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February 26, 2002
Refusing to Rehire Doesn't Violate ERISA
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using to rehire workers in order to avoid increased pension liability does not violate ERISA, a federal appeals court in Pennsylvania has ruled.

"Unlike a discharge or other workplace harassment, a failure to hire does not amount to a circumvention of promised benefits because job applicants who have yet to be hired have not been promised any benefits," Judge Jane R. Roth wrote for the majority in the case, Becker v. Mack Trucks Inc.

The ruling upholds a December 2000 decision by U.S. District Judge Franklin S. Van Antwerpen of the Eastern District of Pennsylvania, according to the Legal Intelligencer. The lower court held that hiring decisions - even when they involve former employees - can never fall within ERISA's definition of prohibited conduct.

The suit was brought by 78 former Mack Truck employees who lost their jobs in massive layoffs in 1987 and claimed that the company violated ERISA - the Employee Retirement Income Security Act - when it refused to rehire them a decade later so that it wouldn't incur greater pension liabilities.

According to the Intelligencer, Mack Truck's lawyers conceded that the company's reason for rejecting former employees was related to their pension rights.

Although Mack initially gave former employees the first opportunity to fill new jobs, the company said it soon realized that a rehired former employee with credited service under the pension plan would receive a disproportionately larger pension than a newly hired employee.

Former employees who had not vested under the plan would receive credit for past service and would become vested in less than the five years applicable to new hires. And former employees were more likely to become eligible for early retirement before age 62.

Mack therefore decided to stop hiring former employees with credited service under the plan.

The lower court found that the plaintiffs whose pension benefits had not vested at the time they sued had no standing to sue under ERISA. Roth, the appeals judge, agreed, saying that under a 1993 decision in Shawley v. Bethlehem Steel Corp., "the non-vested plaintiffs lack a reasonable expectation of returning to covered employment."

The collective bargaining agreement covered recall rights, Roth said, and by the time Mack considered rehiring them, all of the non-vested employees' recall rights had either expired or been waived in lieu of dislocation benefits.

"Thus, under our holding in Shawley, non-vested plaintiffs lack a reasonable expectation of reemployment," Roth wrote in an opinion joined by U.S. Circuit Judges Thomas L. Ambro and Julio M. Fuentes.

To view the Legal Intelligencer article, via, click here.

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