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Foot Locker Inc. must pay higher pension benefits to correct a 1996 retirement plan change that amounted to an impermissible and undisclosed benefit freeze, a federal appeals court ruled ( Osberg v. Foot Locker, Inc. , 2017 BL 232258, 2d Cir., No. 15-3602, 7/6/17 ).
The July 6 decision by the U.S. Court of Appeals for the Second Circuit is a victory for about 16,000 former Foot Locker workers and for benefit plan participants in general, because the court said the workers weren’t required to show on an individual basis that they detrimentally relied on Foot Locker’s statements about their pensions. The ruling will make it easier for workers to file and maintain class actions under the Employee Retirement Income Security Act, and it may increase the chances that workers can use federal courts to seek benefits not provided by the express terms of an ERISA plan. It’s also a win for the Labor Department, which in 2016 filed a brief urging this outcome.
“It’s a great day for Foot Locker employees and plan participants and retirees everywhere,” the workers’ attorney, Eli Gottesdiener of Gottesdiener Law Firm in Brooklyn, N.Y., told Bloomberg BNA in an email. “This decision means that thousands of workers will get the pensions they were promised. The Court of Appeals reiterated that when an company makes a promise to employees about the benefits they are earning, simple justice demands that the company be held to that commitment.”
The decision is also noteworthy for its rejection of Foot Locker’s statute-of-limitations arguments. The company—and several industry groups—argued that many of the Foot Locker workers had “constructive notice” of the alleged reduction in benefits when they retired and received payouts, making their later-filed claims untimely under ERISA’s statute of limitations.
The Second Circuit said that Foot Locker’s constructive notice theory would have required workers to make a “heroic chain of deductions” based on “opaque guidance” from the pension plan description. This was too high a burden to place on plan participants, who are less likely to have a clear understanding of the pension plan terms—particularly since Foot Locker took “active steps to conceal” the nature of the plan change, the Second Circuit said.
In another victory for workers, the Second Circuit rejected Foot Locker’s argument that the relief awarded by the district court—a reformation of the company’s pension plan to conform to the participants’ reasonable expectations—was inappropriate because it gave certain participants a “windfall” of unearned benefits. Although the court said this argument was “not completely without theoretical appeal,” it nevertheless deferred to the district court’s remedy after determining that it wasn’t an abuse of that court’s discretion.
The remedy of plan reformation was first endorsed by the U.S. Supreme Court in 2011. Since then, few court decisions have ordered that a specific plan be reformed, although several courts—including the Ninth Circuit in 2016—have allowed plan participants to move forward with claims for reformation.
Foot Locker and its workers have spent nearly a decade in court over the company’s switch from a traditional pension plan to a cash balance plan, with the workers claiming that Foot Locker concealed the way this switch would negatively affect their benefits. The lawsuit is noteworthy because the workers’ requested relief—reformation of the Foot Locker pension plan to restore the benefits they lost—is a form of equitable relief that has only recently gained traction in disputes over ERISA benefits.
Senior Judge Gerard E. Lynch wrote the Second Circuit’s decision, which was joined by Senior Judge Ralph K. Winter and Judge José A. Cabranes.
Gottesdiener Law Firm PLLC and Bredhoff & Kaiser PLLC represented the Foot Locker workers. Proskauer Rose LLP and Gibson Dunn & Crutcher LLP represented Foot Locker.
Counsel for Foot Locker didn’t respond to Bloomberg BNA’s request for comment.
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