869 F.2d 696. On Appeal from the United States District Court for the Eastern District of Pennsylvania, D.C. Civil Action Nos. 83-5457 and 84-4799.
Higginbotham, Scirica and Garth, Circuit Judges.
This appeal arises from an action brought by the Equal Employment Opportunity Commission against Westinghouse Electric Corporation, based on the Age Discrimination in Employment Act ("ADEA"), 29 U.S.C. §§ 621-634 (1982). The EEOC alleges that Westinghouse's 1979 and 1982 pension and severance pay policies,*fn1 discriminate based on age. After a bench trial, the district court found that Westinghouse's plans discriminate based on age, and that Westinghouse willfully violated the ADEA. Westinghouse appeals from that decision.
In our review, we must determine whether Westinghouse's 1979 pension and severance pay plans, denying severance pay to retirement-eligible employees who are terminated or laid off, violate § 4(a)(1) of the ADEA, 29 U.S.C. § 623(a)(1). We must also decide whether Westinghouse's 1982 pension and severance pay plans, which allow retirement-eligible, involuntarily terminated employees to elect either severance pay or retirement benefits, but not both, violate 29 U.S.C. § 623(a)(1). We hold that under both plans, retirement-eligible employees are treated less favorably than their younger counterparts with respect to their ability to receive severance pay. Because retirement eligibility under the Westinghouse plans is inseparably linked with age, the discriminatory treatment is based on age. Therefore, both the 1979 and 1982 plans violate the ADEA.*fn2
We must also address Westinghouse's claim that its severance pay plans are exempt from ADEA coverage under § 4(f)(2), 29 U.S.C. § 623(f)(2). Because those plans are not part of an integrated employee benefit scheme that satisfies § 4(f)(2) and do not involve age-related cost factors, we reject Westinghouse's § 4(f)(2) defense.
Finally, we must decide whether the district court erred in concluding that Westinghouse willfully violated the ADEA. We will remand to the district court to reevaluate willfulness because: (1) some of the factors relied upon by the district court do not support its finding of willfulness, and (2) the court did not consider separately the 1979 plans and the 1982 plans when making its determination on willfulness.
In November, 1982, Charles Slackway, age 62, a former employee at Westinghouse's Lester, Pennsylvania facility, filed a charge of age discrimination with the EEOC. Slackway claimed that unlike younger employees, he was denied severance pay when he was laid off. See J.App. at 1952. In June, 1983, the EEOC issued a letter of violation to Westinghouse, concluding that Westinghouse discriminated against Slackway (and others named and/or yet to be named) in violation of 29 U.S.C. § 623(a)(1). The letter stated that the Commission, in accordance with its statutory mandate,*fn3 sought voluntary compliance with the ADEA through informal methods of conciliation. J.App. at 1971.*fn4
Evidently, efforts at conciliation proved fruitless and the EEOC filed its original complaint on November 10, 1983, pursuant to 29 U.S.C. § 626(b). The EEOC alleged that Westinghouse willfully engaged in unlawful employment practices at its Lester, Pennsylvania facility, in violation of 29 U.S.C. § 623(a)(1), by failing to provide Layoff and Income Benefits (LIB) to employees age sixty or older who were terminated or laid off and were eligible for, and/or had received, early retirement benefits under Westinghouse's pension plan. The complaint identified thirty-five aggrieved employees and included all others similarly situated. J.App. at 15.
EEOC filed its first amended complaint on August 23, 1984, expanding the action to include Westinghouse's Concordville, Pennsylvania facility. That complaint identified 126 aggrieved employees, included others yet to be named, and contained allegations of additional unlawful employment practices: (1) denying LIB to employees laid off prior to July, 1982 who were eligible for any type of retirement benefit; (2) giving employees who were laid-off after July, 1982, the option of selecting either LIB or retirement, but not both; (3) forcing laid-off employees to retire prior to age seventy because LIB was not available; (4) denying early retirement to laid-off employees who chose LIB; (5) denying recall work to employees who were laid off and forced to retire; and (6) giving lower retirement benefits to laid-off employees who were not eligible for retirement because of their age at the time of the layoff, but who later became qualified for retirement benefits.
In October, 1984, the EEOC filed a second amended complaint, expanding its prior claims by alleging that Westinghouse engaged in those unlawful employment practices in all of its facilities nationwide. The employment practices were alleged to have begun at least as early as 1980, and to have continued through the time of filing of each of the complaints. The EEOC also filed a new collateral complaint containing the same nationwide allegations. The district court ordered that the cases be consolidated and tried jointly.
