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Nolan v. Otis Elevator Co.

Decided: February 26, 1986.

FRED S. NOLAN, RALPH R. BATTISTA, CHARLES W. CLEARY, JOSEPH A. DAVIS, WILLIAM J. DAVITT, JR., ANTHONY G. GOMES, JAMES HALLECK, DONALD C. HALLIWELL, PHYLLIS J. GORLEY KERKAWICH, JOSEPH M. KARKOSKY, JR., CHARLES KERR, PATRICK J. LARGEY, JR., ARMAND MACHADO, EDWARD M. MCBRIDE, THOMAS P. NUGENT, PETER J. REILLY, HERMAN J. RUSSOMANNO, EUGENE A. SCANNEPICO, RAYMOND J. SMITH, JOHN T. STARR, HAROLD C. STOLL, LOUIS C. TREMBLE, JAMES VAN BRAMER, WALTER WARD AND DANIEL M. WATSON, PLAINTIFFS-RESPONDENTS,
v.
OTIS ELEVATOR COMPANY, A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF NEW JERSEY, DEFENDANT-APPELLANT



On certification to the Superior Court, Appellate Division, whose opinion is reported at 197 N.J. Super. 468 (1984).

For reversal -- Chief Justice Wilentz, and Clifford, Handler, Pollock, O'Hern, Garibaldi and Stein. For affirmance -- None. The opinion of the Court was delivered by O'Hern, Justice.

O'hern

[102 NJ Page 32] The threshold question in this appeal is whether the federal Employee Retirement Income Security Act of 1974 (ERISA) preempts the application of New Jersey's Law Against Discrimination (NJLAD) to a claim of age discrimination in an employee pension plan when the action is brought after the comparable federal time requirement for such an action has not been met. The underlying substantive issue is whether a supplementary plan of voluntary early retirement benefits offered to supervisory employees who have attained age 55 with 25 years of

eligible service discriminated against younger workers who may have the same number of years in service.

We hold that ERISA preempts the untimely claim under state law and therefore do not resolve the substantive issues, although we note the apparent impediments to such a claim posed by saving provisions of the federal Age Discrimination in Employment Act (ADEA).

I

The plaintiffs in this case were all employees of defendant, Otis Elevator Company, at its Harrison, New Jersey plant. They were management-level employees who were not represented by a labor union. The Harrison plant was closed on December 31, 1980. Plaintiffs were laid off from work at various times; some of the plaintiffs stayed on until the final closing-down of the plant even though their employment had previously been formally terminated.

Each plaintiff received as a severance benefit one week's salary for each year of service. All of the plaintiffs had at least 25 years or more of service and were under the age of 55. Other Otis employees who were over 55 years of age but otherwise similarly situated with the plaintiffs did not receive severance pay but instead became eligible immediately for benefits under a special supplemental retirement plan. Under this special plan, those over-55 employees receive 90 percent of their final average annual earnings for a four-year period or until they reach the age of 62, whichever is longer. The 90 percent benefit is calculated on the basis of the income from all sources, including income derived from social security as well as benefits payable under Otis' basic retirement plan. The basic plan remains in effect for all of the employees, whether over or under 55, pursuant to vested rights they have in it. Plaintiffs instituted this action under the NJLAD for relief in the form of benefits equal to those received by employees who qualified for the supplemental plan.

Because the case arises on motion for summary judgment, we accept as true the plaintiffs' version of the facts. Judson v. Peoples Bank & Trust Co. of Westfield, 17 N.J. 67, 74-75 (1954). The background relevant to the creation of the so-called "Harrison Special Supplemental Retirement Plan" (HSSRP) is drawn from the deposition testimony of James Nelson, Manager of Employee Benefits for United Technologies Corporation, the parent corporation of Otis.

Mr. Nelson was responsible for the design and costing of the HSSRP. The plan was developed after Otis made a special request to United Technologies regarding use of a deferred-compensation program. The requirements written into the plan were that any recipient: (1) must have had 25 years or more of service with Otis because this was deemed a significant period of service, and (2) must have attained the age of 55 because that was the standard early retirement age used in existing Otis benefit plans. The Harrison plan was based in structure on one used previously in conjunction with a reduction in force at Pratt and Whitney, an aerospace division of United Technologies. No policy exists within United Technologies regarding the offering of such a plan in any given situation. Apparently the HSSRP was offered to eligible employees of Otis in January or February 1980.

