Holt v. Winpisinger, 85-5353

• Decision Date: 13 February 1987
• Docket Number: No. 85-5353,85-5353
• Citation: 258 U.S. App. D.C. 343,811 F.2d 1532
• Parties: , 55 USLW 2463, 8 Employee Benefits Ca 1169 Maurine M. HOLT, Appellant, v. William W. WINPISINGER, et al.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1532

811 F.2d 1532

258 U.S.App.D.C. 343, 55 USLW 2463,

8 Employee Benefits Ca 1169

Maurine M. HOLT, Appellant, v. William W. WINPISINGER, et al.

No. 85-5353.

United States Court of Appeals, District of Columbia Circuit

.

Argued Feb. 6, 1986.

Decided Feb. 13, 1987.

Robert L. Liebross, with whom Karen W. Ferguson, Washington, D.C., and Sarah D. Galbraith, were on the brief, for appellant.

James S. Ray, Washington, D.C., for appellees.

Before ROBINSON, MIKVA and GINSBURG, Circuit Judges.

Opinion for the Court filed by Circuit Judge ROBINSON.

SPOTTSWOOD W. ROBINSON, III, Circuit Judge:

Maurine M. Holt appeals from a judgment of the District Court upholding a determination of the Administrators of the International Association of Machinists' (IAM) pension plan that she was not eligible for a pension upon cessation of her employment with IAM. Appellant challenges the conclusion, reached successively by the Administrators and the court, that the right to a pension did not vest because she was not an "employee" during the first of her approximately ten years of service. We find that the District Court misinterpreted the meaning and significance of "employee" status under the Employee Retirement Income Security Act (ERISA) ¹ and misapplied the criteria for ascertaining its existence. Accordingly, we reverse the judgment under review and remand for further proceedings.

I. BACKGROUND

On October 29, 1973, after a 20-year absence from the labor force while raising a family, appellant began work for IAM as a part-time assistant to Gordon D. English, the manager of IAM's DuPont Circle Building. Her duties were of a general clerical nature, including such tasks as typing leases, answering tenants' telephone calls, filing, bookkeeping, and preparing forms for new employees. English trained her in the use of office machines, supervised her work on a daily basis, and could have fired her if he found fault with her work. ²

In obtaining this position, appellant was assisted by her husband, Milo O. Holt, who was the Assistant Secretary of IAM. ³ At the time, Milo Holt informed English that IAM had a policy against hiring part-time employees, and directed English not to put appellant on the payroll but to provide for her compensation from a general fund which was used to pay for outside services by independent contractors. ⁴ As a result, appellant was paid by the hour and did not reap the benefits of salaried employees. She had no paid vacation or sick leave, and no insurance or Railroad Retirement benefits. Additionally, IAM did not withhold income or Social Security taxes from her paychecks, as it did with respect to employees on salary. ⁵ The District Court found that this arrangement was designed to circumvent IAM's policy against part-time employment. ⁶

Almost a year later, on September 2, 1974, English hired appellant on a full-time basis, putting her on the payroll with the title of office manager. ⁷ Her hours increased from approximately 20-25 to 35 per week. ⁸ She received a weekly salary instead of hourly pay, and became eligible for paid holidays and sick leave. ⁹ She filled out forms for withholding of taxes, and became entitled to Railroad Retirement, health and life insurance benefits. No forms were necessary to trigger participation in the pension plan; the memorandum placing her on the payroll characterized her as a new employee, and the financial officer calculated her pension credits from that date. ¹⁰ Notwithstanding these changes, however, appellant's duties remained the same. She still performed the same general clerical tasks and reported daily to English, who continued to supervise her work. ¹¹

Appellant continued to work as office manager of the DuPont Circle Building until May 25, 1983, when IAM informed her that she would be released on July 1 as part of a general layoff to reduce costs. ¹² She inquired of an employee in IAM's pension department as to whether she would be eligible for a pension, which, under IAM's plan, vests after an employee completes ten years of service. The Administrators of the plan informed her that she did not qualify for a pension because her date of hire by IAM was September 2, 1974, and that she therefore lacked one year of the ten years necessary for vesting of her pension. ¹³ The Administrators predicated their determination on the ground that she was not an "employee" during the period of her part-time service from October, 1973, to September, 1974. ¹⁴