Following trial, the district court issued its opinion,*fn5 in which it held: (1) that Westinghouse's 1979 employee pension, and severance pay plans, which denied severance pay to employees who take retirement, discriminated based on age, in violation of 29 U.S.C. § 623(a)(1); (2) that Westinghouse's 1982 employee pension and severance pay plans, which provide laid-off employees with an option between severance pay and pension benefits, discriminate based on age in violation of 29 U.S.C. § 623(a)(1); and (3) that Westinghouse willfully violated the ADEA.*fn6
With respect to both plans, the district court found that because receipt of severance pay is conditioned on non-retirement status, laid-off workers are treated differently on the basis of age. The court stated that "age and retirement are, in fact, so closely linked that a criterion based on one is a criterion based on the other." 632 F. Supp. at 367. In evaluating Westinghouse's plans, the district court did not consider separately the 1979 and 1982 plans. However, the court found that the option provided by the 1982 plans does not give employees a practical choice, because selection of LIB instead of retirement requires forfeiture of insurance and medical benefits. Therefore, the court concluded, for all practical purposes there is no difference between the 1982 plans and the 1979 plans. In any event, the court held that providing an option does not cure the violation because older employees still cannot receive both pension and severance pay. The option is merely a "sham to prolong the litigation of this issue." Id. at 366 n. 12.
The district court also rejected Westinghouse's assertion that its programs have a legitimate, non-discriminatory purpose. Westinghouse's justification was a purported corporate policy against double-dipping; that is, it would not provide more than one type of benefit to a laid-off employee in order to insure that all laid-off employees received some type of post-employment benefit. The court termed this argument inconsistent, noting that under the various severance pay plans, some employees can receive more than one type of post-employment benefit. For example, a laid-off employee age fifty-nine with more than ten, but less than thirty years of service, can receive LIB until age sixty, at which point he can take early retirement. See 1979 LIB plan at 4; 1982 ES&P plan at 7 (J.App. at 1806, 1817). Furthermore, the court held, the unstated premise of the no double-dipping rationale -- that severance pay and pension benefits are fungible -- is incorrect. Severance pay is a short-term fringe benefit that allows a laid-off employee to cope with the layoff and to seek new employment. Pension benefits, on the other hand, provide for long-term retirement. The two have distinctly different purposes: "Pension benefits are not a substitute for severance pay." 632 F. Supp. at 367.
Next, the district court rejected Westinghouse's defense under § 4(f)(2) of the ADEA, 29 U.S.C. § 623(f)(2), which exempts from the ADEA's coverage bona fide employee benefit plans that are not a subterfuge to evade the purposes of the Act. The court found that severance pay is not a bona fide employee benefit plan because it is a fringe benefit and not an integral part of Westinghouse's pension plans. Alternatively, the court held that even if severance pay is part of a bona fide employee benefit plan, Westinghouse did not establish that its plan was not a subterfuge to evade the purposes of the ADEA, as required by 29 U.S.C. § 623(f)(2). Although Westinghouse's severance pay plan was in existence prior to the enactment of the ADEA, the court noted that since passage of the ADEA, Westinghouse's plans have undergone negotiation, adjustment and reaffirmation. It found that reaffirmation of prior discriminatory practices amounts to evasion of the ADEA and is a subterfuge to evade its purposes. 632 F. Supp. at 368.
Finally, the district court held that Westinghouse willfully violated the ADEA. The court said that Westinghouse: (1) stubbornly resisted compliance with the ADEA, (2) ignored judicial invalidations of policies similar to its own, (3) belatedly invented a corporate policy against double-dipping to justify its unwillingness to comply, and (4) made a "good faith" argument -- that the 1979 plan was designed before enactment of the ADEA, and that the 1982 plan was designed in reliance on statements made by EEOC counsel in another litigation*fn7 -- that was transparent and incredible.
In order to decide the issues presented in this case, we must examine Westinghouse's pension and severance pay plans.*fn8
The 1979 version of Westinghouse's pension plan provided for "normal," "deferred," "early," or "selected" retirement. Normal retirement occurred at age sixty-five, after five years of service. However, an eligible employee could defer retirement until age seventy. Also, certain employees could take early retirement before age sixty-five (normal retirement age). Depending on the years of service, an employee could retire at specified ages between fifty and sixty. There were four "early retirement" subcategories, three of which concerned early retirement after layoff. Those three subcategories provided that a laid-off employee who had received lump-sum severance pay was ineligible for early retirement. See J.App. at 1598-99.
