Supreme Court Report

Taking On the Job

The court weighs worker rights in age bias, benefits suits

Posted Nov 1, 2007 4:02 PM CDT
By David G. Savage

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Ellen Mendelsohn, a 51-year-old manager and the oldest employee in her unit at the Kansas City-area headquarters of Sprint/United Management Co., was discharged in 2002 as part of a companywide drive to shrink its workforce. The Sprint vice presi­dent who fired her said she was a weak performer. Mendelsohn believes she was let go because of her age, and she says fired Sprint employees from other units can help prove that age bias determined who was discharged.

James LaRue, like tens of millions of Americans, saved money for his retirement through an employer-sponsored 401(k) plan. However, by 2002, his account had suffered a $150,000 drop because, he claims, the plan’s administrator ignored his request to move his money out of stock funds.

Lawsuits brought by Mendelsohn and LaRue come before the U.S. Supreme Court this term, and the outcome could have a broad impact on the law governing the workplace. Sprint/United Management Co. v. Mendelsohn, No. 06-1221, asks whether the testimony of other employees can be used to bolster a discrimination claim. LaRue v. DeWolff, Boberg & Associates, No. 06-856, questions whether an employee can sue to recover losses from the negligence or bungling by the trustees of the retirement plan.

Mendelsohn’s is the third major employment discrimination case to come before the court under Chief Justice John G. Roberts Jr. It’s also the third with a female plaintiff. The court has a divided record so far: One ruling—Burlington Northern & Santa Fe Railway Co. v. White, 126 S. Ct. 2405 (2006)—went to employees; the other—Ledbetter v. Goodyear Tire & Rubber Co., 127 S. Ct. 2162 (2007)—to employers.

The 5-4 Ledbetter ruling, decided in May, pointed to the filing deadline in Title VII, which says employees must lodge a complaint within 180 days of the “unlawful employment practice.” Since Ledbetter had no recent evidence of unfair pay adjustments, she had no discrimination claim, the court said. Congress is weighing legislation to reverse the ruling.

A jury rejected Mendelsohn’s age discrimination claim after the trial judge excluded testimony from five older employees who were discharged from Sprint during the same period. But the judge said the case was not about whether Sprint “has a pattern and practice, culture or history of age discrimination,” but instead about whether Sprint’s vice president was biased when he discharged Mendelsohn.

Her lawyers won a reversal and a new trial from the 10th U.S. Circuit Court of Appeals at Denver, which said the older workers’ testimony was relevant to show “a pervasive atmosphere of age discrimination.”

Sprint’s lawyers petitioned the Supreme Court and argued that “me, too” evidence from other employees with different supervisors is not relevant. Paul W. Cane Jr., a San Francisco lawyer for Sprint, told the court, “A discriminatory employment decision is made by the supervisor or manager—the decision-maker—exercising the delegated authority to act” for the company.

U.S. SUPPORTS EMPLOYEES

In an amicus brief, the U.S. Chamber of Commerce said a ruling for Mendel­sohn threatens to “make employment discrimination cases more time-consuming and costly.” Plaintiffs lawyers would bring forward a “traveling show of witnesses” who would “tar” em­ployers with assorted discrimination charges, it said. The chamber asserted that companies could be forced to settle weak, even frivolous, discrim­ination claims.

But U.S. Solicitor General Paul Clement filed a brief mostly favorable to Mendelsohn. “The Federal Rules of Evidence establish a low threshold for relevancy,” he said. A “reasonable fact finder could conclude that evidence of companywide youth movement increases the probability that age motivated the plaintiff’s supervisor.” While Clement agreed the trial judge erred in excluding other witnesses, he also urged the court to avoid a categorical all-or-nothing rule. Sometimes, he said, stray allegations of discrimination elsewhere in a company should be excluded if they were likely to confuse and distract the jury.

Clement also took the employee’s side in LaRue. Federal law says employers who sponsor retirement plans have a fiduciary duty to the employees who invest their money. “It is hard to imagine that Congress would have left participants who have been injured by fiduciary breaches without any effective federal remedy,” he wrote in his brief to the court.

Last year, however, LaRue had reason to believe he had no way to recover his losses. In 2004, he sued DeWolff under the Employee Retirement Income Security Act and claimed the plan administrators had “breached their fiduciary duties [when they] failed to invest plaintiff’s money as directed.”

But a federal judge in South Carolina dismissed his claim, and the 4th U.S. Circuit Court of Appeals at Rich­mond, Va., agreed that ERISA permits lawsuits to recover only “losses to the plan.” Under this theory, the employees as a group could sue if the whole plan suffered because of the administrator’s bungling or fraud, but they could not sue as individuals over their own losses.

“Most people would be surprised to learn that,” says Peter K. Stris, a professor at Whittier Law School in Costa Mesa, Calif., who appealed on LaRue’s behalf. “He had a 401(k) account. He wanted to reallocate his portfolio to more conservative investments. Even if the administrator willfully refused to follow his instructions, the 4th Circuit said my client had no ability to recover any amount. He could seek an injunction, but once you have lost the money, it is too late.”

“This case is potentially huge,” says Mary Ellen Signorille, a lawyer for the AARP Foundation in Wash­ington, D.C. According to the U.S. Labor Department, about 64 million Americans participate in a fund regulated by ERISA. As of Jan. 1, the accounts held more than $5.5 trillion in assets.

“Congress could not have intended to leave 401(k) participants with no remedy for monetary losses if fiduciaries breach their duty to participants,” Signorille says.

‘CAREFULLY CRAFTED'

For the same reasons, business lawyers say they worry about a ruling that would open the door to millions of lawsuits from disgruntled employees whose investment accounts did not live up to their expectations.

The Chamber of Commerce in its amicus brief stressed the law was “carefully crafted to encourage employers to establish ERISA plans on a voluntary basis.” Part of the deal, it argues, is that employers are shielded from state lawsuits—and, until now, individ­ual suits in federal court.

DeWolff’s lawyers point to the court’s recent rulings interpreting ERISA that shielded employers from being sued by employees over their health care plans.

“Congress surely did not intend an outcome that would open the same door the court just closed in connection with claims against health plan sponsors ... and permit that same torrent of litigation to be brought against sponsors of defined contribution retirement plans and their service providers,” says Thomas Gies, a D.C. lawyer, in his brief for DeWolff.

Sidebar

On the Docket

EMPLOYMENT LAW

Sprint/United Management Co. v. Mendelsohn Can courts use the testimony of other employees to bolster a discrimination claim?

LaRue v. DeWolff, Boberg & Associates Can an employee sue to recover losses from negligence by the trustees of his retirement plan?

David G. Savage covers the U.S. Supreme Court for the Los Angeles Times and writes regularly for the ABA Journal.

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