The U.S. District Court for the Northern District of Oklahoma ruled that McDonnell Douglas Corporation violated ERISA by closing its Tulsa plant for the alleged purpose of avoiding additional pension and benefit liability. McDonnell Douglas had implemented the "Hard Reality" program to reduce its expenses through layoffs and plant closures. The company claimed that it closed the Tulsa plant for financial reasons related to excess capacity.

The Court rejected as pretext the company’s reason for the Tulsa plant closure. The Court’s rejection was based primarily on four pieces of evidence. First, the company’s director of pension, savings, and payrolls testified that he was involved in a project that included projecting the effect on costs and savings if the company decided to reduce staff levels. Second, an outside consultant for the company wrote a memo (which was circulated through the company) stating that a layoff at a plant with an older population of employees would result in corporate pension savings; the Court found that that Tulsa plant met this profile. Third, the company failed to timely report the pension funds it saved by closing this plant, as required by federal regulations. Finally, the Court noted that the Company misled union and political officials in Oklahoma regarding the effect of the pending approval of a government contract on the survival of the plant.

Although noting that the Court usually gives great deference to business decisions, the Court found that McDonnell Douglas was motivated, at least in part, by a desire to reduce ERISA protected benefits. It is expected that the Company and its successor will appeal this ruling, since it appears to support the proposition that an employer cannot consider pension and benefit savings in a decision to close a facility. In a market where companies are attempting to increase net profits by cutting payroll and benefit expenses, among others, this case bears watching.

Millsap v McDonnell Douglas Corp., N.D. Okla., No. 94-C-633-H, 9/5/01.

 

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