Selected retirement under the 1979 plan contained two subcategories. Under the first subcategory, an employee with at least thirty years of service could choose selected retirement when he was between fifty-eight and sixty-five years of age. The second subcategory concerned selected retirement after layoff. An employee laid off because of a location closedown, or a job movement or product-line relocation after August 1, 1979, was eligible for selected retirement if he was between fifty and sixty years of age, had at least thirty years of service, and did not receive lump-sum severance pay.
B. LIB: 1979 separation benefits plan for non-management personnel
After layoff, certain non-management employees could receive separation benefits termed "Layoff and Income Benefits" ("LIB"). Eligibility for LIB was determined by two or more full years of service and, most important for our inquiry, by non-entitlement to early or selected retirement benefits under the Westinghouse pension plan.*fn9 See Article VI, § 1 (a) of 1979 LIB plan (J.App. at 1302, 1805).
An eligible employee could receive LIB in one of several forms. If management thought that the layoff would exceed six months, the employee could receive the maximum allowable sum in a lump-sum payment. An employee who chose a lump-sum payment permanently severed his relationship with Westinghouse and relinquished any recall rights or credits for years of service with the company (with the exception of his rights, if any, under the pension plan). J.App. at 1303, 1304; J.App. at 1805, 1806. Alternatively, an eligible employee who wanted to retain recall rights and service credits (see J.App. at 1304; J.App. at 1806) could apply for weekly benefits in lieu of a lump-sum payment. Weekly payments, including any state or federal unemployment compensation benefits received by the employee, would be sixty percent of the employee's "week's pay." See J.App. at 1304; J.App. at 1806.
The third manner of payment of LIB occurred when an eligible employee had been on layoff for one year and Westinghouse had not offered him reemployment. In that situation, the balance of the maximum sum would be paid to the employee in a lump sum, provided he was not laid off within one year of the time he would have become eligible for early retirement under the pension plan. In the latter instance, the employee would receive weekly payments until age sixty, when he would receive his early retirement pension. Payments made under the third option did not affect recall rights or service credit. J.App. at 1304; J.App. at 1806.
C. Pre-1985 separation benefits for management personnel
Separation benefits for management personnel paralleled the structure of LIB. These benefits are provided for in the Westinghouse "Management Separation Allowance Plan" ("MSA"), which became effective February, 1975. See J.App. at 1850-72. The purpose of MSA, like LIB, was to provide financial assistance to laid-off employees during the period immediately following layoff. The MSA plan provided monetary benefits calculated on the basis of the years of credited service, the basic monthly salary at time of separation, and the reason for separation of the employee. Management employees who at the time of separation (or upon attaining age sixty) were eligible for either early or selected retirement were not eligible for MSA benefits. J.App. at 1858, 1862.
MSA benefits could be received on a monthly basis, or in a lump-sum payment. Lump-sum payments, however, had to be specifically requested by the employee, and would be made in the discretion of management. J.App. at 1864. If the employee was granted lump-sum payment, then life insurance, hospitalization, surgical, maternity, and major medical protection terminated on the last day worked.*fn10
In July, 1982, Westinghouse revised its pension plan. The revised plan retained four categories of retirement: "normal," "deferred," "early," and "selected." Normal retirement, as under the 1979 plan, is at age sixty-five. An employee could defer retirement for any length of time until age seventy. See §§ 2.A. & 2.B, 1982 pension plan (J.App. at 1549).
Early retirement remained possible under any of the four subcategories that existed under the 1979 pension plan. Depending on the employee's years of service, he could retire at specified ages between fifty and sixty. A condition of early retirement under each subcategory was that the employee not have elected to receive benefits under the Westinghouse separation benefits plan.*fn11 See § 2.C., 1982 pension plan (J.App. at 1549-50).
Selected retirement remained possible for an employee between fifty and sixty-five years of age, depending on years of service to the company. However, the employee must not have elected benefits under the company's separation benefits plan. See id. at § 2.D. (J.App. at 1550).
