Shifting Responsibility: Who Bears the Burden of Proving or Disproving Causation in ERISA Actions?


The Employee Retirement Income Security Act (ERISA) imposes stringent fiduciary duties upon the trustees of employee benefit plans, essentially regulating the relationship between employer and employee. To recover losses under ERISA, a plaintiff must prove that the loss resulted from the fiduciary’s breach. In Brotherston v. Putnam Investments, LLC (2018), the plaintiffs in a class action, sued their former employer, Putnam Investments, for breach of fiduciary duties. The members of the class participated in Putnam’s defined-contribution 401(k) retirement plan. The plaintiffs alleged that Putnam “breached its fiduciary duties by blindly stocking the Plan with Putnam-affiliated investment options merely because they were proprietary,” a clear violation of ERISA. The First Circuit ruled for the plaintiffs, vacating the district court’s judgment in favor of the defendants.

The Issue

Three elements must be proven for a successful ERISA claim: breach, loss, and causation. The split among the circuits specifically revolves around the third element of causation. Once a plaintiff has established loss under ERISA, do they also bear the burden of proving causation between the breach and loss, or rather does the defendant bear the burden of disproving any causal link?

The Split

The circuit courts are split on the issue of whether the plaintiff bears the burden of proving, or the defendant bears the burden of disproving, causation once a plaintiff has established loss “in the wake of an imprudent investment decision.” In Brotherston, the First Circuit joined the Fourth, Fifth, and Eighth Circuits, by handing down a ruling that favors employees, holding that “once an ERISA plaintiff has shown a breach of fiduciary duty and loss to the plan, the burden shifts to the fiduciary to prove that such loss was not caused by its breach, that is, to prove that the resulting investment decision was objectively prudent.”

The First Circuit’s reasoning for adopting the burden-shifting approach was two-fold. First, in the past, the Supreme Court has generally allowed for many exceptions to what is called the “ordinary default rule.” This rule allows courts to presume that the burden rests on plaintiffs to prove the critical aspects of their claims. As a matter of fairness, the ordinary default rule does not apply when the presumption would ultimately force the litigant to “establish facts peculiarly within the knowledge of his adversary.” In Brotherston, the fiduciary possessed the knowledge of the retirement plan and was found to be in a better position, when compared with the beneficiaries, to bear the burden. Second, it is common practice for the Supreme Court to look to the common law of trusts for interpretive guidance in the absence of “explicit textual direction” from the ERISA statute. “The common law of trusts – like ERISA – classifies causation as an element of a claim for breach of fiduciary duty. It also places the burden of disproving causation on the fiduciary once the beneficiary has established that there is a loss associated with the fiduciary’s breach. This burden allocation has long been the rule in trust law.”

In contrast, the Sixth, Ninth, Tenth, and Eleventh Circuits’ standard favors the fiduciary. In these circuits, the burden does not shift to the defendant to prove that the investment decision was “objectively prudent.” Rather, the plaintiff bears the responsibility of proving that the defendant fiduciary’s alleged breach caused the plaintiff’s loss. Thus, unlike in circuits that adopt a more plaintiff-friendly approach, the defendant has no obligation to disprove the alleged causation. These circuits hold firm in the belief that the beneficiary bears the burden because the party alleging the loss should be responsible for proving the causation.

Moving Forward

Not surprisingly, members of the business community, such as the Investment Company Institute, the American Council of Life Insurers, and the U.S. Chamber of Commerce support Putnam Investment LLC in the case of Brotherston. These organizations have submitted petitions for writ of certiorari, urging the Supreme Court to take on the case. For more general information on fiduciary duties under ERISA, see “ERISA Compliance FAQs: Fiduciary Responsibilities.”

Here’s a Tip: Deciding if Dual Jobs Qualify for “Tip Credit”

The Issue

Working as a server requires an individual to handle a vast array of responsibilities, often for minimal compensation. Balancing a tray full of food, anticipating when drinks need to be refilled, serving as a liaison between the kitchen and customers, and performing all other duties as assigned can really wear on a person, especially when customers don’t realize that their tips make up a large percentage of a server’s income. Recently, the compensation for these “other duties” have been causing cases to come out of the frying pan and into the fire.

Under 29 USC §203(m), employers with “tipped employees” (employees who make $30 per month or more in tips) are allowed to count tips as a part of an employee’s salary, and thus can pay these employees a lower base salary. Tips are counted as “tip credit” towards the employee’s monthly salary. Cumbie v. Woody Woo, Inc. (9th Cir. 2010). As long as the base salary is adjusted so that, when combined with monthly tips, it evens out to the requisite minimum wage, and employer has met his or her legal duty.

