“My company avoids both severance and pensions by something called ‘re-badging’ employees. Is this legal?”

Question: I work in the IT division of a large multinational consumer product company in New Jersey. I have been employed there for 27 years. If I remain here until I am 55 years old, I will receive a large pension.

The company seems to have developed a clever way to avoid paying employees both severance and pensions. It is called “re-badging,” and it works like this: you are notified that you will become an employee of a third-party company, who will then assign you back to the company, on a sub-contract basis, and you will even be assigned your old desk again. It is like you are the same employee doing the same job, but you wear an imaginary “badge” that would say on it “I am not an employee; I am now a sub-contractor.”

If the employee does not accept the job with the third-party company, they are then simply out of work, and not given severance. Of course, you lose out on pension vesting, too.

I don’t think this has been challenged in the courts, has it?

“Re-Badged”
Goshen, New York

Answer: These days, many employers are trying to find ways to reduce costs. Some are legal; some are not. It’s sometimes hard to tell the difference. Many involve benefits, such as severance and pensions. Whether your employer’s “re-badging” is legal or illegal is not easy to say.

On the one hand, employers are free to change the benefits they offer their employees, for better or worse, including how and when their employees become entitled to receive those benefits. For example, if an employer currently pays for 75% of health insurance premiums, it is free to announce that, starting next year, it will pay for only 50% of those premiums. Employees may accept that, or try to negotiate that, or even find a new employer who offers better benefits. There is an “employment marketplace” out there in which nearly everyone is a “buyer” or “seller.”

But on the other hand, if an employer makes a promise to pay certain benefits – such as severance or pension – then, unless the employer advises its employees that it is changing those benefits, it has to provide what it promised. For example, a company cannot say that a pension is earned if you work 20 years, and then after you work those 20 years, not pay the pension. That is not only a kind of breach of contract, it is also against federal law, and state law in many states.

By what you call “re-badging” (a term I have not heard before) your employer seems to be trying to get away with that second “hand,” that is, to make a promise but to avoid having to fulfill that promise. It is using what has for many years been called “employee leasing”: in one step it fires them, offers them a job with a third party, and then uses their same services, but they are being “leased” out as employees of the third-party company, who typically don’t provide any benefits. Magic: same employees, same services, no benefits.

You have at least four potential legal bases for claims against your employer: (a) violation of the federal Employee Retirement Income Security Act (often called “ERISA”), a federal law that makes it illegal for employers to interfere with employee pensions, (b) breach of contract, for their failure to fulfill promises they have made and you have relied on, (c) fraud, for their apparently intentional misstatement to you about your rights and entitlements, and (d) a legal theory called “joint employer doctrine” in which you could claim a right to benefits from both companies as an employee of both.

Just like a doctor cannot diagnose an illness without first performing all of the necessary medical tests, a lawyer cannot tell you if you definitely have legal claims without first looking into all of the facts, which I can’t do from your short letter. I strongly urge you to consult with an experienced employment lawyer or pension lawyer in your area. You should be able to find one from the Bar Associations in your area. I’m confident they can be found on the internet.

By the way, if you do have a legal claim, so might hundreds of other employees of the company. That would make almost any attorney eager to take on such a case.

If you lose your right to full pension, even though you have earned it, that would be tragic. I strongly urge you to seek a legal consultation.

Best, Al Sklover

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