Maurine M. Holt, Appellant, v. William W. Winpisinger, et al, 811 F.2d 1532 (D.C. Cir. 1983)

Maurine M. Holt appeals from a judgment of the District Court upholding a determination of the Administrators of the International Association of Machinists' (IAM) pension plan that she was not eligible for a pension upon cessation of her employment with IAM. Appellant challenges the conclusion, reached successively by the Administrators and the court, that the right to a pension did not vest because she was not an "employee" during the first of her approximately ten years of service. We find that the District Court misinterpreted the meaning and significance of "employee" status under the Employee Retirement Income Security Act (ERISA)¹  and misapplied the criteria for ascertaining its existence. Accordingly, we reverse the judgment under review and remand for further proceedings.

On October 29, 1973, after a 20-year absence from the labor force while raising a family, appellant began work for IAM as a part-time assistant to Gordon D. English, the manager of IAM's DuPont Circle Building. Her duties were of a general clerical nature, including such tasks as typing leases, answering tenants' telephone calls, filing, bookkeeping, and preparing forms for new employees. English trained her in the use of office machines, supervised her work on a daily basis, and could have fired her if he found fault with her work.² 

In obtaining this position, appellant was assisted by her husband, Milo O. Holt, who was the Assistant Secretary of IAM.³  At the time, Milo Holt informed English that IAM had a policy against hiring part-time employees, and directed English not to put appellant on the payroll but to provide for her compensation from a general fund which was used to pay for outside services by independent contractors.⁴  As a result, appellant was paid by the hour and did not reap the benefits of salaried employees. She had no paid vacation or sick leave, and no insurance or Railroad Retirement benefits. Additionally, IAM did not withhold income or Social Security taxes from her paychecks, as it did with respect to employees on salary.⁵  The District Court found that this arrangement was designed to circumvent IAM's policy against part-time employment.⁶ 

Almost a year later, on September 2, 1974, English hired appellant on a full-time basis, putting her on the payroll with the title of office manager.⁷  Her hours increased from approximately 20-25 to 35 per week.⁸  She received a weekly salary instead of hourly pay, and became eligible for paid holidays and sick leave.⁹  She filled out forms for withholding of taxes, and became entitled to Railroad Retirement, health and life insurance benefits. No forms were necessary to trigger participation in the pension plan; the memorandum placing her on the payroll characterized her as a new employee, and the financial officer calculated her pension credits from that date.¹⁰  Notwithstanding these changes, however, appellant's duties remained the same. She still performed the same general clerical tasks and reported daily to English, who continued to supervise her work.¹¹ 

Appellant continued to work as office manager of the DuPont Circle Building until May 25, 1983, when IAM informed her that she would be released on July 1 as part of a general layoff to reduce costs.¹²  She inquired of an employee in IAM's pension department as to whether she would be eligible for a pension, which, under IAM's plan, vests after an employee completes ten years of service. The Administrators of the plan informed her that she did not qualify for a pension because her date of hire by IAM was September 2, 1974, and that she therefore lacked one year of the ten years necessary for vesting of her pension.¹³  The Administrators predicated their determination on the ground that she was not an "employee" during the period of her part-time service from October, 1973, to September, 1974.¹⁴ 

Appellant then filed suit in the District Court against IAM and the plan's Administrators, claiming that their decision to deny her a pension violated her rights under ERISA.¹⁵  She challenged the Administrators' position that she was hired as a contractor and not as an "employee," as that term is defined by ERISA, for purposes of ascertaining whether she had completed the ten years of service needed for vesting of her pension.¹⁶  After a bench trial, the District Court, "look [ing] to common law principles and the intent of the parties,"¹⁷  concluded that even though " [c]ustomarily, an office manager receiving on-the-job supervision while working somewhat regular hours does not serve as an independent contractor," in this case "custom was deliberately defied.... [A]ll parties involved, and particularly plaintiff, stood to gain from a relationship in which plaintiff served on a contract basis."¹⁸  The court then held that "defendants correctly decided that plaintiff's coverage under the IAM Pension Plan, like all other fringe benefits of IAM employment, commenced when plaintiff joined the payroll on September 2, 1974. As defendants' decision was neither arbitrary nor capricious and is supported by substantial evidence, it shall not be overturned."¹⁹ 