The issue is that some employees serve “dual jobs” (performing the tasks of both a tipped and non-tipped employee). Under 29 C.F.R. § 531.56(e), there is a provision noting that time spent on “related duties” can be counted towards the tip credit. The Department of Labor, in FOH § 30d00(f) (2016), has stated that if an employee spends more than 20% of their time serving in the non-tipped position, then the work done in said position cannot be factored into tip credit and the employee must be paid the legal minimum wage. In Marsh v. Alexander LLC, (9th Cir., 2017), the Plaintiff alleged that he performed duties unrelated to generating tips during more than 20% of his work hours, but his employer claimed a tip credit for the work.

The Split

The Eighth Circuit

The Eighth Circuit addressed this issue in Fast v. Applebee’s Int’l, Inc., (2011), where they stated that the Department of Labor’s interpretation of FOH § 30d00(f) was ambiguous, but that the 20% margin was ultimately a reasonable interpretation, holding “[t]he 20 percent threshold used by the DOL in its Handbook is not inconsistent with § 531.56(e) and is a reasonable interpretation of the terms ‘part of [the] time’ and ‘occasionally’ used in that regulation.”

The Ninth Circuit

The Ninth Circuit, in Marsh v. Alexander LLC, (2017), states that the Eighth Circuit failed:

“…to grapple with the crucial question whether the FOH’s time sheet approach is a reasonable interpretation of ‘job’ (in the regulation) or ‘occupation’ (in the statute),”


“…that in order for an employee to be engaged in two different occupations there must be a clear dividing line between two different types of duties, such as when one set of duties is performed in a distinct part of the workday.”

In Marsh, the Ninth Circuit held:

“…no provision with the force of law permits the DOL to require employers to engage in time tracking and accounting for minutes spent in diverse tasks before claiming a tip credit.”

Looking Forward

The appropriate calculation for minimum wage has been hotly debated. The outcome of this circuit split will better define how tipped workers are to be compensated for their work. The courts will have to analyze whether the 20% rule is a justifiable standard for compensating tipped workers for non-tipped tasks.

Honest Belief, Reasonable Belief: Can Your Employer Fire You Based on a Mistake?

The Issue

When an employer fires an employee, and the employee sues for discrimination, the employer typically justifies the firing by showing a “legitimate, nondiscriminatory reason” (LNR) for it. But what if that reason turns out to be a mistake?

An Honest Belief

Many federal courts hold that an employer does not violate Title VII, or other anti-employment-discrimination statutes, if the employer fires the employee based on an “honest belief” in facts that suggest there is a legitimate, nondiscriminatory reason to fire the employee. This principle seeks to draw a firm line between intentional discrimination against someone for their age, sex, etc. and firing them for a valid (if incorrect) reason.

What does “honest belief” mean in practice? The Sixth and Seventh Circuits have split on how litigants can dispute an employer’s LNR if that LNR is based on an honest mistake. The split is so fundamental that one circuit puts the burden on the plaintiff, and the other on the defendant, to show that the employer’s honest belief was or was not honestly held.


Several federal statutes protect against discrimination in the workplace. Title VII of the Civil Rights Act of 1964, allows a person to sue an employer if the employer discriminates against them on the grounds of race, sex, color, religion, or national origin. The Age Discrimination in Employment Act does the same thing for age; and the Americans with Disabilities Act for disability.

A suit under these statutes generally works like a ping-pong game between the plaintiff and defendant. First, the plaintiff “serves” by showing what in law-speak is called the “prima facie” case (Latin for “first appearance”). This, basically, is the upfront reason to believe that something discriminatory happened, and plaintiffs are supposed to be able to meet this initial burden easily. They have to show that

  1. The plaintiff is a member of a protected class
  2. They suffered an adverse employment action (such as being fired),
  3. They were qualified for their position, and
  4. Circumstances were present that give rise to an inference of unlawful discrimination.

See Clay v. United Parcel Service, Inc., 501 F.3d 695, 703 (6th Cir. 2007); cf. McDonnell Douglas Corp. v. Green, 411 U.S. 792, 802 (1973).

Next, the “return”: the burden shifts to the employer, who must articulate a “legitimate, nondiscriminatory reason” (LNR) for the rejection. McDonnell Douglas, 411 U.S. at 802.

Finally, the volley: if the defendant articulates its LNR, the plaintiff then has an opportunity to show that the LNR is merely a pretext for the discrimination. See Texas Department of Community Affairs v. Burdine, 450 U.S. 248, 253 (1981).

