Illinois ERISA Lawyer Blog

With every dip in the economy and rise in unemployment, we see a rise in the number of involuntary separations of service (i.e., layoffs). Many workers who have been laid off had an expectation that if they were laid off, they would receive some severance. This expectation could develop several ways. Perhaps the employer issued you a written description of a severance plan that outlined the number of weeks of compensation and benefits you would receive in the event of an involuntary separation of service. Alternatively, maybe there was nothing in writing, but the employer had an established practice of providing severance based on certain guidelines.

As long as there are severance plans in the workplace, there will be an employer that does not pay severance to somebody as previously promised. Contacting a lawyer who is not versed in ERISA and can not tell the difference between an ERISA severance plan and a non-ERISA severance plan could potentially cost you months, or even years, in obtaining your severance.

Though most employers are savvy enough to structure severance plans to be ERISA welfare benefit plans, some mistakenly structure them as pension plans. Under section 3(1)(B) of ERISA, a covered welfare plan is "any plan, fund, or program . . . established or maintained by an employer . . . for the purpose of providing for its participants or their beneficiaries . . . any benefit described in section 186(c) of this title . . . ." Severance is a benefit described in section 186(c).

Under section 3(2), a pension plan is "any plan, fund, or program . . . established or maintained by an employer . . . to the extent that [it] . . . results in a deferral of income by employees for periods extending to the termination of covered employment or beyond." Whether the plan is a pension or welfare plan is not germane to this post other than to demonstrate the various ways in which the plan could be covered by ERISA.

Continue reading "As Corporate Downsizing Is on the Rise, So Is Mishandling of Severance Cases by Attorneys" »

Many employers in Chicago and the rest of Illinois misclassify workers as independent contractors in order to avoid paying payroll taxes for those workers and providing them with employee benefits. While there is nothing wrong with the use of independent contractors, if your employer has misclassified you as an independent contractor, it may be denying you employee benefits that would otherwise be due. For example, if your employer provides group health insurance to employees, or has a retirement plan, you will miss out on participating in these plans as a result of the misclassification.

Contrary to popular belief, it is not the employer's decision whether you are an independent contractor or employee. Whether you are truly a contractor or an employee is a question of law that depends on the facts and circumstances that essentially must answer the question: who directs and controls how your job is done? The IRS originally developed a 20-factor test to determine whether a worker is a contractor or employee. Rev. Rul. 87-41, 1987-1 C.B. 296. Because over the past 25 years, some of these factors have become less relevant, the IRS has simplified this test to a 3-category test of Behavioral Control, Financial Control, and the Relationship of the Parties.

It isn't just the IRS that is interested in worker misclassification. The Employee Misclassification Prevention Act is a bill pending in both the House and Senate that would impose criminal penalties on employers that misclassify workers. S.3254, HR 5107. While this bill is currently stalled in Congress, you can expect as implementation of the Patient Protection and Affordable Care Act of 2010 is increasingly implemented, this bill will get more attention because employers will try to evade requirements to provide health insurance by misclassifying workers.

Several people have asked me: "What if I signed an agreement stating I am an independent contractor?" The answer is that it likely does not matter that you agreed to a certain employment status. An employer once tried to use this exact argument to avoid retroactively providing benefits to misclassified workers. In Vizcaino v. Microsoft Corp., 97 F.3d 1187 (9th Cir. 1996), workers signed agreements labeling them as independent contractors instead of employees. After an IRS audit determined Microsoft misclassified the workers, the workers successfully sued Microsoft for denying them benefits during the time the workers were misclassified (including participating in a lucrative stock purchase plan). If you think you have been misclassified as an independent contractor and that misclassification resulted in denying you employee benefits, call an experienced ERISA lawyer.

If you are one of the many people in Chicago fortunate enough to have been provided with a supplemental retirement plan at work, that retirement plan may be worth less than you think. These supplemental plans, called "top hat" plans, are retirement plans typically offered to management or executives in addition to any 401(k) or other plan the employer may have. Top hat plans are limited in to whom the employer can provide them.

The good part is that as an employee-participant in a top hat plan, you can defer more of your compensation than typically allowed by other tax-qualified plans. The trade-off, however, is that such plans do not receive all the typical protections of a retirement plan covered by ERISA (e.g., minimum funding, fiduciary responsibilities, etc.). These plans do not have trusts, are typically payable out of the general funds of the employer, and are subject to claims by the employer's creditors. In a troubled economy, these top hat plans carry significantly more risk than they once did. Some participants in Rand McNally & Company's supplemental retirement plan recently learned this the hard way.

The United States Court of Appeals for the Seventh Circuit upheld a dismissal of a lawsuit brought by participants in Rand McNally's supplemental retirement plan. Rand McNally entered into an asset purchase agreement, selling all its assets to RM Acquisition, LLC--a company created by a private equity firm. Feinberg v. RM Acquisition, LLC, 2011 U.S. App. LEXIS 249, at *2 (7th Cir. Jan. 6, 2011). The asset purchase agreement specifically excluded the top hat plan as one of the liabilities RM Acquisition would assume, leaving plan participants with only an empty shell corporation of Rand McNally from whom to pursue their benefits.

The court held that because RM Acquisition did not assume the liability, and did not consent to succeeding as the plan's administrator, it was not liable for the pension benefits under ERISA. Id. at *3-4. Successor liability might have attached if the acquisition company "connived" with the selling company to deprive participants, or if the successor was a "mere continuation" of the selling company. Id. at *6. The Seventh Circuit held, however, that the participants had not successfully demonstrated either of these situations. If you have a supplemental retirement plan and are in doubt about your employer's financial strength, talk to an experienced ERISA lawyer today.

Many people in Chicago who are covered by a group long-term disability plan at work, and who receive disability payments at some point feel well enough to return to work, either part-time or find themselves only able to perform a job that pays significantly less than their former position. Most long-term disability plans provide that after qualifying for disability benefits, the employee will continue to receive benefits until the employee earns a certain percentage of pre-disability earnings or until the employee is no longer disabled.

It is possible, and happens not infrequently, that an employee is still disabled under the plan, but can return to work either part-time, or in a capacity that earns less money. But what happens if you just do not want to work at that employer any more, but still need partial disability payments because you cannot earn your pre-disability income because of the disability? According to one UNUM Life Insurance Company of America policy written, the employee loses all benefits.

In Fier v. UNUM Life Insurance Co. of America, 2011 U.S. App. LEXIS 292 (9th Cir. Jan. 4, 2011), the United States Court of Appeals for the Ninth Circuit held that according to the terms of the disability insurance plan, once Robert Fier left the employment of the Boyd Group (the employer that purchased the group long-term disability insurance plan from UNUM), he was no longer entitled to any benefits under the plan. Id. at *6.

Although there were other reasons under the terms of the plan Mr. Fier was no longer eligible for benefits, Chicago area employees who receive disability payments should look at the disability plan before deciding to change employers. All insurance plans may have different language, depending on the insurer and the terms your employer has negotiated. If your employer has a self-funded disability plan, there is yet one more variable to factor in. Before you make any decisions that may alter your right to receive benefits, talk to an experienced ERISA lawyer.