Yum! Brands Partly Defeats Retirement Plan Eligibility Lawsuit

The U.S. District Court for the Central District of California has ruled in a lawsuit filed against Yum! Brands Inc., Taco Bell Corp. and various individual defendants.

Technically, the ruling grants the defendants’ motion to dismiss the plaintiffs first through fifth causes of action, out of nine total causes, while declining to exercise supplemental jurisdiction over the remaining state law claims. It also denies as moot the defendants’ motion to transfer venue in the case, while likewise denying any further leave for the plaintiff to amend the case.

The underlying lawsuit arose when the plaintiff field suit to seek recognition of his years of employment from 1995 through 2020 for purposes of calculating his retirement benefits with three retirement plans, including a nonqualified deferred compensation (NQDC) plan, sponsored by the company. According to the complaint, common law employees were eligible for the plans per their governing documents. The complaint alleged that the plaintiff met the test for employee status per prior case law, but that Yum! impermissibly misclassified him as an independent contractor.

The lawsuit claimed that the man started employment as a recruiter for Taco Bell when it was owned by PepsiCo. It detailed how he stayed with the company when it was spun away and eventually acquired by Yum!. During his 25 years with the company, the plaintiff held the title of executive recruiter, according to the complaint.

The ruling from the court includes substantial discussion of what it takes for a worker to be defined as a benefit plan participant under the Employee Retirement Income Security Act (ERISA). As the order explains, ERISA defines a “participant” as “any employee or former employee of an employer who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer or whose beneficiaries may be eligible to receive any such benefit.”

The ruling continues: “The Supreme Court has interpreted § 1002(7) to include a former employee who has ‘a colorable claim that she will prevail in a suit for benefits.’ Thus, to bring an ERISA claim, a former employee need only assert ‘a colorable claim that he or she is a participant’ in the relevant ERISA plan. The 9th U.S. Circuit Court of Appeals has held that whether a plaintiff is a plan participant is ‘a substantive element’ of his or her ERISA claim rather than ‘a prerequisite for subject matter jurisdiction.’ Accordingly, a dismissal for lack of statutory standing [under ERISA] is properly viewed as a dismissal for failure to state a claim rather than a dismissal for lack of subject matter jurisdiction.”

Weighing this standard, the court sides with the defendants.

“Even if the amended complaint pleads sufficient facts to allege that the plaintiff was a common law employee rather than an independent contractor, he does not state a colorable claim to vested benefits under the Yum! plans. Although the complaint contains a single allegation that the plaintiff was a participant, as defined by ERISA, the court need not accept as true such a legal conclusion couched as a factual allegation. In fact, the Supreme Court has rejected the notion that a ‘participant’ under ERISA ‘is any person who claims to be one.’ Further, this conclusory statement is repeatedly contradicted by allegations throughout the complaint that Plaintiff was not in fact a participant in the Yum! plans. … At bottom, the plaintiff’s ERISA claims are premised on the notion that he was wrongfully excluded from participating in the Yum! plans and thus did not participate in the plans.”

The District Court goes on to explain that, under 9th Circuit authority, a claim that a former employee plaintiff should have been included in a plan, but actually was not included in a plan, does not give the plaintiff a “colorable claim to vested benefits” for ERISA standing purposes.

Turning to the remaining causes of action, which cite state laws rather than the federal standards created by ERISA, the District Court declines to rule.

“In this case, judicial economy and comity counsel in favor of declining to exercise supplemental jurisdiction,” the ruling explains. “The case remains in its early stages—the parties have only filed one motion, and a scheduling order has not yet been entered. Further, the Court has not performed any substantive analysis of the state law claims that would need to be duplicated by a subsequent state court, should plaintiff choose to refile these claims. Judicial economy accordingly weighs in favor of declining to exercise supplemental jurisdiction.”

The full text of the ruling is available here.