Garratt v. Walker, 96-1470

CourtUnited States Courts of Appeals. United States Court of Appeals (10th Circuit)
Citation164 F.3d 1249
Docket NumberNo. 96-1470,96-1470
Parties99-1 USTC P 50,122, 22 Employee Benefits Cas. 2143, Pens. Plan Guide (CCH) P 23,950G, 98 CJ C.A.R. 6443 Lisbeth L. GARRATT, Plaintiff-Appellant, v. John S. WALKER, doing business as John S. Walker, DMD, Defendant-Appellee.
Decision Date09 December 1998

Robert L. Liebross (Barry D. Roseman with him on the briefs), Denver, Colorado for Plaintiff-Appellant.

Howard Bittman, Boulder, Colorado, for Defendant-Appellee.



PAUL KELLY, Jr., Circuit Judge.

We granted rehearing en banc and address when an employer in a Simplified Employee Pension (SEP) plan can condition another employee's participation in the plan upon a reduction in salary without violating the anti-discrimination provision (§ 510) of ERISA, 29 U.S.C. § 1140? 1 The panel opinion affirmed summary judgment in favor of Defendant-Appellee Dr. Walker (employer) 2 and against Plaintiff-Appellant Ms. Garratt (employee), holding that the employee could not show discrimination prior to an actual contribution. See Garratt v. Walker, 121 F.3d 565, 570 (10th Cir.1997). According to the panel opinion and the district court, because any contribution that an employer might make on behalf of employees (including himself) was completely discretionary, a newly eligible employee could not claim interference with a present right to participate in the plan prior to an actual contribution. Id.; Aplt.App. 278. We vacate the panel opinion only on this issue and reverse and remand for a trial on the employee's discrimination and constructive discharge claims under § 510.


In determining whether the evidence presents a genuine issue of material fact, we view it in the light most favorable to the party against whom summary judgment was entered, here the employee. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250-52, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Adickes v. S.H. Kress & Co., 398 U.S. 144, 158-59, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). Wherever possible, we construe the plan as complying with all applicable requirements of ERISA and the Internal Revenue Code, particularly given the employer's assertion in his answer that the plan was to be so construed. See Crouch v. Mo-Kan Iron Workers Welfare Fund, 740 F.2d 805, 809 (10th Cir.1984). Finally, we follow the panel's decision that a SEP is a pension plan within the meaning of ERISA. See Garratt, 121 F.3d at 569.

Many of the operative facts involve salary discussions after the employer requested that the employee switch to a salary arrangement in lieu of hourly wages. In 1993, the employee earned ten dollars per hour, with annual compensation at $22,901. In January 1994, the employer agreed to pay the employee $2,000 per month, but delayed a decision on the employee's request to be included in the SEP plan. The employee requested whatever contribution percentage (based upon her salary) that the employer was making on his own behalf. Aplt.App. 41. Although it was suggested at oral argument that the employee was seeking an immediate contribution, the record does not bear that out, and such an inference would be contrary to the standard by which we evaluate the record.

It is undisputed that the employee was eligible to participate in the SEP plan and that the employee was earning $24,000 per year. See Aplee.Reh'g Br. at 4; Aplt.App. at 36. Some two or three weeks later, the employee rejected an offer to split responsibility for a fifteen percent contribution (based upon her salary) to the plan, with the employer and employee each paying one-half. See Aplt.App. at 48. Thereafter, the employee rejected an offer of the employer funding the entire fifteen percent contribution in exchange for reducing a coworker's hours. Id.

In March 1994, the employer gave the employee the following choice: a $21,000 salary with a fifteen percent contribution to the pension plan, or a $24,000 salary with no contribution. Aplt.App. 167. The $21,000 amount was below the employee's 1993 and 1994 compensation level and, according to the employee, the employer conceded that he was asking the employee to take a cut in pay and fund the plan. Id. at 51, 141. When she declined, the employer advised that she should look for another job. She gave notice, but stayed on two weeks at the employer's request. The employer contends that managerial reasons supported his actions. See Aplt.App. at 29-30.

Ultimately, the employer contributed to the plan on his own behalf. Having done so, he also contributed on behalf of the employee, given the rules that require allocation of contributions among SEP participants uniformly based upon compensation, see I.R.C. § 408(k)(3)(C), (k)(5), and prohibit discrimination in favor of certain highly compensated employees, see I.R.C. § 408(k)(3)(A). The employer's contribution on his own behalf was consistent with his past practice; he contributed $30,000 to his own account in 1992 and 1993.