The Honest Belief Rule

One good way for plaintiffs to show that the employer’s LNR is pretextual is to show that employees similarly situated to the plaintiff were treated better. For example, if the employer refuses to hire a female employee because she was not a college graduate, the female could point to males hired for the same position who also lack college degrees. That suggests the employer’s LNR is bunk—and sex discrimination is much more likely.

Honest belief comes in at the next stage of the ping-pong point. Suppose a plaintiff is successful in showing that the employer’s LNR is false—in the earlier example, she was, in fact, a college graduate! One might think the plaintiff, at this point, had hit a screaming winner down the line—but the “honest belief” rule actually allows the defendant to hit the ball back again.

As stated by the Seventh Circuit, the “honest belief” rule says that an employer’s LNR is not pretext for discrimination if the employer honestly believed in the LNR—even if the plaintiff shows the LNR to be “mistaken, trivial, or baseless.” Kariotis v. Navistar International Transportation Corp., 131 F.3d 672, 676 (7th Cir. 1997).

Defendants who satisfy the “honest belief” rule may be entitled to summary judgment, which defeats the plaintiff’s claim before the plaintiff has a chance to make the case to a jury.

A Split of Burdens

The Seventh Circuit

In the Seventh Circuit, the plaintiff bears the burden to come up with facts that undermine the honesty of the employer’s belief in its LNR:

To successfully challenge the honesty of the company’s reasons [plaintiff] must specifically rebut those reasons. But an opportunity for rebuttal is not an invitation to criticize the employer’s evaluation process or simply to question its conclusion about the quality of an employee’s performance. Rather, rebuttal must include facts tending to show that the employer’s reasons for some negative job action are false, thereby implying (if not actually showing) that the real reason is illegal discrimination. . . . [T]he question is not whether the employer’s reasons for a decision are ‘right but whether the employer’s description of its reasons is honest.’

Kariotis, 131 F.3d at 677 (quoting Gustovich v. AT&T Communications, Inc., 972 F.2d 845, 848 (7th Cir.1992).

In Kariotis, a 57-year-old employee sued her employer, Navistar, for age and disability discrimination. Navistar fired her and replaced her with a younger woman after it suspected her of exaggerating the effects of knee surgeries to take unwarranted time off. Kariotis responded that she was indeed debilitated by her injuries and offered medical evidence from her doctor. In response, Navistar pointed to the fact that it had hired a private investigator firm to watch Kariotis moving about – and Navistar said that it honestly believed the P.I.’s findings that Kariotis was not as disabled as she claimed. The Seventh Circuit held that Kariotis at most had shown that Navistar was “careless in not checking the facts before firing her,” but that was not enough to carry her burden of showing illegal discrimination.

The Sixth Circuit

The Sixth Circuit puts the burden on the defendant, requiring it to produce facts that justify its honest belief:

‘[t]o the extent the Seventh Circuit’s application of the ‘honest belief’ rule credits an employer’s belief without requiring that it be reasonably based on particularized facts rather than on ignorance and mythology, we reject its approach’). Under this approach, for an employer to avoid a finding that its claimed nondiscriminatory reason was pretextual, ‘the employer must be able to establish its reasonable reliance on the particularized facts that were before it at the time the decision was made.’

Wright v. Murray  Guard, Inc., 455 F.3d 702, 708 (6th Cir. 2006) (quoting Smith v. Chrysler Corp., 155 F.3d 799, 806 (6th Cir. 1998).

In Clay v. United Parcel Service, Inc. (6th Cir. 2007), for example, a UPS worker was fired allegedly for missing three straight days of work. He countered that, based on the timing of his availability and the termination letter, he was given only two days before being fired. UPS claimed that it honestly believed Clay violated the three-day rule, but that wasn’t enough for the court. UPS had a burden to show “reasonable reliance on the particularized facts that were before it at the time the decision was made.” Clay, 501 F.3d at 714. UPS was “silent” in the face of this burden, see id., so it was error for the trial court to grant summary judgment to UPS based on the honest belief rule—the case should go forward to trial for a jury to decide the honesty of UPS’s belief.

Looking Forward

Honest-belief cases will be driven by their facts, which will differ significantly from case to case. But, in all cases, the split starkly switches the burden of proof from plaintiff to defendant, or vice versa, depending on which circuit’s law applies.

For further reading, Noam Glick’s student comment for the Loyola of Los Angeles Law Review  supports the Sixth Circuit, but Professor Ernest F. Lidge III in the Oklahoma City University Law Review favors the Seventh Circuit’s approach.