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Court must weigh potential conflict of interest when employer decides not to pay benefits

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in Employee Benefits Program,Firing,Human Resources

If an employer decides to deny a fringe benefit to an employee, and the employee challenges the decision, courts must at least consider the possibility that a conflict of interest exists. That’s because anytime an employer decides to provide a benefit, that benefit comes at a cost. According to a recent ruling, whether that inherent conflict affected the decision is a decision for the court.

Recent case: Dennis Saddler worked for the same company for 32 years. When the company was sold, Saddler was told he would simply be transferred to the acquiring company. Under its original ownership, a written severance plan allowed employees who were terminated because of a plant closing or sale to receive a severance payment.

Saddler continued working in the same building, at the same desk, doing the same thing and using the same telephone. A few months later, he quit.

Then, more than two years after he resigned (and nearly three years after he was transferred), he sued to receive a severance payment. The trial court threw out the case and he appealed.

The 3rd Circuit Court of Appeals said the benefit was an ERISA-covered benefit. That meant it had to consider whether there was a potential conflict of interest when the new ownership of the company decided not to pay the benefit.

However, the court said the decision wasn’t tainted, an abuse of discretion or both. Saddler won’t receive a payment under the severance plan. (Saddler v. Elliott, No. 09-1476, 3rd Cir., 2009)

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