Nicolaou was hired as the H.R. Director for Horizon and quickly determined that the company had for a number of years been underpaying overtime to workers in its New York City and Los Angeles offices. That underpayment would also have meant an underfunding of 401(k) plans. When she pointed this out to the CFO and Controller she was told to keep it to herself. Approaching the firm's outside counsel, who confirmed her findings, she met with better results as he suggested a meeting with the President of Horizon.
That meeting did not go as well as hoped as soon thereafter Nicolaou found not only was the problem not remedied, but she herself was replaced and "professionally trashed." After her termination, Nicolaou sued raising retaliation claims under both the FLSA and ERISA § 510. She was unsuccessful on both at the trial court, losing on summary judgment.
On appeal, she dropped the FLSA retaliation claims, probably because of the 2nd Circuit's prior holding, Lambert v. Genesee Hospital, 10 F.3d 46 (2d Cir. 1993) holds that informal complaints are not sufficient under the FLSA. Instead she cast her lot with ERISA's § 510:
It shall be unlawful for any person to discharge, fine, suspend, expel, or discriminate against any person because he has given information or has testified or is about to testify in any inquiry or proceeding relating to this chapter . . . .
We agree with the Secretary of Labor's assertion here that "[w]whatever level of formality is implied by the term 'proceeding' in FLSA," the use of the somewhat less formal term "inquiry" in ERISA is indicative of an intent "to ensure protection for those involved in the informal gathering of information." Congress manifested such an intent when it chose, in drafting Section 510, to conjoin to the term "proceeding," found in FLSA Section 15(a)(3), the additional term "inquiry," which is not contained in Section 15(a)(3) and which has a distinct definition. While "proceeding" refers to the progression of a lawsuit or other business before a court, agency, or other official body, "inquiry" refers broadly to any request for information.
And the stretching was not quite over, because the Court still needed help to keep the cause of action alive. It found it in a most unusual place:
We believe that certain allegations made in the amended complaint are ambiguous, and only became less so when supplemented by assertions made by Nicolaou's counsel during oral argument on this appeal. Thus, upon remand, we direct the district court to afford Nicolaou the opportunity to file a revised amended complaint which will serve to eliminate these ambiguities.
And to add a somewhat lengthy post-script, even though the majority had stretched the ERISA retaliation provision to the point of breaking, the concurring opinion felt it had not gone far enough given Nicolaou's role as a fiduciary. While noting that ERISA itself did not specifically provide the protection she would extend, Judge Pooler nevertheless would have found:
In light of Nicolaou's status as an ERISA fiduciary, I believe that the allegations of the amended complaint set forth 'reasonable efforts' on her part, within the meaning of 29 U.S.C. §1105(a)(3), to see that Horizon's 401(k) plan was operated in accordance with the regulatory program set forth in ERISA. I also believe that it is reasonable to conclude that such efforts fall within the protection of Section 510 from the point at which Nicolaou began to conduct her own inquiry into the alleged underfunding of the Plan, and not merely from the point at which Nicolaou and [the outside lawyer] met with [the President.] As stated by the Secretary of Labor, appearing here as amicus curiae:
If fiduciaries do not receive Section 510's protection during the initial stages of an internal investigation, and have reason to fear that they may lose their jobs if they raise or attempt to address concerns about the plan [they administer], they may be hesitant to vigorously carry out [their] essential and mandated fiduciary functions.
This is surely a result to be avoided.