Transferred Employee Entitled to Benefits from Former Employer

RIF On First Day After Company Sold to New Employer Howley v. Mellon Financial Corporation, ---F.Supp.2d---, 2008 WL 239177 (D.N.J., January 29, 2008)

In 2005, Mellon Financial Corporation sold to Affilliated Computer Services (“ACS“) its 100% ownership of a subdivision called Mellon Human Resources & Investor Solutions (“MHR“). Robert Howley had been employed by MHR and its predecessor for 25 years, and was eligible for early retirement benefits in another 11 months. All MHR employees were transferred to ACS, but on the first day of work for ACS, 100 employees including Howley were fired as part of an RIF. The decisions for the RIF were made by MHR before the ownership change.

If Howley had been terminated by MHR, he would have been eligible for continued benefits, early retirement and medical insurance under Mellon’s Displacement Benefit Program; however, Mellon took the position that Howley was only eligible for much less favorable benefits from displacement by ACS.

Howley filed suit in U.S. District Court against Mellon, the Plan Administrators of the Mellon
Displacement Benefit Program, the Mellon 401K Plan and the Mellon Flex Benefit Program, claiming entitlement to the Mellon Displacement Benefit Program benefits on a number of theories. Both sides moved for summary judgment.

The District Court examined the decision made by Mellon, as administrator of the Mellon
Displacement Benefit Program (an ERISA benefit plan) to deny benefits to Howley, and held first that Mellon’s financial conflict of interest imposed a heightened standard of review over the normal ”arbitrary and capricious“ one. The Court then considered whether Mellon justifiably relied on the ”sale of business“ exception to benefits in its Displacement Benefit Program which applied if: ”the terms of the sale…provide for employment of the employee…that…does not involve a significant change in responsibilities…“, and initially provides similar compensation.

The Court held that because of the pre-planned RIF, Mellon knew that Howley would never have the opportunity to perform his job at ACS, and was not given a bona fide offer of employment with ACS. Mellon’s position that Howley had new qualifying employment with ACS at 12:01 a.m. the day of the sale until he was terminated was found to be arbtirary and capricious. The Court held that Howley was entitled to the Mellon displacement benefits.

Howley also contended that Mellon’s structure of the RIF, the sale, and then his termination
violated ERISA Section 510 by discharging or discriminating against him to prevent his attainment of plan rights. Mellon argued that the sale was a large, complicated transaction and the effects on Howley were merely incidental. The Court found disputed issues of fact on the Section 510 claim, but that the claim was moot due to the ruling in favor of Howley on his claim for benefits. Similarly, state law claims asserted by Howley were deemed unnecessary, and in any event, preempted by ERISA.

Thus, summary judgment was entered for Howley on his claim for benefits, and summary
judgment was denied to the Mellon defendants.

Reprinted with Permission from The Judicial View. Copyright © 2008, The Judicial View. All Rights Reserved.