In a case involving Continental Airlines, a federal appeals court says benefit administrators don't have the power to decide whether employees' divorces are real or fake.
Continental sued nine of its pilots, claiming that they got "sham" divorces so their ex-spouses could tap their lump-sum pensions while they still worked for the airline -- then remarried the same partners.
The 5th U.S. Circuit Court of Appeals on Monday upheld a lower-court ruling that employers can't consider or investigate why employees get divorced or whether the divorce is genuine. The appeals court dismissed Continental's 2009 lawsuit, which was filed in federal district court in Houston.
A Continental spokeswoman said the airline was reviewing the ruling before deciding its next step.
Steve Mitby, an attorney for five of the pilots, called the decision "a victory for employee privacy rights -- nobody wants their employer looking into their divorce."
Mitby said all the pilots were fired or resigned, and they are suing Continental in federal court in Houston for wrongful termination and interfering with their pension rights.
The airline, now owned by United Continental Holdings Inc., had said it paid out $10 million to $11 million in pension distributions that pilots had assigned to their spouses.
According to Continental court filings, the pilots -- seven men and two women -- got divorces in states where domestic-relations orders assigned all or nearly all of their retirement benefits to their ex-spouses, who then demanded payment.
The airline charged that the pilots were taking advantage of a provision in federal law that, in cases of divorce, allows payment of pension benefits to an ex-spouse before a worker retires. Continental argued that the pilots were worried that the airline might turn over its pension obligations to the government -- as other airlines did in the 2000s -- leaving them with reduced benefits.
In a footnote, the appeals court said a retirement plan administrator might be able to recover a pension payment if a court ruled that a divorce was a sham, but that didn't happen in the Continental case.