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Promises, Promises

By: Doug Ehlke

Wednesday, October 01, 2008
 
Promises of benefits in an employee handbook can create employee rights to those benefits under contract law—even when the employer may have been exempt from benefit laws.

Right to Medical Leave Case

In July 2001 Steven Peters began employment as therapeutic specialist for Gilead Sciences, Inc., a pharmaceutical company. Peters represented and marketed Gilead’s products to physicians and healthcare professionals in its Midwest region.

In November 2001 Peters suffered a work-related injury to his neck and right shoulder. When he reaggravated his shoulder in October 2002, Peters reported the injury to his employer and filed a worker’s compensation claim. At the end of November, when his physician imposed lifting restrictions, Peters worked under these restrictions until early December. He then underwent corrective surgery, taking what he thought was Family Medical Leave Act (FMLA) medical leave from December 5 through 16, 2002.

The day after his leave started, Peters received a letter from Gilead stating:

“The FMLA went into effect August 5, 1993. It grants eligible employees of covered employers up to 12 weeks of unpaid leave in a 12-month period to care for a newborn or adopted or foster child, to care for the seriously ill parent, child or spouse of the employee, or to attend to the employee’s own serious health condition. To be eligible for FMLA benefits an employee must have worked for a covered employer for a total of 12 months and have worked at least 1250 hours over the previous 12 months.

“You will retain your employee status during the period of your FMLA leave. This includes accrual of tenure and vacation, in addition to continued health benefits coverage. You will be guaranteed reinstatement in your position, or equivalent position, if you return to work by the time your FMLA leave expires. In this case, since your leave began December 5, 2002, you will need to return to work by February 28, 2003, to be guaranteed such reinstatement.”

The letter tracked language in the company’s employee handbook regarding employees’ entitlement to family and medical leave: “A request for family and medical care leave will be granted for all employees employed by the company for at least 12 months and who have worked 1250 hours during the 12 months preceding the commencement of leave.” Like the letter Peters received, the handbook guaranteed 12 weeks of leave during a 12-month period and reinstatement to the same (or an equivalent) position with the company.

Peters returned to work on December 16, 2002, and worked under restrictions. On March 4, 2003, Peters took a second leave that lasted until May 5, 2003. At the start of this second leave, the company sent Peters a letter, similar to the first, setting forth his eligibility for medical leave. Dated March 17, 2003, this letter stated: “In this case, your original leave began December 5, 2002, and you returned to work as of January 26, 2003 (7 weeks and 4 days). Since you reestablished your leave as of March 4, 2004, you will need to return to work by April 4, 2003 (4 weeks and 3 days) to be guaranteed such reinstatement.”

The letter erroneously identified January 26 as the date Peters returned from his first leave. In fact, his first leave only lasted until December 16, 2002. The April 4, 2003, return-to-work deadline in the letter was incorrect. Properly calculated, Peters’ second leave would have run through May 9, 2003. Peters never received the second letter with the miscalculated return-to-work dates. Gilead sent it by certified mail, but apparently no one at the Peters’ residence signed for it.

In early April 2003, Gilead decided to replace Peters with another employee. On April 16, 2003, Gilead’s associate director for human resources received a letter from Peters’ doctor releasing him to return to work on May 5, 2003. The therapeutic specialist position was filled with an outside candidate who began employment on April 28, 2003. By letter dated April 25, 2003, Gilead informed Peters that because he held a “key” position, Gilead could not keep his job open. This letter advised Peters that his old position had been filled but offered him placement as a senior sales analyst. Peters declined this alternative position, and Gilead terminated his employment.

Peters filed a civil suit in federal court, alleging, among other causes, a violation of the FMLA law and a claim under Indiana state contract law for promissory estoppel. The FMLA did not apply because of the “50/75” exemption for employers that employ fewer than 50 employees within 75 miles of that worksite. But, the state contract law trumped the statutory exemption and created the right to medical leave arising from the employee handbook (and related entitlement letters sent by the employer). The handbook could be viewed either as a contract or a situation where any contract-law gaps are filled in to create a contract under the legal doctrine called promissory estoppel. Promissory estoppel steps in where a promise lacks the elements of a binding contract but induces another to have detrimental reliance on the part of the promise. In other words, the company’s promised benefit was binding.

The employer tried one more defense —the “key employee” defense to its failure to restore the plaintiff employer to his job or an equivalent position.

