A group of employees sued their employer for violating the Employee Retirement Income Security Act (ERISA) by putting them on third-party payroll agencies’ payrolls. The employees claimed that this alleged misclassification of their employment status interfered with their participation rights in their employer’s retirement plan and breached their employer’s legal duty to act in their best interests, (fiduciary duty). The employees believed that their interest in participating in the retirement plan was compromised by the way their employer classified them.
Although the employees had been hired directly by their employer, and had been treated in all respects like the employer’s other employees, they received their paychecks from independent payroll agencies, and not from the employer itself. When the employer terminated the employees, they submitted claims for ERISA benefits. The employer denied them these benefits because the employees had never actually been employed by the employer.
The employees were aware when they were hired in 1994 that they were not classified as being on their employer’s payroll. They also knew at that time and throughout their employment that they were not receiving ERISA benefits from their employer. By the time they made their claim, the statute of limitations had run out. Therefore, their claim was dismissed.
Employers should be aware that Massachusetts has a three-year statute of limitations on torts, and that misclassifying an employee under ERISA is a tort. The employer in this case avoided a lawsuit only because the clock ran out before the employees filed. To avoid being sued on an ERISA claim of interference with plan participation rights and breach of fiduciary duty, employers should avoid misclassifying employees.