Allowing employees to invest in the company’s stock – when you know it’s a risky investment – is a surefire way to wind up in a lawsuit.
Here’s what happened: Nortel Networks, Inc. allegedly offered employees their own company stock as an investment option in a company benefit plan – without letting employees know about the risks that went with such an investment.
Not telling employees about the risks associated with such an investment is a clear violation of an employer’s fiduciary duty under the Employee Retirement Income Security Act (ERISA).
Nortel filed for Chapter 11 bankruptcy in 2009 and sold its businesses instead of restructuring. The company agreed to settle this ERISA lawsuit for $21.5 million.
