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Tide turns against employees who sue over stock-based retirement funds that lose money

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in Leaders & Managers,Management Training

Lately, employees have been winning when they sue over profit-sharing or retirement plans based on company stock that rapidly lost investment value. In the wake of the Enron bankruptcy scandal in 2001, juries sympathized with workers who paid the price for lousy (or illegal) management.

Now, employers are gaining the upper hand again, as courts recognize that companies are often in a no-win situation when it comes to providing stock information.

Recent case: Steve Harris and other employees sued Amgen for alleged breach of fiduciary duty. They alleged that the company retirement plan wrongly encouraged them to purchase company stock. The value of Amgen stock plummeted after the Food and Drug Administration (FDA) required a strict label warning doctors against using two of the company’s anti-anemia drugs to treat other medical conditions.

The employees claimed that Amgen should have removed company stock from the list of retirement investment options when it learned that unsuccessful drug trials would likely draw the FDA’s attention and provoke the warning.

The court disagreed. It said removing the stock from the list of available investment choices would have been tantamount to insider trading, because only employees would have had the inside knowledge of the problem. Members of the public would have been left in the dark while employees would have benefited from the knowledge. (Harris, et al., v. Amgen, No. 07-5442, CD CA, 2010)

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