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O'Brien v. Caterpillar, Inc.

United States District Court, N.D. Illinois, Eastern Division

August 31, 2017

TIMOTHY O'BRIEN, et al., Plaintiffs,


          SHARON JOHNSON COLEMAN United States District Judge.

         Plaintiffs' First Amended Complaint alleges discrimination in violation of the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. §621 et seq. (“ADEA”) against defendant Caterpillar, Inc. (“Caterpillar”) and on behalf of a purported class of similarly situated individuals. Plaintiffs move for partial summary judgment in their favor [58], claiming the undisputed facts demonstrate that Caterpillar's Supplemental Unemployment Benefit (“SUB”) Plan liquidation program caused a significant disparate impact on older workers. Caterpillar moves for summary judgment in its favor [61], arguing the undisputed facts demonstrate that plaintiffs cannot establish disparate impact and Caterpillar based its decision on a reasonable factor other than age. For the reasons stated below, this Court denies summary judgment for plaintiffs and grants summary judgment for Caterpillar.

         Background The following facts are undisputed for purposes of deciding this motion. Caterpillar is a Delaware corporation with headquarters in Peoria, Illinois. (Dkt. 65, Pls.'s Resp. to Def.'s L.R. 56.1 Statement of Facts, at ¶1). Caterpillar has several manufacturing locations, including one in Joliet, Illinois. Id. Plaintiffs are 48 current employees or the estates of deceased former employees of Caterpillar's Joliet plant. Id. at ¶2. Since 1951, Joliet production and maintenance employees, including plaintiffs, have been represented for collective bargaining purposes by the International Association of Machinists and Aerospace Workers, AFL-CIO and its affiliated Local Lodge No. 851 (collectively “IAM” or “the Union”). Id. at ¶4. Caterpillar negotiates with the Union concerning terms and conditions of employment because the Union is the exclusive bargaining representative for the Joliet employees. Id. at ¶5. Caterpillar and the Union have negotiated a series of collective bargaining agreements covering the Joliet bargaining unit employees. These agreements typically have consisted of a main labor contract and separate contracts covering benefits. Id. at ¶6. The bargaining unit (Local Lodge) must ratify any agreement reached between the Union and Caterpillar. Id. at ¶7.

         Since the 1950s, the Joliet labor contract included a pension plan and, until 2012, it included a Supplemental Unemployment Benefit (“SUB”) plan. Id. at ¶9-10. The SUB plan provided supplemental compensation to eligible employees who were laid off. Id. In March 2012, Caterpillar and the Union began renegotiating the collective bargaining agreement (“CBA”) that had been in effect from May 2, 2005, to May 1, 2012 (“the 2005 CBA”). Id. at ¶18. One of Caterpillar's objectives in the renegotiation was to eliminate the Joliet SUB plan. Id.

         The 2005 CBA contained a “New Hire Competitive Base Rate Schedule, ” applicable to employees hired after May 2, 2005, which provided a compensation package significantly lower than that provided to employees hired before May 2, 2005. Id. at ¶11. Under this CBA the cost difference between a new hire employee and a standard wage employee, including differentials in wages and benefits, was approximately $18.00 per hour worked. Id. The pension plan in the 2005 CBA applied to Joliet bargaining unit employees hired before May 2, 2005. Covered employees became retirement-eligible by meeting one of the following four criteria: (a) the employee reached age 65 with 5 or more years of credited service, including at least one hour of credited service on or after December 1, 1989; (b) the employee reached age 60 with 10 or more years of credited service; (c) the employee reached age 55 and his/her age plus years of credited service totaled at least 85; or (d) the employee at any age accumulated 30 or more years of credited service. Id. at ¶13; Dkt. 67, Def.'s Resp. to Pl.'s LR 56.1 Statement of Facts at ¶9. Because the pension plan provided that an employee could become retirement-eligible by accumulating 30 or more years of credited service, regardless of age, there were retirement-eligible employees in the Joliet bargaining unit who were younger than certain of their non-retirement-eligible co-workers. Dkt. 65 at ¶14.

         The 2005 CBA limited SUB plan participation to Joliet bargaining unit employees who were hired before 1999. Id. at ¶15. The Union and Caterpillar agreed during negotiations in 1999 to limit the SUB. Id. All Joliet bargaining unit employees who were SUB participants were also pension plan participants. Id. Caterpillar made contributions to the SUB through a trust based on hours worked by SUB participants each month. Id. at ¶16. The specific amount of the SUB benefit depended on the funded status of the plan at the time the payments were made. Id. SUB payments were made during periods of layoff and thus were infrequent. Id. at 17. Between 1998 and 2012, there were only four years when more than 20 SUB participants received any payment. Id. The average individual monthly SUB payment was $483 and the average total amount of benefits received was $1, 890. Id.