As initially contemplated, the HSSRP was to be utilized as part of a scaling-down of the Harrison operation before any decision was made to close it down completely. It was said to be designed to encourage employees who were eligible for early retirement to retire voluntarily sooner rather than later and to make remaining opportunities available to more people. The deferred-compensation program was established specifically for the two occasions on which it was used: the 1976 reduction-inforce at Pratt and Whitney, and the situation regarding the Otis facility in Harrison. Unlike longstanding benefit plans, such as the Otis Basic Retirement Plan for Salaried Employees (OBRPSE), which have printed booklets describing the plans and their benefits that are routinely made available to all

employees, no booklet was ever printed for the HSSRP. In fact, the plan was not made known by Otis to any employees other than the ones who met the criteria for inclusion: salaried management employees with 25 years or more of service who were age 55 or older. Similarly, the 1976 Pratt and Whitney plan was never publicized in booklet form either.

Nelson testified that in creating the HSSRP, he did check all ERISA regulations and various other regulations of the United States Department of Labor, and consulted with the legal staff at Otis Elevator Company. The individual agreement form for those participating in the HSSRP stated that it was to be interpreted under the laws of New York, the state where Otis Elevator Company's headquarters were located. Nelson himself never saw any opinion letters from the wage-hour administrator regarding age discrimination in severance benefits although he did state that he consulted published information. With regard to proposed Equal Employment Opportunity Commission (EEOC) regulations appearing in the Federal Register of November 30, 1979, regarding extension of additional benefits to older employees to encourage opportunities for such individuals, Nelson testified that he considered only the fact that age 55 was consistent with existing retirement policies and that because originally the plan was to be utilized together with a phase-out rather than a closing, it would make more opportunities available to remaining people. No study was ever undertaken on behalf of Otis or United regarding the differences in severance benefits or compensation to be paid to any Harrison employees on the basis of age, nor was any report ever prepared as to reasons for paying more to employees age 55 with 25 years or more of service than to those who also had 25 years or more of service but were not age 55. There were no studies or even discussions of the problem of getting new or other employment for older employees who would no longer be working at Otis' Harrison facility. On the question of promoting opportunities for individuals who might experience disproportionate hardship due to their age, Nelson testified that the only

factor considered was that age 55 was consistent with existing retirement policies.

Otis apparently began to offer the HSSRP to eligible employees in January or February of 1980. Eligibility to participate in the HSSRP was limited to managerial employees who, by virtue of their service, already qualified for early retirement under Otis' basic pension plan. Defendant asserts that by March or April of 1980 a number of the plaintiffs herein had learned from eligible employees that the HSSRP had been offered to eligible employees. Defendant asserts that it was not until May 1980 that the decision was made to close the Harrison plant due to its continuing losses and that the closing was not completed until December 1980. Plaintiffs contest this point most vigorously. They assert that since Otis planned to shut down the plant long before May, the HSSRP plan was not bona fide, but was a scheme to evade the strictures against discrimination on account of age and a subterfuge to avoid the economic warfare that attends the closing of a plant. Plaintiffs argue that they should be treated equally with other members of the work force.

No action was brought in state or federal forums, however, until May 12, 1982, when the 25 individual plaintiffs filed a Superior Court complaint against defendant, alleging a cause of action arising under the New Jersey Law Against Discrimination (NJLAD), N.J.S.A. 10:5-1 to -42, for discrimination on the basis of age.

After removal to and remand from the United States District Court for New Jersey, the case came on for summary judgment in the Superior Court, Law Division. The Law Division granted Otis' motion for summary judgment on the ground that federal regulation of employee benefit plans, through ERISA, preempts the NJLAD when the NJLAD is used to challenge an employee benefit plan. Under applicable federal law, inconsistent provisions of state law relating to employee benefit plans are preempted unless their preemption would impair federal law.

Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 102-03, 103 S. Ct. 2890, 2902-03, 77 L. Ed. 2d 490, 504-05 (1983). The trial court found that the NJLAD, under which plaintiffs' claim was brought, related to an ERISA-regulated employee benefit plan and that its preemption would not impair the federal age discrimination law. 197 N.J. Super. 70, 75-77 (1983).

On appeal, the Appellate Division reversed, finding that a sufficient interrelationship exists between the NJLAD and the ADEA so that enforcement of the federal law would be hampered if the state law were preempted. The court therefore concluded that even a limited preemption of a right of direct suit under the NJLAD would impair the ADEA. 197 N.J. Super. 468, 472-73.

We granted the defendant's petition for certification. 101 ...


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