On appeal, all parties agree that common-law principles of agency govern in determinations on employee status,²⁰  but they differ on proper application of those standards. Appellant asserts that her working relationship with English, who supervised every aspect of her work, is decisive, and establishes that she served as an employee, and not as an independent contractor, during the period of part-time service.²¹  The Administrators insist that the parties' intent controls, and that everyone familiar with appellant's employment understood that she was engaged on a contract basis, and not as an employee, in order to avoid IAM's policies against hiring part-time employees or relatives.²²  From this premise, the Administrators argue that we are required to uphold their eligibility ruling as a determination supported by substantial evidence and not arbitrary,²³  and that, regardless of appellant's employment status, equitable principles should bar her claim.²⁴ 

Almost a quarter-century ago, in Danti v. Lewis,²⁵  this court articulated the traditional standard for review of eligibility decisions of those who administer employee pension plans. We said that "the Trustees ['] ... decision as to eligibility is subject to judicial review to determine whether the trustees have acted arbitrarily, capriciously or in bad faith; that is, is the decision of the Trustees supported by substantial evidence or have they made an erroneous decision on a question of law."²⁶  Courts have generally adopted this standard,²⁷  and will uphold factual determinations on eligibility when they rest on substantial record evidence and are not arbitrary.²⁸  Trustee rulings on questions of law do not command this high degree of respect, however, and may be overturned if erroneous.²⁹  The question whether an individual is an employee or an independent contractor, involving as it does both an interpretation of a statute--ERISA--and an application of common-law principles of agency, is a question of law.³⁰  We owe no more deference to the District Court when deciding questions of law than that court owed to the plan's Administrators.³¹ 

To fully understand appellant's claim, one must distinguish the "vesting" of pension rights from the "accrued benefits" that flow from participation in a pension plan. As we have hitherto explained,

[t]he "vesting schedule" specifies the time at which an employee obtains his nonforfeitable right to a particular percentage of his accrued benefit. It does not provide any formula or schedule for determining the amount of the accrued benefit. Thus, "vesting" governs when an employee has a right to a pension; "accrued benefit" is used in calculating the amount of the benefit to which the employee is entitled.³² 

One of ERISA's principal aims in reforming the Nation's employee pension plans was to establish vesting ceilings so that employees with lengthy service would no longer lose accrued benefits simply because their employment terminated before they became eligible to retire.³³  ERISA protects the right to obtain a pension by requiring plans to satisfy specified vesting requirements, but does not guarantee the amount of pension benefits that an employee will receive.

IAM's pension plan, like the great majority of private pension plans,³⁴  provides that an employee's right to a pension vests upon completion of ten years of service, regardless of whether the employment terminates before the employee reaches retirement age.³⁵  Once an employee participates in a pension plan, all of his or her years of service, whether completed before or after participation begins, count statutorily toward the ten years of vesting credit essential.³⁶ 

As this brief analysis indicates, vesting is tied to length of employment, but the amount of accrued benefits depends upon participation in the plan. One conceivably can earn credit toward vesting without accumulating any pension benefits, and that is precisely appellant's claim. She seeks vesting credit, but no accrued benefits, for her first year of service to IAM. She asserts that she was an employee during that year and that once she began participating in IAM's pension plan--when she became a full-time employee in September, 1974--her first year of service should count toward the ten years necessary for her pension right to vest. She does not contend that she participated in the pension plan during the first year, and thus does not seek accrued benefits for that period.³⁷ 

