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Home > Blog > Third Circuit Enforces Equitable Disgorgement Remedy Against Former Employee Who Violated ERISA Plan’s Non-Compete Provision

Third Circuit Enforces Equitable Disgorgement Remedy Against Former Employee Who Violated ERISA Plan’s Non-Compete Provision

When Plaintiff-Appellant Michael Wilson sued his former employer, Aerotek, Inc., for violations of the Family and Medical Leave Act and defamation, Aerotek counterclaimed under ERISA alleging that Wilson violated the non-compete provision of Aerotek’s Incentive Investment Plan (IIP). Aerotek sought equitable disgorgement of the IIP payments it made to Wilson. In Wilson, Jr. v. Aerotek, Inc., et al., No. 20-1678, __F.App’x__, 2021 WL 1828428 (3d Cir. May 7, 2021), the Third Circuit affirmed the district court’s orders in favor of Aerotek. This article only recaps the Third Circuit’s rulings with respect to the ERISA counterclaims.

First, the Third Circuit determined that the terms of the 2011 IIP Award Agreement, which contains a 30-month non-compete provision, is compatible with Wilson’s Employment Agreement, which contains only an 18-month non-compete provision. It found that there was no overlap of subject matter and each document was in harmony with the other. In other words, the contracts can be enforced in conjunction with each other. Wilson signed an acknowledgment that included the 30-month term, the end of which was the date he would receive his final IIP payment. The court was not convinced that the Employment Agreement, signed three months before the Award Agreement, shortened the 30-month period to just eighteen months. Wilson violated the non-compete provision when he took his new job less than thirty months from his termination of employment.

Second, with respect to remedies, the district court denied Wilson’s second motion for partial summary judgment on Aerotek’s equitable disgorgement counterclaim. Wilson argued in his motion to the Magistrate Judge that equitable disgorgement was unavailable as a matter of law against a non-fiduciary ERISA plan participant. In his objections to the Report and Recommendation, Wilson acknowledged it was an available equitable remedy in theory but that it was improper since he did not knowingly violate the IIP. Before the district court issued a decision on Wilson’s second motion, Wilson stipulated with Aerotek on an entry of judgment on Aerotek’s equitable disgorgement counterclaim. The district court then denied Wilson’s second motion since it could not make a factual determination as to Wilson’s state of mind and whether he knowingly violated the terms of the IIP. Thereafter, the parties filed a joint motion for entry of judgment, including on the equitable disgorgement claim, representing that there were no disputed issues left for trial in this case. The district court then granted summary judgment, sua sponte, to Aerotek on its equitable disgorgement counterclaim.

On appeal, Wilson did not address the district court’s entry of judgment or its sua sponte grant of summary judgment. He only focused on the second motion for partial summary judgment. He argued that the district court “erred in concluding that equitable disgorgement was available because (1) he was not a plan fiduciary, (2) he did not ‘knowingly violate ERISA,’ and (3) the IIP did not authorize disgorgement.” The Third Circuit found that Wilson waived any argument regarding his state of mind since he stipulated below that there were no triable disputes of fact remaining. The court rejected Wilson’s argument that the IIP did not alert him to the disgorgement remedy. The court explained that the issue is whether Wilson knowingly breached an ERISA-governed plan, not whether he knew of the possible penalties of a breach. Supreme Court and Third Circuit precedent supports that a nonfiduciary who knowingly participates in a prohibited transaction under ERISA can be sued under ERISA § 502(a)(3). See Great-W. Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002); National Security Systems v. Iola, 700 F.3d 65, 91 (3d Cir. 2012). Wilson also forfeited his challenge of the district court’s grant of summary judgment in favor of Aerotek since he did not address it in his appellate briefing.

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