E. ES&P plan -- the 1982 separation benefits plan for non-management employees
In 1982, Westinghouse also revised its separation benefits plan for non-management employees and renamed it the "Employee Security and Protection Plan" ("ES&P"). See J.App. at 1813. With some minor changes, the plan's structure is essentially the same as the 1979 LIB plan. An employee with at least two years of service who is laid off as the result of a location closedown is eligible to receive a lump-sum payment determined by his salary and length of service. See 1982 ES&P plan at 2 (J.App. at 1815). If the employee is laid off due to job movement or product-line relocation, he may receive a lump-sum payment if he has at least fifteen years of service. No matter what the reason for the layoff, the employee may choose to receive weekly payments instead of a lump-sum payment. See id. at 2, 4-6 (J.App. at 1815, 1816-17).
Unlike the 1979 LIB plan, the ES&P plan does not preclude retirement-eligible employees from receiving separation benefits; it gives them an option. If a retirement-eligible employee is laid off because of location closedown, job movement or product-line relocation, he may elect either early retirement, or lump-sum payment of separation benefits. Employees who elect to retire are eligible to receive several pension and insurance benefits not available to those who select ES&P benefits: a pension payable for life; a supplemental monthly payment for each year of credited service until eligible for Social Security payments; an opportunity to provide continued benefits to a spouse or other person in the event of death; continuation of life insurance; continuation of medical coverage until eligible for Medicare; and continuation of dependent insurance. See id. at 3 (J.App. at 1815-16).
For purposes of this appeal, the only relevant change in the MSA plan occurred in September, 1985: a retirement-eligible management employee who is laid off may now choose either MSA or pension benefits. See J.App. at 742-43, 751 (T. Sept. 6 at 121-22, 140). Prior to that date, laid-off management employees were ineligible for MSA benefits if they were eligible for either early or selected retirement benefits. See supra, description of MSA plan, effective February, 1975.
At the outset, we must determine whether the district court abused its discretion under Fed. R. Civ. P. 15 by permitting the EEOC to twice amend its original complaint. See Lewis v. Curtis, 671 F.2d 779, 783 (3d Cir.), cert. denied, 459 U.S. 880, 74 L. Ed. 2d 144, 103 S. Ct. 176 (1982); Heyl & Patterson Int'l, Inc. v. F.D. Rich Housing, Inc., 663 F.2d 419, 425 (3d Cir.), cert. denied, 455 U.S. 1018, 72 L. Ed. 2d 136, 102 S. Ct. 1714 (1982) (grant of leave to amend will be reversed only for abuse of discretion). Those amendments expanded the action to include employment practices at Westinghouse's facilities nationwide, and to increase the list of aggrieved employees on whose behalf relief was sought. Westinghouse contends that it did not have fair notice of the additional claims or the expansion of the action. Furthermore, Westinghouse argues that it was substantially prejudiced because the amendments rendered its initial discovery efforts inadequate, disrupted its litigation strategy, and caused a loss of opportunity to investigate and mitigate its liabilities.
We hold that the district court properly allowed the amendments. Claims asserted in amended pleadings relate back to the date of the original pleading if they "arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading. . . ." Fed. R. Civ. P. 15(c). The additional claims presented in the first amended complaint, like those in the original complaint, concern Westinghouse's denial of severance pay to retirement-eligible persons. The second amended complaint raised no additional substantive claims; it merely expanded the action to include employment practices in Westinghouse's facilities nationwide. The factual basis for the amended claims was identical.
Because the employment practices complained of in the original and first amended complaints were in effect at all of Westinghouse's facilities nationwide, Westinghouse was not deprived of fair notice. See Coventry v. United States Steel Corp., 856 F.2d 514, 519 (3d Cir. 1988). See also 6 C. Wright & A. Miller, Federal Practice and Procedure § 1501 at 526-27 (1971 & Supp. 1987) (When the original complaint notifies defendant of conduct upon which plaintiff bases his claim, it is "reasonable to assume that defendant has knowledge of any claim plaintiff might assert . . . arising out of the event in dispute."). Furthermore, increasing the list of aggrieved employees did not prejudice Westinghouse because it had notice that any employee adversely affected by its severance pay policies was a potential plaintiff. See Wright & A. Miller, § 1501 at 524.
Under these circumstances, the diminution of Westinghouse's initial discovery efforts does not constitute undue prejudice that would preclude amendment. Cf. Cornell & Co. v. Occupational Safety & Health Review Comm'n, 573 F.2d 820, 825 (3d Cir. 1978) (amendment of complaint to allege safety-belt violation when original complaint alleged improper flooring on construction structure changed legal and factual matters in dispute, resulting in undue prejudice to non-moving party). Similarly, the fact that Westinghouse may have ...