Yates v. Hendon, 541 US 1 (2004)

Facts: Yates, the sole shareholder and president of Raymond B. Yates, M.D., P.C., a professional corporation, set up and participated in an ERISA-protected profit sharing plan for the corporation. Personal creditors filed an involuntary bankruptcy petition under Chapter 7. Just three weeks before bankruptcy was filed against him, Yates paid $50,467 into the ERISA profit sharing plan. ERISA has an anti-alienation provision which protects the Plan’s assets from transfer or attachment. The Bankruptcy Trustee sought the $50,467 that Yates had paid into the profit-sharing plan to be allocated to Yates’ creditors.

Procedural History: The Bankruptcy Court ruled in favor of the Trustee because it determined that Yates was “a self-employed owner of the professional corporation that sponsored the pension plan,” and therefore, Yates could not “participate as an employee under ERISA.”

Issue: Whether Yates, the working owner of a business, can qualify as a “participant” in a pension plan covered by the Employee Retirement Income Security Act (ERISA).

Holding: Yes, Yates can qualify as a participant in the ERISA plan as long as the plan covers one or more employees other than the business owner and his or her spouse.

Reasoning: Although ERISA did not helpfully define “employee,” the Court did not look to common-law agency principles to determine whether Yates was an employee as it did in Clackamas Gastroenterology Associates v. Wells. Instead, the Court determined that “ERISA’s text contains multiple indications that Congress intended working owners to qualify as plan participants. Because these indications combine to provide “specific guidance,” there is no cause in this case to resort to common law.” Under ERISA, a working owner may have dual status; Yates can be an employee and an employer. In addition, ERISA was enacted against a backdrop of IRC provisions that permitted corporate owners to participate in tax-qualified plans.


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