Outsourcing Didn't Violate ERISA, Appeals Court Rules

February 18, 2005 (PLANSPONSOR.com) - A federal appeals court has ruled that employees' pension rights were not violated when their employer outsourced their division to a subcontractor.

>Circuit Judge Diane Murphy of the US 8th Circuit Court ruled that Honeywell Federal Manufacturing and Technologies did not violate Section 510 of the Employee Retirement Income Security Act (ERISA) by outsourcing the facilities and utilities engineering group at a Kansas City, Missouri Plant that was managed for the Department of Energy.

>In an attempt to keep the management contract during a bidding process, Honeywell decided to cut costs by outsourcing the division to Burns & McDonnell. After the move, Honeywell won the contract and remained as manager.

>Employees whose jobs had been outsourced sued the company, however, alleging that Section 510 of ERISA was violated because the employer unlawfully discharged them with the purpose of interfering with their attainment of pension benefits.

>The plaintiffs’ argument was based on the fact that when they were offered – and most accepted – jobs at Burns, they were given defined contribution plans, not defined benefit plans. In the suit, Dallas Deane Register and his fellow employees claimed that their rights to benefits accrual had been unfairly violated due to the outsourcing. The plaintiffs also accused Honeywell of violated the Age Discrimination Act and Title VII of the Civil Right Act.

>Murphy ruled that since the move to outsource was not pretextual in that the reason was not to cause the employees to lose pension benefits, Section 510 was not violated. According to the court, if the plaintiffs show a prima facie case of violation of the section, the burden falls on the defendants to show that the move was not done to interfere with benefits accrual. If they do so, the burden shifts back to the plaintiffs to prove that the defendant’s reason was pretextual.

“Honeywell articulated legitimate, nondiscriminatory reasons for its outsourcing, particularly in respect to its desire to maintain its contract with [the Energy Department],” Murphy wrote, granting summary judgment for the defendant.

>The court also noted that Honeywell actually worked with the subcontractor to make the new benefits package significant, with higher salaries and an enhanced benefits package being offered to Burns employees.

>The decision in Register v. Honeywell is available  here .