A victory for downsizing Supreme Court: Companies can use retirement incentives to buy immunity.

June 15, 1996

CORPORATE DOWNSIZING has ceased to be a novelty, but the legal ramifications of these plans are still playing themselves out in the courts. This week, the Supreme Court handed employers an important victory in a case involving the laws governing the retirement and pension funds that companies maintain for their employees.

The court agreed unanimously that in exchange for providing enhanced benefits to those taking early retirement, a corporation can require that an employee waive the right to pursue legal claims against the company. One way to look at that is to say the company can, in effect, use employee benefits to buy immunity from lawsuits. Another view, expressed in a brief filed by the U.S. Chamber of Commerce, argues that in a free market economy "an employer always provides employee benefits in return for valuable benefits from the employee."

The ERISA law (Employee Retirement Income Security Act of 1974) governing this case is highly technical, and the narrow grounds on which the court ruled reflect that complexity.


The decision rises from the case of an aerospace engineer who sought to sue Lockheed Martin Corp. for age discrimination. When the man was hired, at age 61, the company's pension plan excluded anyone hired past the age of 60. A subsequent law, enacted in 1986, prohibited that kind of policy, but this week's decision said that the law could not be made retroactive. By some estimates, that ruling could save employers more than $1 billion.

The ruling is important for employers because it gives them more flexibility in their use of pension plans, which increasing numbers of companies now see as crucial to their success in the market place.

Even so, the decision leaves many other questions unanswered, such as whether buy-outs and other incentives could ever be used to exclude worker compensation claims. As the corporate landscape continues to change, these kinds of issues will

continue to demand judicial attention.

Pub Date: 6/15/96

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