         By 2012 when Caterpillar and the Union began renegotiating the 2005 CBA, Caterpillar wanted to eliminate the SUB in Joliet for several reasons. Id. at ¶19. The SUB administration system was aged and required investment to update, and the SUB “tied up” money in the fund that could be used for other purposes. Id. Caterpillar also wanted to use the accumulated SUB funds to incentivize retirements among retirement-eligible employees, so their positions could be filled by newly-hired employees who would be subject to the lower “new hire” compensation package. Id. at ¶20. The 2012 negotiations was not the first time that Caterpillar had proposed eliminating the SUB plan. Id. at ¶21. It was the first time that Caterpillar proposed using funds liquidated from the SUB plan for an incentive retirement program. Dkt. 67 at ¶19.

         On April 5, 2012, Caterpillar made its first contract proposal to the Union. Dkt. 65 at ¶22. The proposal included the elimination of the SUB and the pro rata distribution of the accumulated SUB funds as a retirement incentive for retirement-eligible SUB participants who retired before the end of 2012 pursuant to a “metering” chart, which was intended to regulate departures to avoid operation disruptions. Id. The Union rejected Caterpillar's first SUB proposal. Id. at ¶23. Caterpillar presented a second proposal on April 24, 2012. Id. at ¶24. The Union rejected Caterpillar's second SUB proposal, stating that it was not interested in eliminating the SUB. Id. at ¶25. During further negotiations, Caterpillar told the Union that it believed it could not include non-SUB participants in the SUB distribution because the SUB plan provided that the accumulated funds could only be used for the benefit of the participants. Id. at ¶26. The Union rejected additional proposals from Caterpillar because it did not want to eliminate the SUB plan. Id. at ¶27.

         On May 1, 2012, the 2005 CBA expired without an agreement between Caterpillar and the Union and the Union went on strike. Id. at ¶28. On May 17, June 27, August 14, 2012, the parties met with a federal mediator. Id. at ¶29-31. The parties reached a tentative agreement on August 14, 2012. Id. at ¶31. The Union presented the tentative agreement to the Joliet bargaining unit for a ratification vote, which passed. Id. at ¶33.

         The new agreement provided for termination of the SUB plan as of August 20, 2012. Id. at ¶34. Caterpillar would distribute the SUB fund assets in equal shares to two groups: (1) SUB participants who were retirement-eligible under the pension plan and who voluntarily retired between October 1, 2012, and January 1, 2013; and (2) SUB participants who were not eligible to retire under the pension plan but who remained employed and were participants in the 401(k) tax deferred retirement plan as of January 1, 2013. Id. The first group received their distributions directly. The second group received their distribution through a one-time contribution to their 401(k) accounts. Id. at ¶36. Retirement-eligible SUB participants were given the option to retire, it was not mandatory. Id. at ¶35.

         Caterpillar never proposed an individual's age as the criterion for receipt of SUB funds. Caterpillar's position was always that it wanted to use the distribution of SUB funds as an incentive for retirement-eligible employees to retire, which would allow Caterpillar to realize cost savings by hiring replacement employees at the lower, second-tier compensation package. Id. at ¶39. Caterpillar did not calculate the savings that would result. Dkt. 67 at ¶23. Distribution of the SUB funds allowed Caterpillar to incentivize retirement without spending any money since Caterpillar had already contributed the funds. Id. Caterpillar agreed to distribute SUB funds to non-retirement eligible employees in order to reach an agreement with the Union. Dkt. 65 at ¶40. Caterpillar knew this proposal would dilute the incentive for retirement-eligible participants to retire because it would add over 80 people to the pool that would share the funds. Dkt. 67 at ¶35. Under Caterpillar's original proposal if every retirement-eligible employee retired, then each would receive $38, 000. Under the proposal that was ultimately ratified, each participant would receive approximately $28, 000. Id.

         After the Joliet bargaining unit ratified the new labor agreement, Caterpillar distributed the $7.8 million in SUB plan funds in two stages. Dkt. 65 at ¶42. The retirement-eligible participants who opted to retire between October 1, 2012, and January 1, 2013, received the first wave of payments of $28, 800 each upon their retirement. Id. On January 1, 2013, Caterpillar determined the full pro rata distribution amount based on the actual number of SUB participants who elected to retire and receive a SUB distribution. Caterpillar then distributed the balance of their full share of $37, 836.51, first to the retired SUB plan participants, followed by a one-time disbursement of the full $37, 836.51 to the 401(k) accounts of the non-retirement eligible SUB plan participants. Id. at ¶43.

         At the beginning of negotiations in March 2012, Caterpillar had 796 employees in the Joliet bargaining unit. Id. at ¶46.

Total Number

Age Range

Average Age

SUB Participants




Non-SUB Participants




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