Appellant then filed suit in the District Court against IAM and the plan's Administrators, claiming that their decision to deny her a pension violated her rights under ERISA. ¹⁵ She challenged the Administrators' position that she was hired as a contractor and not as an "employee," as that term is defined by ERISA, for purposes of ascertaining whether she had completed the ten years of service needed for vesting of her pension. ¹⁶ After a bench trial, the District Court, "look[ing] to common law principles and the intent of the parties," ¹⁷ concluded that even though "[c]ustomarily, an office manager receiving on-the-job supervision while working somewhat regular hours does not serve as an independent contractor," in this case "custom was deliberately defied.... [A]ll parties involved, and particularly plaintiff, stood to gain from a relationship in which plaintiff served on a contract basis." ¹⁸ The court then held that "defendants correctly decided that plaintiff's coverage under the IAM Pension Plan, like all other fringe benefits of IAM employment, commenced when plaintiff joined the payroll on September 2, 1974. As defendants' decision was neither arbitrary nor capricious and is supported by substantial evidence, it shall not be overturned." ¹⁹

On appeal, all parties agree that common-law principles of agency govern in determinations on employee status, ²⁰ but they differ on proper application of those standards. Appellant asserts that her working relationship with English, who supervised every aspect of her work, is decisive, and establishes that she served as an employee, and not as an independent contractor, during the period of part-time service. ²¹ The Administrators insist that the parties' intent controls, and that everyone familiar with appellant's employment understood that she was engaged on a contract basis, and not as an employee, in order to avoid IAM's policies against hiring part-time employees or relatives. ²² From this premise, the Administrators argue that we are required to uphold their eligibility ruling as a determination supported by substantial evidence and not arbitrary, ²³ and that, regardless of appellant's employment status, equitable principles should bar her claim. ²⁴

II. THE STANDARD OF REVIEW

Almost a quarter-century ago, in Danti v. Lewis, ²⁵ this court articulated the traditional standard for review of eligibility decisions of those who administer employee pension plans. We said that "the Trustees['] ... decision as to eligibility is subject to judicial review to determine whether the trustees have acted arbitrarily, capriciously or in bad faith; that is, is the decision of the Trustees supported by substantial evidence or have they made an erroneous decision on a question of law." ²⁶ Courts have generally adopted this standard, ²⁷ and will uphold factual determinations on eligibility when they rest on substantial record evidence and are not arbitrary. ²⁸ Trustee rulings on questions of law do not command this high degree of respect, however, and may be overturned if erroneous. ²⁹ The question whether an individual is an employee or an independent contractor, involving as it does both an interpretation of a statute--ERISA--and an application of common-law principles of agency, is a question of law. ³⁰ We owe no more deference to the District Court when deciding questions of law than that court owed to the plan's Administrators. ³¹

III. THE STATUTORY FRAMEWORK

To fully understand appellant's claim, one must distinguish the "vesting" of pension rights from the "accrued benefits" that flow from participation in a pension plan. As we have hitherto explained,

[t]he "vesting schedule" specifies the time at which an employee obtains his nonforfeitable right to a particular percentage of his accrued benefit. It does not provide any formula or schedule for determining the amount of the accrued benefit. Thus, "vesting" governs when an employee has a right to a pension; "accrued benefit" is used in calculating the amount of the benefit to which the employee is entitled. ³²

One of ERISA's principal aims in reforming the Nation's employee pension plans was to establish vesting ceilings so that employees with lengthy service would no longer lose accrued benefits simply because their employment terminated before they became eligible to retire. ³³ ERISA protects the right to obtain a pension by requiring plans to satisfy specified vesting requirements, but does not guarantee the amount of pension benefits that an employee will receive.

IAM's pension plan, like the great majority of private pension plans, ³⁴ provides that an employee's right to a pension vests upon completion of ten years of service, regardless of whether the employment terminates before the employee reaches retirement age. ³⁵ Once an employee participates in a pension plan, all of his or her years of service, whether completed before or after participation begins, count statutorily toward the ten years of vesting credit essential. ³⁶

As this brief analysis indicates, vesting is tied to length of employment, but the amount of accrued benefits depends upon participation in the plan. One conceivably can earn credit toward vesting without accumulating any pension benefits, and that is precisely appellant's claim. She seeks vesting credit, but no accrued benefits, for her first year of service to IAM. She asserts that she was an employee during that year and that once she began participating in IAM's pension...