Pitfalls of Employee Communications
Employers cannot be too careful in their communications with employees, especially when it relates to retirement decisions. Recently the Third Circuit Court of Appeals handed down an ERISA ruling in favor of the employer but at what legal cost?
Back in 2003 Richard Shook was an employee at Avaya, Inc. After reviewing his future financial needs and doing some retirement calculating, Richard and his wife Karen decided that she would retire from her job. The Shooks alleged that Richard's employer miscalculated his pension by overstating it by $520 per month. Had they used the correct figure, the Shooks said, Karen never would have retired from her job.
The Shooks filed suit in federal court in Pennsylvania for breach of fiduciary duty under ERISA. The trial court dismissed the case holding that Avaya had not made any material misrepresentation to Karen. Even though the Judge acknowledged that the employer's 2004 letters did have the miscalculation, it had no impact on the Shooks since Karen had already retired.
Undeterred, the Shooks appealed, arguing that Avaya breached a fiduciary duty owed to an ERISA participant's spouse. The Third Circuit affirmed the trial court and decided more generally that ERISA claims premised on a spouse's decision to retire are "not foreseeable and therefore insufficient to establish detrimental reliance."
This would seem like a fine result for the employer and a vindication. But at what cost to the company? The Shooks filed this claim in 2004 and the case has finally come to rest some six years later at (undoubtedly) significant legal expense.
In our experience this is not a surprising employee reaction. One thing is for certain, employees always have an excellent handle on what is owed to them. Any calculation of wages, including unused vacation, severance, bonuses, or commissions had better be communicated with the utmost care. We have repeatedly been on both sides of this type of dispute under ERISA (for benefit disputes) or the Pennsylvania Wage Payment and Collection Law for wage disputes and the cost of defense can be significant especially with fee shifting provisions. The fights are almost always avoidable and cheaper to get it right the first time.
To talk about your case or to discuss the Shook v. Avaya, Inc., 2010 U.S. App. Lexis 22681 case in more detail drop us a line.