The Extraterritoriality Effects Of ERISA - Law Firm Melville Johnson, P.C. Attorneys Atlanta, Georgia

The Extraterritoriality Effects Of ERISA on International Employees

The premise is simple: once an employee is enrolled in a retirement plan, the employee is eligible for the plan's stated benefits upon retirement. The law governing this is known as ERISA, 29 U.S.C. § 1001, et seq., and it applies to any plan initiated by a private employer and established and administered in the United States. The question becomes, does ERISA also protect employees who live outside the United States, and, if so, under whose jurisdiction?

The long arm of ERISA

The Employee Retirement Income Security Act (ERISA) of 1974 is a massive law, which almost completely supersedes any and all state laws relating to Employee Benefits. ERISA is often called the Gordian Knot of American law, meaning that it is the toughest of all American laws to understand. It sets minimum standards for benefit plans, including healthcare, disability, pension and profit-sharing, and governs both the vesting of benefits and the communications of those benefits to plan participants. Moreover, ERISA applies to any plan, fund, or program established or maintained by a private employer or by an employee organization, such as a labor union. However, ERISA does not generally apply to plans established by governments or religious organizations.

Legally, ERISA is a statutory hybrid of equity, contract and trust law. Generally, there are sufficient court decisions dealing directly with ERISA upon which a judge can rely when making a decision. There are no jury trials under ERISA, as has been the common law tradition with equity. However, in the rare instance when there are no applicable ERISA cases dealing with the matter before the court, the court may then rely upon contract and trust law. This is an extremely important issue that will be discussed below.

Generally, people concur that employees deserve agreed-upon benefits. Yet, in our fast-paced world, files get mislaid, records are deleted, human resources personnel change, and issues therefore often arise over benefits. This is particularly true of retirement benefits, when the employee no longer has the advantage of being an active member of the corporate community. It is even truer if the employee left the company some years before retirement. Often, resolving benefit-related issues is not a company's top priority. So, ERISA exists to give the retired employee some muscle behind a query.

Former employees: You can't just forget about them

In general, most welfare benefit plans (i.e., healthcare and disability insurance) do not follow an employee indefinitely after the employee leaves a company. However, retirement plans, including pension plans, stock options, and 401(k) plans, have long-term applications. Moreover, though employers are not required to establish such plans, once they do, virtually all the plans fall under the aegis of ERISA. For the purposes of this article, we will use the term "retirement plan" to mean a plan that is indeed subject to the laws of ERISA.

Defined contribution plans, such as a 401(k), often centre on an employer matching an employee's contributions; although when an employee moves on, the 401(k) will not be funded further by the employer; however, the account remains intact. The employer has continued responsibility for overseeing it, and the former employee has access to it, without penalty, on retirement.

Equally, defined benefit plans, such as pension plans and stock options, almost by definition follow an employee. Pension plan benefits are calculated by unique formulas, generally based upon a combination of salary and years of service. An employee likely has to work a pre-determined number of years before becoming vested in the company plan, but once in, he can count on receiving a precise monthly payment on retiring—even if he has not been with the company for years. Likewise, stock options may be exercised within their predetermined timeframe, regardless of whether the bearer is still an employee of the company.

If it applies in Topeka, it applies in Tobago

Companies may be surprised to find out that retirement benefits follow their former employees anywhere they are in the world.

Although ERISA does not cover plans maintained outside the United States primarily for the benefit of non-resident aliens, it does apply to instances where non-resident aliens are vested in US-based plans. Consider a U.S. company reorganizing their manufacturing processes. The company hires an expert, a foreign national on an H1-B work visa, to spend six years overseeing the transition. After three years the employee vests in the company's retirement program. That company has a fiduciary duty to that employee even though he returns to his native country at the expiration of the visa. Basically, once an employee is vested in his retirement plan, he cannot "unvest."

This is equally true for American citizens who choose to spend their waning years in some foreign paradise. Establishing residency, or even citizenship, in another country in no way precludes a former employee's claim to pension benefits. No matter where they go, the plan follows.

In short: If former employees move around the globe, companies need to gain clear working understandings of international monetary transactions, or risk non-compliance with ERISA.

The question remains, if they fail, what recourse exists for the former employee now languishing overseas?

Employing the principles of Title VII

Like ERISA, Title VII is designed to protect employees from ill-intentioned or clueless employers. Title VII disagreements are adversarial by nature; the claimant has the right to a jury trial and to compensatory damages. Conversely, solving ERISA-related issues is perforce a cooperative undertaking: Any employee whose claim is denied has to take his or her case through multiple levels of administrative appeals before suing; the employee has no right to a jury trial, nor to damages; the employee may not even get his or her attorney's fees repaid. Not surprisingly, ninety percent of ERISA cases are resolved outside of court. The 10 percent that reach trial generally have legitimate concerns. It stands to reason that ERISA claimants should be offered the same protection as Title VII claimants, including extraterritorial application and the protection to sue in their place of residence.

This has not always been true for Title VII cases. Indeed, in Boureslan v. Aramco, 892 F.2d 1271 (5th Cir. 1990), the court noted that "extraterritorial application of Title VII would in general be reasonable…" However, "the court must base its decision on the applicable statute and its legislative history, which do not support extraterritorial application." In denying protection against employment discrimination for United States citizens working abroad for U.S. employers, this ruling created a second-tier class of workers. Congress was incensed.

Soon, Congress enacted the Civil Rights Act of 1991, amending Title VII to have extraterritorial reach. Specifically, the act expands Title VII's definition of "employee" to include United States citizens employed abroad (§2000e(f)). Further, it specifies that foreign subsidiaries of American corporations are subject to American law.

Clearly, United States law follows the United States citizen and the United States corporation, anywhere across the globe.

Mixing it up in the foreign courts

Let's take the case of an American citizen who moved to Paris in his 20s to work for an American investment bank. He marries a French citizen, has French children, and has not even vacationed in the United States for the last fifteen years. He retires, and receives his benefits, as expected. But then, in a few years' time, his former employer merges with another company which is then bought by a third. Suddenly his pension cheque quits arriving. He talks to every member of the Human Resources department, writes letters to the home office, spends hours on hold. He makes no progress. Finally, he decides to take the matter to court. Does he have the right to pursue this case in a French court?

Yes. Retirement plans governed by ERISA are considered separate legal entities. In the United States, one can sue a plan in any jurisdiction where benefits are granted. It follows, therefore, that our American-in-Paris should be able to sue the plan in the French courts; by virtue of paying benefits in France, the plan has established "minimum contact" with the country.

If that is a difficult concept to grasp, think of it in terms of a contract. As discussed above, ERISA law is based in large part on contract law. If an American company enters into a contract with a foreign national in his home country or with an American living abroad, that contract is generally enforceable in the country in which that person lives. Based upon that same concept, a foreign national in his home country or our American-in-Paris has a right to enforce his retirement plan in the county in which he was employed or in which he was receiving benefits. However, if our American-in-Paris moves to Germany and does not ever receive a benefit cheque in Germany, he will not be able to bring suit in Germany unless there is another individual receiving benefits in Germany from the same plan.

US retirees: a foreign protectorate

Fundamentally, in an international world, we cannot impose restrictions on people for their geographic choices. Fairness demands that each of these retirees—a foreign national returning home at project's end, a Minnesotan now residing in Mexico, or our American citizen ensconced in Paris—has the same rights as his co-workers in America. The right to collect the benefits that the employee accrued from each former employer and the right to pursue justice without the undue added burden of prosecuting the case transatlantically.

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