Section of Taxation Publications
  VOL. 58
NO. 1
FALL 2004
Contents | TTL Home

 Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.
Failing to Follow the Spirit of ERISA: Kolling v. American Power Conversion Corp.
Carolle Kim


In Kolling v. American Power Conversion Corp., the United States Court of Appeals for the First Circuit affirmed the district court’s holding that an employer’s denial of a former consultant’s claim for employee benefits did not violate the Employment Retirement Income Security Act of 1974 (ERISA). The First Circuit focused on the issue of whether the administrator abused his discretion by arbitrarily and capriciously defining the term employee in a way that excluded the consultant. The court held that even if the consultant could be considered a common law employee, the administrator reasonably applied the W-2 definition of employee, such that anyone who did not receive a W-2 form is not entitled to benefits. The First Circuit reached this result by relying on a Ninth Circuit case, Hensley v. Northwest Permanente P.C. Retirement Plan &Trust. The Ninth Circuit found both that ERISA does not require a plan to coverall categories of common law employees, and it would be reasonable for an administrator to look to the employer’s intention in carrying out the plan’s objective.

This Note examines how the First Circuit’s decision violates the spirit and purpose of ERISA. Part I of this Note provides the relevant background of ERISA. Part II sets forth the facts of the case and summarizes the First Circuit’s opinion. Part III analyzes how the First Circuit missed the pivotal issue of whether an employer correctly classified a consultant as an independent contractor under the common law test of agency for tax purposes, and examines whether the employer was required to provide a W-2 form. In addition, Part III discusses how the First Circuit failed to analyze Hensley thoroughly even though it relied on Hensley to reach its decision. If the First Circuit had followed Hensley correctly, it would have arrived at the proper result. Part III also argues that if the First Circuit had correctly analyzed the relevant issue, the court would have likely determined that in Kolling’s case, a former consultant is a common law employee. Part IV concludes that because the First Circuit missed the pivotal issue, thereby thwarting the purpose of ERISA, it has created an environment where employers may be able to abuse the tax system and deprive workers of their benefits under ERISA.


Published by
Section of Taxation, American Bar Association
With the Assistance of
Georgetown University Law Center


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