The District Court seemingly failed to distinguish vesting from accrued benefits. Initially, the court accurately identified the problem, stating that " [a]t issue in this case is the determination of the Plan ... that plaintiff's rights did not vest because she did not attain the minimum ten years of service as an IAM employee required for vesting under the Plan.³⁸  Later in its opinion, however, the court declared that " [t]he legal issue presented here may be simply stated: was the Plan administrators' determination--that prior to September 2, 1974, plaintiff was not a participant in the Pension Plan--based on substantial evidence and not arbitrary or capricious?"³⁹  Still later, the court rejected appellant's position, holding that the Administrators "correctly decided that plaintiff's coverage under the IAM Pension Plan, like all other fringe benefits of IAM employment, commenced when plaintiff joined the payroll on September 2, 1974."⁴⁰  Contrary to what appears to have been the District Court's understanding, however, success or failure of appellant's suit turns upon her employment status, not on her participation in the plan, during her first year of service, and the Administrators' determination on that score does not enjoy the deference afforded by the arbitrary-or-capricious standard of review.

ERISA defines "employee" merely as "any individual employed by an employer."⁴¹  The statutory definition thus provides little or no guidance when the question is whether a party performing services pursuant to a particular work arrangement is an employee. However, both parties agree⁴²  and the District Court held⁴³  that one must look to common-law rules of agency to determine employee status. In this approach we fully concur.⁴⁴ 

The District Court embarked upon its analysis by announcing that it "must look to common law principles and the intent of the parties."⁴⁵  Yet the court never enunciated the common-law test but instead focused exclusively upon intent, concluding that

all involved in establishing plaintiff's relationship with the IAM, including plaintiff, intended that she be retained on a contract basis, not as an employee earning pension credit. Customarily, an office manager receiving on-the-job supervision while working somewhat regular hours does not serve as an independent contractor. Here, however, custom was deliberately defied. In this case, all parties involved, and particularly plaintiff, stood to gain from a relationship in which plaintiff served on a contract basis.⁴⁶ 

Intent of the parties is a factor, but merely one of a number of factors, that the common law weighs in distinguishing an employee from an independent contractor.⁴⁷  7] The simple fact that IAM characterized appellant as a contractor did not make her one in the eyes of the law.⁴⁸  Rather, the right of one party to control not only the result to be achieved by the other, but also the means and manner of performing the task assigned, is the most critical factor in ascertaining whether an employment relationship exists.⁴⁹  Consequently, while all relevant circumstances are to be examined and evaluated, the degree to which English, appellant's supervisor, controlled her daily work activities is the primary consideration in determining her employment status.

Although the District Court made no findings in this regard, the uncontradicted record evidence shows that English exercised well-nigh unbridled control over appellant's work and the details of its performance. Eugene D. Glover, IAM's General Secretary-Treasurer and one of the pension plan's Administrators, testified that "Mr. English supervised her work, he trained her, he told her what to do," and he could have fired her if she disregarded his directions.⁵⁰  Both English and appellant testified that he set out her daily routine, told her what tasks needed to be done, trained her to use office equipment, and taught her to perform many clerical tasks such as bookkeeping, typing up leases and updating the building directory.⁵¹  English likewise admitted that he could have discharged appellant at any time had he been displeased with her work.⁵²  This testimony amply demonstrates that English possessed and exercised the right to control not only the final products of appellant's labor, but also the manner in which she achieved the results expected. Even the District Court felt constrained to observe that " [c]ustomarily, an office manager receiving on-the-job supervision while working somewhat regular hours does not serve as an independent contractor."⁵³ 

Although, in the circumstances here, the right-to-control test alone might be dispositive of the issue, other common-law factors⁵⁴  support our conclusion that appellant was an employee, not an independent contractor, during her first year of service to IAM. From aught that appears, she did not render that service as a self-employed individual or affiliate of a business distinct from IAM.⁵⁵  Her work was integrally related to the branch of IAM's business concerned with management of the DuPont Circle Building.⁵⁶  So far as we know, the job she held during this era--clerical assistant--is rarely an unsupervised position; indeed, we know that in this case English provided constant direction and oversight.⁵⁷  Performance of appellant's duties did not call for the sort of specialized skill for which employers would normally hire independent contractors.⁵⁸  She did not supply her own equipment; rather, she worked in English's office and used IAM's typewriters, calculators, and various other machines and office supplies.⁵⁹  Although she was paid by the hour, and received neither the level salary nor employee benefits enjoyed by other IAM workers, her compensation did not depend on completion of a specific job, a method by which independent contractors are often compensated.⁶⁰  While this financial arrangement does suggest that, for purposes of compensation, IAM handled appellant's situation in a manner different from those of other workers, this singular treatment did not extend to other aspects of the employment relationship, the most important of which for present purposes was control over the details of her performance.⁶¹  We hold that, as a matter of law, appellant worked as an employee during the first year of her service to IAM.

