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Planning to outsource? Prepare to document solid reasons

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in Employee Benefits Program,Human Resources

Twenty years ago, an employee might have expected his employer to reward long years of service with a secure retirement. That’s no longer the case. Employees nearing retirement are particularly sensitive to the potential loss of benefits.

The Employee Retirement Income Security Act (ERISA) offers some protection. Employees can sue if they can show that their employers specifically acted to prevent them from collecting retirement benefits. And sue they do.

That’s why it’s important to have an independent business reason for any action that might interfere with an employee’s pension benefits.

Recent case: Michael Meecham worked for Roche, a prescription drug manufacturer, long enough to be nearing retirement. Roche fully funded a defined-benefit retirement plan that paid benefits for all employees who retired with more than 10 years’ service and had reached ages 50 or 55.

Roche began negotiations with another company to outsource some of its staffing. During negotiations, the companies discussed the costs Roche would save if it discharged some employees before they reached retirement eligibility. But the two organizations also discussed other reasons for outsourcing, including improved service. Ultimately, they concluded the deal and most of the Roche employees who were cut became the other company’s employees.

But Meecham was one of the older employees who lost out on a pension. He sued, alleging that Roche violated ERISA. Meecham claimed the real reason for the outsourcing deal was to terminate him before he could retire.

The 3rd Circuit Court of Appeals dismissed his case based on Roche’s documented reasons for its decision. While some discussions had touched on cost savings, the most important aspect was improved service. (Jakimas, et al., v. Hoffman-La Roche & Johnson Controls, No. 06-2399, 3rd Cir., 2007) 

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