ERISA Section 510 Claims: Firing an Employee to Avoid Benefits

A termination that saves the company money on a pension, health plan, or disability benefit can draw a federal claim under ERISA section 510. The statute, 29 U.S.C. § 1140, makes it unlawful to discharge a participant “for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan.” The claim turns on purpose, not effect. An employer with a business reason unrelated to benefits has the stronger hand, and the remedies are narrower than in most termination suits.

What does section 510 prohibit?

Two things: retaliation for using a benefit right, and interference with a right the employee hasn’t reached yet.

The first clause of section 1140 bars any person from acting against a participant “for exercising any right to which he is entitled under the provisions of an employee benefit plan.” An employee who files a disability claim, takes medical leave covered by the plan, or files a claim for a costly procedure and then gets fired fits this pattern.

The second clause covers rights the employee was about to gain. The classic case is a termination shortly before pension vesting or an early retirement date. The same section also bars retaliation against anyone who “has given information or has testified or is about to testify in any inquiry or proceeding” relating to ERISA, which reaches employees who cooperate with a Department of Labor investigation.

Section 510 isn’t limited to pensions. In Inter-Modal Rail Employees Ass’n v. Atchison, Topeka & Santa Fe Railway Co., 520 U.S. 510 (1997), the Supreme Court held that it protects welfare plan benefits too, such as health coverage, even though those benefits don’t vest. The Court said that an employer’s power to amend or end a welfare plan “does not include the power to” discharge participants for the purpose of interfering with their rights under the plan.

What does the employee have to prove?

That interfering with benefits was a motivating factor, not just a side effect, of the termination.

The Ninth Circuit put it plainly in Dytrt v. Mountain State Telephone & Telegraph Co., 921 F.2d 889 (9th Cir. 1990): “A claimant must show that employment was terminated because of a specific intent to interfere with ERISA rights in order to prevail under § 510; no action lies where the alleged loss of rights is a mere consequence, as opposed to a motivating factor behind the termination.” The only evidence in that case was that the employee’s pension would have been larger if she had kept working. The court called that “an incidental effect, and not a motivating factor,” and affirmed summary judgment for the employer.

That standard matters because almost every termination reduces some benefit. A fired employee stops accruing pension credit and loses employer health coverage. If the loss alone were enough, every discharge would be a section 510 case. The Supreme Court in Inter-Modal recognized the same limit: “when an employer acts without this purpose, as could be the case when making fundamental business decisions, such actions are not barred by §510.”

What tends to create a triable case is timing plus something more. A termination days before vesting, a supervisor’s email about what an employee’s claims are costing the plan, or a layoff list that tracks the most expensive claimants are the facts plaintiffs look for. Timing alone is weaker than it looks, especially when the decision was made before anyone looked at the benefits.

What can the employee recover?

Equitable relief only, decided by a judge, not a jury.

Section 510 has no remedies provision of its own. The last sentence of section 1140 makes the enforcement provisions of section 1132 applicable, and that means section 1132(a)(3), which allows a suit to enjoin a violation or “to obtain other appropriate equitable relief.” In Teutscher v. Woodson, 835 F.3d 936 (9th Cir. 2016), the Ninth Circuit held that “Section 510 is enforced solely through the remedies provided under section 502(a)(3),” and that because the remedies are wholly equitable, the employee “had no right to a jury trial on that claim.”

Equitable relief can still be significant. Courts have treated reinstatement, back pay, and restoration of benefits as equitable in the right case. Punitive damages and general emotional distress damages aren’t part of the federal remedy, which makes a standalone section 510 claim less attractive to plaintiffs’ lawyers than a California wrongful termination claim tried to a jury.

That’s why section 510 claims often appear alongside state claims rather than alone. The jury hears the state claims, and the judge decides the ERISA claim, bound by the jury’s findings on shared facts, under the rule Teutscher applied. The firm’s guide to wrongful termination lawsuits in California covers those state claims.

Can the employee sue under California law instead?

Not for the same theory. A state claim that depends on the plan is preempted.

In Ingersoll-Rand Co. v. McClendon, 498 U.S. 133 (1990), an employee claimed he was fired to keep his pension from vesting and sued under a state wrongful discharge theory. The Supreme Court held the claim preempted, both because it related to the plan and because it “conflicts directly with an ERISA cause of action.” The Court reasoned that the existence of the pension plan was a critical factor in establishing liability under the state theory.