The Administrators insist that even if appellant was an employee during the period in question, she is barred by the equitable principles of waiver, estoppel, laches and unclean hands from asserting her claim for pension benefits.⁶²  We disagree on each of these counts.

First we reject the Administrators' argument that appellant waived the right she now asserts when she accepted the position as an hourly worker entitled to none of the fringe benefits other IAM employees enjoyed. Appellant is not asking for accrued pension benefits for the first year; indeed, she admits that she was not then a participant in the pension plan.⁶³  To be sure, she claims vesting credit for that year as an employee of IAM, but the right thereto, if any, does not arise from the contract between the parties but rather is derived from ERISA,⁶⁴  and cannot be waived by a contract of employment.⁶⁵  To allow employees to contract away ERISA's vesting provisions would frustrate the purpose of the statute, which was enacted to protect employees from just such unfair deprivations of pension benefits. Moreover, the Supreme Court has held that ERISA's vesting rights are nonforfeitable once the requirements for vesting are satisfied.⁶⁶  Since appellant has overcome the only obstacle to statutory vesting of her pension right, her entitlement cannot be abridged.⁶⁷ 

IAM's remaining equitable defenses need not detain us long. The Administrators' contention that appellant's claim is barred by estoppel fails for lack of any prejudice stemming from reliance on the part of the Administrators.⁶⁸  The fact that IAM, trading on appellant's supposed non-employee status, did not contribute to the pension plan on her behalf during the period contested⁶⁹  does not establish the requisite harm since appellant seeks accrued benefits only for those years during which IAM actually contributed. Nor is appellant's quest embarrassed by laches. The laches doctrine "reflects the principle that 'equity aids the vigilant, not those who slumber on their rights,' and is designed to promote diligence and prevent enforcement of stale claims."⁷⁰  Appellant's cause of action did not arise in October, 1973, when IAM hired her on an hourly basis, but only when the Administrators unjustly refused in May, 1983, to grant her a pension when she left IAM. She wasted no time in presenting her claim, and filed suit promptly after receiving the Administrators' decision.⁷¹  Furthermore, laches, like estoppel, requires a showing of prejudice,⁷²  and we have discerned none here.

Nor are we convinced that appellant's suit is sullied by unclean hands. Although she originally may have secured her position as a result of her husband's influence and in violation of policies that seemingly at most were only loosely observed,⁷³  we perceive no unfairness to IAM, which, after all, obtained 20 to 25 hours a week of her labor for a full year without obligation for any paid holidays, paid sick leave, life or health insurance, or accruing pension benefits. There is no basis for assuming that IAM officials were unaware of her employment or that the asserted infringements of IAM policy were not fully known or easily discoverable. Everything considered, we cannot say that the manner in which appellant got her job renders inequitable the assertion of her right to vesting credit for her first year of service.⁷⁴ 

The parties have stipulated that if the period in issue is includable in calculating the length of appellant's employment, she would have completed the ten years of service necessary for vesting of her pension benefits when she was laid off by IAM.⁷⁵  We hold that she was an employee from October 29, 1973, until September 2, 1974, and accordingly that her right to receive a pension vested and is nonforfeitable. The Administrators' denial of the pension on the basis of her employment status is therefore erroneous as a matter of law. All that remains to be done is a computation by the Administrators of the amount of accrued benefits to which she is entitled.

The judgment of the District Court is reversed and the case is remanded for disposition consistently with this opinion.

So ordered.