Plaintiffs Swallow Bitter Pill With Dismissal of Class Breach of ERISA Fiduciary Duty Claim for Alleged Wage and Hour Violations

The case of DeSilva v. North Shore-Long Island Jewish Health System, Inc., Case No. 10-CV-1341-JFB-ETB (E.D.N.Y. March 7, 2012), began small, like a lone cough one winter’s morning, before escalating into a full-blown cold, complete with hacking and wheezing. At first there were six plaintiffs working as nurses. After two amended complaints, however, the purported class rose to nearly 38,000 current and former employees, enough to make any defendant employer break out in a cold sweat. They alleged that their pensions and 401(k) or 403(b) plans were not credited with their non-reduced weekly wages and correct overtime compensation. These claims, however, were actually the symptoms of a much deeper, deadlier problem alleged by plaintiffs: that the defendant maintained three illegal pay policies – the meal and break deduction policy, the unpaid pre-and post-schedule work policy, and the unpaid training policy. The only cure, of course, was a prescription-strength dose of unpaid wages (among other penalties).

In mid-2011, the defendants filed a motion to dismiss while plaintiffs simultaneously sought expedited notice to the affected employees under 216(b) of the FLSA. After hearing oral arguments (and nearly nine months of pondering), the court ultimately ruled on the plethora of claims, including (somewhat unusual in an employment context) RICO violations, wire fraud, and forced labor allegations. More common, however, were plaintiffs’ allegations that defendants had breached their fiduciary duty under ERISA. The court, in what amounted to a quick nip and tuck of only two paragraphs, examined the plan documents themselves and held that, because the benefits at issue were tied only to compensation paid – not to hours worked or compensation earned through hours – the plaintiffs had failed to state an ERISA cause of action. Accordingly, the breach of fiduciary duty claims under ERISA were dismissed with prejudice.

Before finally suturing up its decision on the plethora of issues, the court also denied the defendants’ request for dismissal on grounds of Labor Management Relations Act preemption. Adopting a “wait and see” approach, the court held that the proper time to make the preemption determination was after it was clear whether or not interpretation of the collective bargaining agreements was necessary to decide their claims.

The Bottom Line: Contrasting the age-old medical adage of “take two and call me in the morning,” the court’s ruling here affirms that plaintiffs cannot merely plead a breach of fiduciary duty claim under ERISA and expect results. One must pay close attention to what the plan documents specify; in this case, the benefits were directly linked to the compensation actually paid, and not the hours worked. As a result, plaintiffs found themselves discharged and holding the bill.