We asked the parties to brief whether the employer violated § 510 of ERISA in light of Inter-Modal Rail Employees Ass'n v. Atchison, Topeka & Santa Fe Ry., 520 U.S. 510, 117 S.Ct. 1513, 137 L.Ed.2d 763 (1997). In Inter-Modal, the Supreme Court rejected the view that, because an employer remains free to amend or eliminate a welfare plan, an employee has no present right to future benefits and cannot maintain a § 510 action for interference with those benefits. Id., 117 S.Ct. at 1515. Although an employer may under some circumstances unilaterally amend or even eliminate its welfare plan, the Court held that otherwise it may not act with a purpose that contravenes § 510. Id. at 1516. Although this case involves a type of pension plan, rather than a welfare plan, the district court's result in this case cannot be squared with Inter-Modal. Inter-Modal makes it clear that even though an employee may lack a present legal right to receive benefits in the future, an anticipated right to receive benefits may not be denied in a manner that would contravene § 510. That means that an employer may not condition a critical feature of plan participation, such as plan contributions, in a manner not authorized by the plan and proscribed by § 510.

The dissent acknowledges that § 510 applies to vesting pension plans, but contends that the principles in Inter-Modal can be applied only to the employee's participation in the plan, rather than entitlement to contributions because employer contributions are discretionary. In other words, the dissent contends that an employee's lack of a present right to a plan benefit, here a contribution, forecloses a § 510 action.

Inter-Modal rejected a distinction based upon vested and unvested rights and rejected an employer's discretionary power to amend or terminate a welfare plan as foreclosing a § 510 action. Unless the plan provides otherwise, an employee never has a present right to receive future benefits under a welfare plan (because the employer may amend or terminate the plan), yet the employee still may bring a § 510 action. Analogously, although the employee in this case lacked a present right to a plan benefit, a contribution, she still is protected against unilateral changes designed to interfere with that right. Whether a welfare plan or a pension plan, an employer must operate within the terms of the plan, administer the plan in a non-discriminatory fashion and not informally amend the plan a participant at a time. See Inter-Modal, 117 S.Ct. at 1516.

The Supreme Court remanded Inter-Modal for consideration of the employers' argument that welfare plan eligibility was the only right protected under § 510. Id. at 1516. In so doing, it noted that the court of appeals' approach precluded consideration of such an argument, and it is doubtful that "any right" contained in § 502, or the terms "benefits," "rights," or "rights to future benefits," contained in ERISA's civil enforcement mechanism, 29 U.S.C. § 1132(a)(1)(B), can be read as limiting the anti-discrimination provision to plan eligibility only, any more than § 502's language could be restricted to vested rights. Moreover, such an approach is inconsistent with the rationale Inter-Modal and those cases with similar holdings. See Inter-Modal, 520 U.S. 510, 117 S.Ct. at 1515 n. *.

A. Potential Rights under ERISA § 502 and § 510

The civil enforcement mechanism (§ 502) of ERISA, specifically 29 U.S.C. § 1132(a)(1)(B), allows a plan participant to bring a civil action not only for recovery of plan benefits and enforcement of plan rights, but also "to clarify his rights to future benefits under the terms of the plan." Section 510 cross references section 502 and the Court has recognized the relationship between the two sections in safeguarding ERISA "rights and expectations." See Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 137, 111 S.Ct. 478, 112 L.Ed.2d 474 (1990); see also Humphreys v. Bellaire Corp., 966 F.2d 1037, 1043 (6th Cir.1992). In discussing that relationship, the Fourth Circuit has explained:

[Sections] 502 and 510 together protect the panoply of rights at risk in the pension context: rights about to be earned but frustrated due to unlawful employer action, benefits earned but not paid, other rights due a participant but not fulfilled, and future benefits earned but not yet due.

Conkwright v. Westinghouse Elec. Corp., 933 F.2d 231, 237 (4th Cir.1991).

Although the panel opinion acknowledged that § 510 could extend to rights not yet earned, Garratt, 121 F.3d at 570, it declined to apply § 510 to the employer's conduct precisely because the employee lacked a present legal right to receive plan contributions in the future. The employee's right to such contributions was "thoroughly contingent on the employer's discretion and entirely within the employer's control." Id.

While there may be "a...

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