Phelps v. Field Real Estate Co.
991 F.2d 645, 1993 WL 116973 (1993)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
To establish a claim for unlawful discharge under Section 510 of ERISA, a plaintiff must prove by a preponderance of the evidence that the employer acted with the specific intent to interfere with the employee's attainment of benefits. An employer may rebut a prima facie case by articulating a legitimate, nondiscriminatory reason for the termination, such as poor performance or a business reorganization.
Facts:
- In February 1985, John Phelps began working as a commercial real estate division manager for Field Real Estate Company, reporting to CEO W. Douglas Poole.
- In November 1986, Phelps learned he was infected with the HIV virus but was asymptomatic and his condition did not interfere with his job performance.
- In March 1988, Poole learned of Phelps's condition from an anonymous note. Phelps confirmed it was true, and Poole assured him his job was safe and the matter would be kept confidential.
- Following the disclosure, Poole expressed concerns about corporate liability and potential issues with 'key man' insurance, and Phelps provided a vague doctor's letter about his health status.
- In July 1988, Poole placed a blind ad for a position matching Phelps's job description, and in a January 1989 evaluation, Poole heavily criticized the performance of Phelps's division.
- Phelps's division had lost money, which Phelps attributed to external market conditions and the company's reluctance to sell properties for less than book value.
- On August 4, 1989, Poole presented a plan to the board to restructure the commercial real estate division, which involved eliminating Phelps's position.
- On the same day, Poole and another manager informed Phelps he was being discharged due to the poor performance of his division and the reorganization.
Procedural Posture:
- John Phelps filed a lawsuit against Field Real Estate Company, W. Douglas Poole, and others in the U.S. District Court for the District of Colorado.
- The complaint alleged violations of Section 510 of ERISA and the Colorado statute prohibiting handicap discrimination.
- After a trial, the district court entered judgment in favor of the defendants.
- The district court found that Phelps had failed to prove that his discharge was motivated by a specific intent to interfere with his employee benefits as required by ERISA.
- Phelps (appellant) appealed the district court's judgment to the United States Court of Appeals for the Tenth Circuit, arguing the lower court misapplied the law to the facts it found.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does an employer violate Section 510 of ERISA by discharging an employee with a known medical condition that may lead to high benefit costs, if the employer provides a legitimate, nondiscriminatory business reason for the termination, such as poor departmental performance and a corporate reorganization?
Opinions:
Majority - Wesley E. Brown
No. A discharge does not violate Section 510 of ERISA if the employer's decision was motivated by a legitimate business reason rather than a specific intent to interfere with employee benefits. The plaintiff is required to prove, by a preponderance of the evidence, that the discharge was motivated by an intent to interfere with benefits protected by ERISA. Here, while the employer (Poole) was aware of Phelps's medical condition, the evidence supported the conclusion that the termination was due to the poor performance of Phelps's division and a legitimate corporate reorganization. The court found no evidence that management made calculations or expressed awareness of the potential cost of Phelps's condition on the benefit plans. The fourteen-month delay between the disclosure of his condition and his termination, coupled with the fact that the entire department was reorganized and another manager also left shortly thereafter, supported the finding that the termination was based on a legitimate business decision, not a discriminatory intent to interfere with ERISA benefits.
Analysis:
This case illustrates the high evidentiary burden placed on plaintiffs in ERISA § 510 discrimination claims. It establishes that an employer's mere knowledge of an employee's costly health condition is insufficient to prove the specific intent required for a violation. The decision emphasizes that courts will uphold terminations, even under suspicious circumstances, if the employer can present a credible, non-pretextual business justification, such as poor performance or a reorganization. This precedent makes it more difficult for employees to prevail on § 510 claims based on circumstantial evidence alone, as it allows employers a strong defense if they can document legitimate business reasons for their actions.
