Third Circuit Decides Internal Communications Not Protected Under ERISA Anti-Retaliation Rule, Agreeing With Second and Fourth Circuits, Disagreeing with Fifth and Ninth

Prior to the Third Circuit’s decision in this case (Edwards v. Cornell and Son Inc, CA3 No. 09-3198), there was an even split among the Courts of Appeal that had addressed the question of whether ERISA’s whistleblower protection found in ERISA Section 510 protected an employee who made an internal complaint to management. The Fifth and Ninth Circuits had held that such an action was protected, even though the law provided that such protection only applied to actions against a person who has given information in an inquiry or proceeding related to ERISA. The Second and Fourth Circuits, in contrast, had held that an internal complaint was neither an inquiry or proceeding, and therefore no protection applied.

The Third Circuit panel, in a split decision, sided with the latter view—that there was no protection under ERISA relating to internal complaints made by an employee to management. In the case at hand the employee in question, who was the director of human resources for the employer at the time, communicated to others in management that the company was in violation of ERISA in a number of matter. She claimed she found the company was administering the group health plan on a discriminatory basis, had misled employees about the cost of group health coverage to persuade them not to opt into receiving benefits, and enrolled non-citizens in its ERISA plans by providing false social security numbers and other fraudulent information to insurance carriers. These discoveries and the communication of the information to higher management took place in the final few weeks she worked for the plan sponsor.

The majority found that the plan language of the statute required some sort of formal inquiry or proceeding to be taking place, and that the employee be solicited in some form to provide information. As no such proceeding was underway at the time the information was communicated, ERISA Section 510 did not come into play, and any potential claims she had would have to look to relevant state law.

The dissenting opinion complained that such a view went against the purpose a whistleblower protection statute, and argued that the majority had too easily dismissed the relevance of a decision of the Circuit in a Clean Water Act whistleblower case in which it found similar language in that Act did protect such communications.

Until and unless the Supreme Court takes up the matter, we are faced with, for now, different rules depending on the location of the entities and individuals involved.

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