18th Annual Workplace Class Action Report - 2022 Edition

354 Annual Workplace Class Action Litigation Report: 2022 Edition Varga, et al. v. GE, Co., 834 Fed. App’x 686 (2d Cir. 2021). Plaintiff, a participant in General Electric’s ("GE’s") Retirement Savings Plan (“the Plan”), filed a class action alleging that Defendant and its CEO Jeffrey Immelt failed to exercise their fiduciary duty of prudence to the Plan participants in violation of the ERISA. The District Court granted Defendants’ motion to dismiss. On appeal, the Second Circuit affirmed the District Court’s ruling. The Plan’s employee stock option plan ("ESOP") invested almost entirely in GE stock. Plaintiff contended that after GE announced the liabilities of its two insurance subsidiaries were under-reserved, GE’s stock price decreased. Plaintiff contended that: (i) GE’s reinsurance subsidiaries did not provide for adequate reserves and that GE and Immelt should have known of such shortcomings; and (ii) GE failed to take corrective action to protect GE Stock Fund participants. Id . at 687. The Second Circuit explained that to plausibly state a claim that an ESOP fiduciary possessing inside information about the company breached the ERISA’s duty of prudence, Plaintiff must allege "that a prudent fiduciary in Defendant’s position could not have concluded that [the proposed alternative action] would do more harm than good to the fund by causing a drop in the stock price and a concomitant drop in the value of the stock already held by the fund." Id . Plaintiff contended that the District Court erred in dismissing her breach of the duty of prudence claim because she had adequately pleaded alternative actions that the fiduciaries could have taken steps that "would have protected the plan and its participants." Id . at 688. Plaintiff contended that a prudent fiduciary could not have concluded that disclosure would do more harm than good because GE’s previous disclosures related to its insurance subsidiaries did not trigger a stock drop, and economic studies have shown that delayed disclosure triggers more severe stock drops. Id . Second, Plaintiff asserted that a settlement in another action prior to her action "gave the fiduciaries a tailor-made pathway for closing the fund" without causing concern from investors. Id . The Second Circuit agreed with the District Court’s conclusion that Defendants could not have anticipated that a corrective disclosure would do more harm than good. The Second Circuit further determined that Plaintiff’s allegation that the fiduciaries could have closed the fund in 2009 was not supported by factual information, and was merely a conclusory allegation. For these reasons, the Second Circuit affirmed the District Court’s ruling granting Defendant’s motion to dismiss. (xiv) Preemption, Procedural, And Coverage Issues In ERISA Class Actions Atkins, et al. v. CB&I, LLC, 991 F.3d 667 (5th Cir. 2021). Plaintiffs were five former laborer employees on a construction project in Louisiana who quit their employment prior to end of the project being completed, which made them ineligible for an incentive bonus under Defendant’s Project Completion Incentive Plan. Plaintiffs filed a state court class action alleging that Defendant’s action in making such employees ineligible for bonuses amounted to an illegal wage forfeiture agreement under the Louisiana Wage Payment Act. Defendant removed the action on the grounds that the Project Completion Incentive Plan was governed by the ERISA. Plaintiffs argued that the Plan was not governed by ERISA because it did not involve an ongoing administrative scheme. The District Court disagreed. It concluded that the incentive program was an ERISA plan because it required ongoing discretion and administration in determining whether a qualifying termination took place. Id . at 668. On appeal, the Fifth Circuit reversed and remanded the District Court’s ruling. The Fifth Circuit found that the Project Completion bonus was akin to a severance plan, and that some severance plans were governed by the ERISA and some were not. The Fifth Circuit reasoned that in looking at the Project Completion Incentive Plan, there was no ongoing administrative scheme characteristic of an ERISA plan, as it called only for a single payment, the payment calculation was simple in nature, and eligibility was tied to workers’ completion of their duties on a discrete project, and there was a very limited amount of discretion necessary to determine who was eligible. For these reasons, the Fifth Circuit determined that the Project Completion Plan was not an ERISA governed plan and thus Plaintiffs’ claims lacked federal subject-matter jurisdiction. The Fifth Circuit therefore reversed and remanded the District Court’s ruling denying the motion for remand. Carroll, et al. v. Flexsteel Industries Inc., Case No. 21-CV-1005 (N.D. Iowa Aug. 5, 2021). Plaintiffs filed a class action alleging that Defendant violated the ERISA by failing to pay severance to employees. Following a reduction-in-force in which Defendant paid former employees subject to the reduction severance pay, the COVID-19 pandemic required that Defendant temporarily layoff additional employees and shutdown certain operations. Defendant did not provide severance packages to those laid off in connection with the additional COVID-19 shutdowns. Plaintiffs alleged that Defendant violated the severance plan and policies already in place and failed to provide employees with adequate notice under the Worker Adjustment and Retraining Notification (“WARN”). Plaintiffs further alleged that Defendant breached the fiduciary duties to the severance plan in several