The defense value is real. A California employee who frames a benefits-avoidance termination as wrongful termination in violation of public policy, hoping for a jury and punitive damages, may find that claim displaced by section 510’s equitable remedy. Preemption doesn’t reach every claim in the case, though. A disability discrimination claim under the Fair Employment and Housing Act, or a retaliation claim based on a workplace complaint, stands on its own and stays in the case.

Pleading tells a lot. When a complaint’s main theory is that the employer fired someone to save on the plan, a preemption argument belongs in the first response, often with removal to federal court. Waiting can let a jury hear a theory that should have been decided by a judge under a narrower remedy.

How do layoffs and plan changes fit in?

A layoff made for business reasons isn’t a section 510 violation just because it reduces benefit costs.

Inter-Modal drew the line between amending a plan through its formal procedures, which is permitted, and firing employees one at a time to avoid paying them. The safest course for a cost-driven change is to change the plan for everyone, through the amendment procedure the plan document describes, rather than to remove the employees who use it most.

Reductions in force deserve a careful review before notices go out. Selection criteria should be written down, applied evenly, and tied to the business reason. A list that disproportionately includes employees near vesting, on disability leave, or with large pending claims calls for a second look. The safer practice is to keep benefit cost data away from the people making selection decisions.

Steps to take after an ERISA section 510 claim

1. Preserve the personnel file, the termination or layoff decision documents, selection criteria, emails and texts among decision makers, benefits enrollment and claims records, and the plan document and amendments, under a litigation hold once a claim arrives.
2. Calendar the response date on the demand or summons, and check for an EPLI or fiduciary liability policy with notice requirements and any arbitration agreement the employee signed.
3. Identify every decision maker and what each knew about the employee’s benefits, and stop any further action that could look like retaliation.
4. Pull the documents the claim turns on: the vesting or eligibility date, the date of the termination decision, any benefit claims the employee filed, and the business reason as recorded at the time.
5. Talk to a lawyer before responding, contacting the employee or their lawyer, or offering anything to settle.

Benefits-based termination claims are usually decided on what the decision makers knew and when, and defending California employers against ERISA retaliation claims starts by establishing that timeline.

FAQ

Is firing an employee right before pension vesting automatically a section 510 violation?

No. Timing is evidence, but the employee still has to show a specific intent to interfere with the benefit. An employer with a documented performance problem, a restructuring decision made earlier, or a reason applied the same way to other employees can defeat the claim. Close timing does make the documentation more important, because a court will look hard at whether the stated reason existed before the vesting date approached.

Does section 510 protect health insurance, or only pensions?

Both. The Supreme Court held in Inter-Modal that section 510 covers welfare plans, including health coverage, even though those benefits don’t vest. An employer can still change or end a welfare plan through its formal amendment procedure. What it can’t do is fire or discipline individual participants for the purpose of keeping them from using the plan.

Can an ERISA section 510 claim go to a jury?

Not in the Ninth Circuit. Because section 510 is enforced only through equitable relief under section 1132(a)(3), the Ninth Circuit held in Teutscher that there’s no right to a jury on that claim. When state claims tried to a jury arise from the same facts, the judge deciding the ERISA claim has to follow the jury’s factual findings.

Does ERISA preempt a California wrongful termination claim?

Only when the state claim depends on the plan, such as a claim that the employee was fired to avoid paying benefits. That was the holding in Ingersoll-Rand. Claims under the Fair Employment and Housing Act, wage claims, and retaliation claims based on other protected activity usually stand apart from the plan and aren’t preempted on that ground.

If a former employee says they were fired to cut benefit costs

If your company has received a demand or lawsuit claiming a termination or layoff was meant to block pension, health, or disability benefits, the timeline of the decision and the decision makers’ knowledge usually decide how strong the claim is. Rosenberger + Kawabata represents employers defending employment lawsuits and claims through its business litigation practice, including ERISA section 510 interference and retaliation claims. Contact Rosenberger + Kawabata online for a confidential consultation, or call (310) 894-6921.

Sources

29 U.S.C. § 1140 and § 1132; Ingersoll-Rand Co. v. McClendon, 498 U.S. 133 (1990); Inter-Modal Rail Employees Ass’n v. Atchison, Topeka & Santa Fe Railway Co., 520 U.S. 510 (1997); Dytrt v. Mountain State Telephone & Telegraph Co., 921 F.2d 889 (9th Cir. 1990); Teutscher v. Woodson, 835 F.3d 936 (9th Cir. 2016).

This post is general information about California and federal employment law as of November 7, 2026. It is not legal advice, and reading it does not create an attorney-client relationship. Employment statutes, regulations, and court decisions change often, and the outcome of any claim depends on its facts. Past results do not guarantee future outcomes.