FMLA laws permit employers to deny job restoration protection for “key” salaried FMLA-eligible employees. A Department of Labor regulation states that “an employer may deny job restoration to salaried eligible employees (key employees)…if such denial is necessary to prevent substantial and grievous economic injury to the operation of the employer. A ‘key employee’ is a salaried FMLA-eligible employee who is among the highest paid 10 percent of all employees employed by the employer within 75 miles of the employee’s worksite.”

Gilead’s employee handbook recited that “certain key employees may be denied job reinstatement if substantial and grievous economic injury to Gilead would result if the employee were reinstated.” It also stated that Gilead would “notify any key employee of his/her job status as a key employee upon requesting leave.” The company did not notify Peters that he was a “key employee” until April 25, 2003, long after his second leave request was granted.

Misrepresented Pension Case

An employee, Dr. Pell, won an injunction to a higher promised pension benefit than his employer issued him at retirement when the company claimed the earlier-issued statements were just “estimates.” The plaintiff, a chemical engineer, first worked for a subsidiary of Conoco, Inc., where he became eligible for a pension plan with a 1971 service eligibility date. Years later, the engineer accepted a permanent job transfer to DuPont, which had merged with Conoco. He accepted this job at a lower salary relying on assurances that he would receive a more generous pension plan and that his Conoco previous employment would be counted as years of service under DuPont’s pension plan.

While working at DuPont for 20-plus years, Pell received multiple oral and written assurances about his pension benefits amount and length of service.

When he neared retirement and went to line up his pension benefit, he received a later service date and lowered pension benefit estimate. The timeline included:

• In 1992, Pell requested two estimates of his pension benefits, and each estimate listed February 10, 1971, as his adjusted service date. In 1998, he requested another pension estimate, and this estimate also stated that his adjusted service date was February 10, 1971. In 1999, Pell received a benefit resources statement from DuPont indicating that he had 28.5 years of service, which was consistent with an adjusted service date of February 10, 1971. Each estimate contained text indicating that it was an estimate subject to review and adjustments.

• In August 2000, Pell inquired what his pension benefits would be if he retired on December 31, 2000. On December 14, 2000, DuPont informed Pell that it was changing his adjusted service date to August 1, 1972, thus reducing his recognized service by 1.475 years. Pell requested a reconsideration of his adjusted service date, and DuPont’s benefit administration department provided a final pension estimate via e-mail on December 19, 2000.

• According to the final estimate, Pell would receive 1) a pension benefit for his Consol employment that would be “exactly the same…as if Consol had calculated and paid it,” and 2) a pension benefit for his DuPont employment based on his service from November 1, 1975 until retirement, partially offset by the payments under the Consol plan. The e-mail to Pell from the benefit administration department also noted:

“All of your previous documentation does use an adjusted service date (ASD) equal to 2/10/71. However, ASD is not a pension date, it is used for many business specific uses (such as vacation entitlement, service awards, etc.). The ASD also is used to determine vesting and eligibility service under the plans, but may need to be adjusted to reflect pension benefit accrual service, and in your case it is. The estimate provided to you eight years ago was in error.”

• Upon receiving his final pension estimate, Pell responded that he “may not be able to retire as scheduled.”

• Pell appealed his pension estimate to the DuPont board of benefits and pensions, which upheld the determination. He retired on May 31, 2001.

In 2002, Pell filed a complaint against DuPont in the District Court for the District of Delaware. He requested an injunction ordering DuPont to pay the higher pension amount. The District Court ruled that Pell was entitled to relief under the Federal ERISA law based on the theory of equitable estoppel.

The doctrine of equitable estoppel, under the ERISA case law, has three elements for an ERISA plaintiff to prove:

1) A material representation,

2) Reasonable and detrimental reliance upon the representation, and

3) Extraordinary circumstances.

The Third Circuit U.S. Court of Appeals found for the engineer on all counts. On appeal, the trial court’s ruling that the former employee was entitled to relief was affirmed; the ruling that he was not entitled to restitution for low past pension payments was reversed; the injunction requiring the employer to calculate the benefit from the month following the employer’s 30th birthday (August 1972) was reversed to require calculation from his first date of Conoco employment (February 1971).

The Appeals Court’s reasoned: “The plaintiff has established the elements of an equitable estoppel claim under ERISA. DuPont made misrepresentations about the amount of Pell’s pension benefit, Pell reasonably and detrimentally relied on those misrepresentations, and DuPont’s inaccuracies over an extended course of dealing constitute extraordinary circumstances warranting relief. MF

 


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