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7th Circuit: Clear Plan Language Trumps HR’s Misstatements

   5/16/2008

12/5/07 12:57 PM

7th Circuit: Clear Plan Language Trumps HR’s Misstatements About Benefits

By Whitney R. Brown

Despite oral misstatements about how benefits would be calculated and a clerical error in a written benefits estimate, the 7th U.S. Circuit Court of Appeals concluded that an employer was not liable because the employees received all they were due as provided under the benefit plan documents.

The two employees in this case joined Golden Grain, maker of Rice-A-Roni and other foodstuffs, in 1977 and 1980. In 1986, Quaker Oats acquired Golden Grain. In 1990, Golden Grain employees were moved from a separate retirement plan into the Quaker Retirement Plan. In 2001, Quaker merged with a subsidiary of PepsiCo and subsequently amended the Quaker Retirement Plan.

The employees were given summary plan documents about the amended Quaker Retirement Plan, which included a change-in-control benefit in the event of an involuntary termination within two years of the Quaker-Pepsi merger. The amount of the change-in-control benefit turned on each employee’s length of service, which was measured by the amount of time the employee had participated in the Quaker Retirement Plan (i.e., 1990 for former Golden Grain employees). The summary plan documents contained typical language that deferred to actual plan documents. In December 2002, the plaintiffs received estimate statements that listed their credited service as beginning on their dates of original hire with Golden Grain; however, the estimate was actually calculated based on length of service from 1990.

In 2003, production at the plant where the plaintiffs worked declined, leading to a reduction in force. To encourage the employees to take an early retirement package (which included the change-in-control benefit), Jeffrey Satterlee, a Quaker human resources representative, mistakenly told them that the change-in-control benefit would be calculated based on their original dates of hire. Both plaintiffs in this case opted to take the early retirement package.

After a severance payout, the employees received information about their remaining benefits indicating that the change-in-control benefit would be calculated based on length of service from 1990. Each appealed this length of service determination internally, but those appeals were denied.

They then sued, complaining that when they decided to retire they relied on Satterlee’s misstatements and the error in the 2002 estimate. Therefore, they claimed that Quaker should have based the length of service calculation on their dates of hire by Golden Grain.

The appeals court disagreed, reasoning that Satterlee’s misstatements were unintentional and offset by his advice to consult the benefits department for an accurate estimate of benefit amounts. The court also noted that the incorrect dates in the 2002 estimate statements were “clerical errors,” as the estimates themselves indicated the proper amount as calculated by the date of Quaker’s takeover.

The court also concluded that since the estimates themselves were accurate and the estimate statements contained disclaimers deferring to the plan documents, there was no written misrepresentation. Because the plan’s language was unambiguous, Satterlee’s misstatements did not come into play. Finally, the plaintiffs failed to show that they had relied on the misstatements. Each admitted that other benefits contributed significantly to their decisions to retire.

Kannapien v. Quaker Oats Co . , 7th Cir., No. 06-2543 (Nov. 14, 2007).

Professional Pointer: Prior planning overcame less than ideal performance: Had the plan language not been clear, the plaintiffs here would have been much closer to keeping their claims in court, where they may have been allowed to use Satterlee’s oral misstatements to their advantage. Any discussion, oral or written, of plan benefits should always refer to the plan documents and state that the written plan ultimately controls.

Whitney R. Brown is an attorney with the firm of Lehr Middlebrooks & Vreeland PC , a Worklaw® Network firm in Birmingham, Ala.

Related Resource:

Pension/Retirement Toolkit

Quick Link:

SHRM Online Workplace Law Focus Area

Editor’s Note: This article should not be construed as legal advice.

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