.com) - The US District Court of Eastern New York denied the request of Cendant Corp. and IBM to drop the complaint of the two companies' former employee who filed a lawsuit citing fraudulent inducement, negligent misrepresentation and breach of contract in a dispute over his pension rights.

US District Judge Arthur Spatt ruled that the employee’s claim is not preempted by the Employee Retirement Income Security Act of 1974 (ERISA).

Barry Engler, an employee at Cendant Corp., worked for the company for 25 years, according to the court report. Engler received a letter from IBM asking him to work with IBM Global Services on the Cendant account. Engler would be outsourced with other Cendant employees.

Shortly after Engler began working for IBM, he received a letter from Cendant about more benefits Cendant and IBM offered that he could have if he executed an agreement and general release not to sue Cendant. According to the court records, the letter also said that if IBM terminated his employment for a reason other than “cause” during the first two years after he began working at IBM, he would receive severance pay from IBM based on the greater of the two companies’ severance plans.

About two years and three months after he began working at IBM, Engler received a letter that his employment would be terminated the next month. The letter said that terminated employees “will receive the greater of one week of pay for each full six month period of service, up to a maximum of twenty-six weeks of pay, or two weeks pay.” IBM’s plan also would continue employees’ health coverage for three to 12 months, depending on how long they had worked at IBM.

IBM disregarded all of Engler’s years with Cendant and offered Engler one month of severance and three months of medical benefits. Cendant had sent Engler a letter that assured him that IBM would recognize his service at Cendant for the purposes of the IBM pension plan, according to the court.

Engler sued Cendant and IBM under New York state law. Cendant went to the court and asserted that Engler’s employee benefits were governed by ERISA, which preempts state law, and Cendant and IBM tried to dismiss Engler’s complaint on that ground.

The court ruled that Cendant “fraudulently and negligently” misrepresented that IBM would honor Engler’s years and service at Cendant.

The case is Engler v. Cendant Corp., E.D.N.Y., No. 04-cv-05215 (ADS)(MLO), 5/23/06.