ConAgra exec not entitled to severance benefits following ’self-termination’
News
Tuesday, January 9, 2018

ConAgra exec not entitled to severance benefits following ’self-termination’

By Ronald Miller, J.D.

An executive whose employment with ConAgra began after it acquired his former employer failed to show that ConAgra abused its discretion in denying his claim for severance benefits, ruled the Eighth Circuit. Under an employee benefits program, the employee was entitled to recover severance benefits after self-terminating his employment within 24 months after a “change of control,” based on “good reason.” Good reason included a material reduction in the employee’s position, duties, or responsibilities, or a material adverse change in the employee’s reporting relationships. ConAgra did not abuse its discretion, agreed the court, in finding that the employee had not suffered a significant decrease in his responsibilities or in his ability to give input on and influence high-level decisions within the company (Boyd v. ConAgra Foods, Inc., January 5, 2018, Melloy, M.).

Change of control. The employee previously worked for Ralcorp Holdings as “Vice President of Operations.” In 2013, ConAgra acquired Ralcorp and assumed Ralcorp’s obligations arising from Ralcorp’s employee benefits programs. Following the acquisition, ConAgra retained the employee, changing his job title to “Vice President of Manufacturing.” As part of his employee benefits with Ralcorp and then ConAgra, the employee was covered by a severance plan for exempt administrative employees, which is governed by ERISA.

Under the plan, the employee was entitled to recover severance benefits after self-terminating his employment within 24 months after a “change of control,” including corporate acquisition of Ralcorp, based on “good reason.” “Good reason” included a material reduction in the employee’s position, duties, or responsibilities, or a material adverse change in the employee’s reporting relationships. The plan further provided that an act by the company did not constitute “good reason” unless the employee gave written notice to the company within 30 days of such act and the company fails to reverse the act within 30 days.

“Good reason” to self-terminate Claim to severance benefits. According to the employee, he “suffered a significant decrease in his responsibilities and his ability to give input on and influence high-level decisions” within the company after ConAgra acquired Ralcorp. These changes gave him “good reason,” as defined under the plan, to self-terminate his employment and to recover severance benefits, and the employee sent ConAgra four letters asserting that he had a qualifying good reason. He also communicated with ConAgra regarding his claim to severance benefits.

Following each letter, an investigative committee evaluated the employee’s allegations and concluded that ConAgra had not materially reduced his employment in such a manner that would qualify as good reason. In the fourth letter, the employee stated that he would self-terminate his employment at the end of January 2014. Following his termination, the employee submitted an administrative claim for severance benefits under the plan asserting that he self-terminated for good reason. ConAgra denied his claim for severance benefits.

In August 2014, the employee sued ConAgra under ERISA seeking to recover severance benefits. Alternatively, he claimed that ConAgra breached its fiduciary duty by misleading him about his employment. The parties filed cross-motions for summary judgment. Concluding that ConAgra had not abused its discretion by denying the employee’s claims for severance benefits, tThe district court granted ConAgra summary judgment and also found that ConAgra had not breached its fiduciary duty to the employee. However, the lower court on these claims and then granted the employee’ his motion for attorney’s fees, concluding that the pursuant to the plan’s terms entitled to those fees because his claim was not frivolous. On appeal, the employee challenged the holdings that ConAgra did not abuse its discretion in denying his claim for benefits and that ConAgra did not breach its fiduciary duty under the plan. For its part, ConAgra argued that the district court erred in awarding the employee attorney’s fees.

Conflict of interest. Because ConAgra served as the plan administrator and the plan sponsor, this dual role created a financial conflict of interest. When such a conflict of interest exists, a reviewing court should consider the conflict as a factor in determining whether the plan administrator abused its discretion in denying benefits. The employee argued that there was a procedural irregularity because an HR representative who met with him to discuss his good reason letters misled him, but the appeals court found that no “serious procedural irregularity” the in the HR rep’s statement. The employee had not shown that the statement significantly diverged from the administrative procedures involved when the plan administrator considered this type of claim. Accordingly, he failed to show that a less deferential standard of review governed the court’s review.

Still, ConAgra’s conflict of interest was a relevant factor to be considered by the appeals court in determining whether the employer abused its discretion in denying the employee’s claim.

Good reason analysis. The employee contended that ConAgra abused its discretion by denying his claim on the basis that it was untimely. The plan provided that to be eligible for severance benefits, a qualifying employee must self-terminate “during the 90-day period following the initial existence of good reason.” ConAgra concluded that the employee failed to timely self-terminate because he filed his first good reason letter in August 2013 but did not self-terminate until January 2014. However, he sent four letters, and the allegations cited by the employee as establishing good reason occurred in November and December 2013—fewer than 90 days before he self-terminated. The district court found that ConAgra abused its discretion in concluding that the employee failed to timely self-terminate.

Still, ConAgra ultimately succeeded based on its determination that the employee did not have good cause. The record demonstrated that in his prior position with Ralcorp, the employee would not have been invited to a Senior Leadership Team meeting. He was also not invited to a Network Optimization Meeting because it focused on topics outside his responsibilities. Finally, both at Ralcorp and ConAgra, the employee’s supervisor had the authority to make decisions regarding the replacement of a plant manager without the employee’s involvement. Thus, the employee failed to show that ConAgra’s finding that the alleged employment changes did not establish good reason was unreasonable or was not supported by substantial evidence. Accordingly, ConAgra did not abuse its discretion in denying the employee’s claim for benefits.

Interested in submitting an article?

Submit your information to us today!

Learn More