Firestone Rubber Co. v. Bruch, 489 U.S. 101 (1989)

Disputing Employee Benefits Eligibility Due to Company Restructuring and Liquidation

Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101 (1989)

Firestone sold five plants to Occidental.  Most of the employees were rehired by Occidental.  Firestone had a termination pay plan, a retirement plan and a stock option plan, all regulated by ERISA.  Respondents were employees rehired by Occidental who sought benefits from Firestone under the termination plan, arguing that under the plan that the sale constituted a “reduction in workforce” under the plan.  Firestone denied benefits on the grounds that the sale to Occidental did not constitute a “reduction in workforce.”  Several respondents also sought information concerning the plan that Firestone refused to provide on the grounds that they were no longer “participants” in the plan and not entitled to the disclosure. 

The Supreme Court held that a denial of benefits challenged under § 1132(a)(1)(B) is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan.  This is true whether the plan is funded or unfunded and regardless of whether the administrator or fiduciary is operating under a possible or actual conflict of interest.  If a benefit plan gives discretion to an administrator or fiduciary who is operating under a conflict of interest, that conflict must be weighed as a ‘facto[r] in determining whether there is an abuse of discretion.’  Citing Restatement (Second) of Trusts §187, Comment d (1959)

ERISA does not set out the standard of review for an action under § 1132(a)(1)(B).  ERISA abounds with the language and terminology of trust law and the Court has held that courts should develop a federal common law of rights and obligations under ERISA-regulated plans.  Citation omitted.  In determining the appropriate standard of review the Court is guided by principles of trust law.  Citation omitted.  Trust principles make a deferential standard of review appropriate when a trustee exercises discretionary powers.  Citation omitted.  When trustees are in existence a court of equity will not interfere to control them in the exercise of a discretion vested in them by the instrument under which they act.  Citation omitted from a case from 1875).  Firestone’s termination pay plan did not confer power to the administrator to construe uncertain terms or give it deference in making eligibility determinations.  Absent such a grant of deference, courts construe terms in trust agreements without deferring to either party’s interpretation.  This trust law de novo standard of review is consistent with the judicial interpretation of employee benefit plans prior to the enactment of ERISA.   

The term ‘participant’ is defined in §1002(7) as “any employee or former employee of an employer, or any member or former member of an employee organization, who is or may become eligible to receive a benefit…from an employee benefit plan…or whose beneficiaries may be eligible to receive any such benefit.”  The Supreme Court held that the term participant is naturally read to mean either or reasonably expected to be in currently covered employment or former employees who have a reasonable expectation of returning to covered employment or who have ‘a colorable claim’ to vested benefits.  (Citations omitted).  To establish that he or she “may become eligible” for benefits, a claimant must have a colorable claim that (1) he or she will prevail in a suit for benefits, or that (2) eligibility requirements will be fulfilled in the future.  The Court remanded the case to the Court of Appeals a determination on this issue.

The Takeaway: Firestone sold off plants to another company, employees that were rehired as per the agreement weren’t “eligible for benefits” or information related to said benefits from their previous employer (Firestone). The Supreme Court sent this case down to its Lower Court of Appeals to review and come to a determination on this case.

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