Seventh Circuit Resolves Question of Whether Informal Complaints Can Provide the Foundation for Retaliation under ERISA

by Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

Section 510 of the Employee Retirement Income Security Act (ERISA) prohibits retaliation “against any person because he has given information or has testified or is about to testify in any inquiry or proceeding related to this [Act].” There has been substantial disagreement over whether section 510 protects informal complaints and inquiries. The Seventh Circuit Court of Appeals recently resolved this issue and concluded that section 510 protects both informal and formal complaints and inquiries. George v. Junior Achievement of Central Indiana, Inc., No. 11-3291 (7th Cir. Sept. 4, 2012).

George’s Inquiry Into His Accounts

Victor George was a vice president at Junior Achievement of Central Indiana, Inc. (Junior Achievement). In 2009, he discovered that money withheld from his pay was not being deposited into his retirement account and health savings account. He complained to Junior Achievement’s accountants and certain Junior Achievement executives and board members. He also contacted the U.S. Department of Labor, but ultimately he did not file a written complaint.

In 2010, Junior Achievement discovered that George had drawn down the account containing his deferred compensation. Junior Achievement believed that George had acted prematurely and terminated George’s employment. Although Junior Achievement demanded that George restore the money, it later conceded that George was entitled to withdraw the funds from his account. It did not, however, rescind George’s discharge.

George filed suit in federal court in Indianapolis claiming that his protests about ERISA violations led to his firing. Junior Achievement responded that George’s informal conversations with Junior Achievement were not protected by ERISA. The district court agreed and granted summary judgment in favor of Junior Achievement.

The Seventh Circuit Court of Appeals’ Ruling

On appeal, the Seventh Circuit first noted the split of authority as to the scope of section 510. Some circuits, the court said, have observed that the words “testify” and “proceeding” denote formal actions and concluded that “inquiry” requires a formal proceeding. In contrast, two circuit courts of appeals (the Fifth and Ninth) have held that section 510 applies to unsolicited informal complaints.

The Seventh Circuit then shifted its focus to the text of the statute itself. After stating that the “provision is a mess of unpunctuated conjunctions and prepositions,” the court found the text to be “anything but” unambiguous. The court noted that in a case where an anti-retaliation provision is ambiguous, the court is “supposed to resolve the ambiguity in favor of protecting employees.”

Junior Achievement conceded that George had “given information” to the Junior Achievement executives. But it denied that an “inquiry” had occurred as a result of George’s questioning of the executives. In rejecting this argument, the court stated: “We conclude that the best reading of § 510 is one that divides the world into the informal sphere of giving information in or in response to inquiries and the formal sphere of testifying in proceedings.” Thus, it found that George’s repeated questioning of Junior Achievement about what would be done about the potential ERISA breach of fiduciary duties fell within the statute’s protection. The court remanded the case to the district court for further proceedings.

Take-A-Ways from the Seventh Circuit’s Application of Section 510

It may not have been clear before, but it is now: a person’s informal complaints about potential violations of ERISA may form the basis of a retaliation claim under section 510 in the Seventh Circuit, which is the federal court of appeals covering Illinois, Indiana, and Wisconsin. Accordingly, employers and their representatives should not take adverse action against employees who raise questions or complaints about such violations.

Although the court concluded that informal inquiries were protected under section 510, the court did warn that not every act is protected by that provision. The court stated, “It does not mean that § 510 covers trivial belly-aches—the statute requires the retaliation to be ‘because’ of a protected activity. . . . What’s more, the grievance must be a plausible one, though not necessarily one which the employee is correct.” Thus, future litigation in this area will likely focus on whether any action against an employee was sufficiently “material” to constitute an adverse action under section 510.

Brian L. McDermott is a shareholder in the Indianapolis, Indiana office of Ogletree Deakins.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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