Outsourced Employee Loses Benefits Ruling

August 11, 2005 (PLANSPONSOR.com) - A former Cendant Corp. employee who was outsourced to International Business Machines Corp. has run into a legal roadblock in his court fight over severance pay and other benefits when he changed employers.

US District Judge Arthur Spatt of the US District Court for the Eastern District of New York ruled that plaintiff Barry Engler’s claims were pre-empted by the Employee Retirement Income and Security Act (ERISA), BNA reported.

Spatt granted requests from Cendant and IBM to throw out Engler’s suit alleging state law fraudulent inducement, negligent misrepresentation, and breach of contract claims.

According to court background, Engler was a Cendant employee in December 2001 when he received a letter from IBM extending to him an offer of employment. The offer of employment was part of an outsourcing agreement between IBM and Cendant in which certain Cendant employees were offered employment with IBM, according to the court.

As part of the offer, Engler received a letter from Cendant advising him that if he accepted employment with IBM, the company would recognize his service with Cendant for all purposes, including eligibility and vesting in IBM’s pension plan.

After Engler began working for IBM, Cendant sent him a letter in February 2002 stating that if his employment should be terminated by IBM within two years he would receive severance pay from IBM based on his combined credited service.

In May 2004, Engler was told he was ineligible for the benefits that had been promised in the February 2002 letter because his employment termination occurred more than two years after his initial employment date with IBM, the court said.

Engler originally sued in a New York state court against Cendant for fraudulent inducement, negligent misrepresentation, and breach of contract. The court noted that although Engler listed no cause of action against IBM, he demanded $50,000 from IBM and $100,000 from Cendant. Cendant and IBM had the case transferred to federal court as preempted by ERISA and asked Spatt to dismiss the matter.

The case is Engler v. Cendant Corp., E.D.N.Y., No. 04-cv-05215 (ADS)(MLO), 8/6/05.