ERISA governed severance plan, which properly denied benefits to employee who didn't return deleted files
News
Tuesday, July 12, 2016

ERISA governed severance plan, which properly denied benefits to employee who didn't return deleted files

By Lorene D. Park, J.D. Affirming summary judgment against an employee who was denied severance pay because he failed to return company property, the Fifth Circuit first held that ERISA governed the severance plans because they required more than a single lump-sum payment but involved ongoing plan administration and discretionary decisions on eligibility and amount of pay. On the merits, the appeals court agreed with the lower court that the plan allowed the employer to deny severance benefits on the ground that the employee failed to return company property (he deleted computer files) upon termination (Gomez v. Ericsson, Inc., July 8, 2016, Costa, G.). The employee sold the employer’s telecommunications services for about three years before being laid off. Shortly after his termination, the employer presented him with a severance agreement, which required that he return the employer’s property in his possession in exchange for receiving severance pay under the terms of both the employer’s "Standard Severance Plan" (SP) and its "Top Contributor Enhanced Severance Plan" (ESP) of 2010. Severance pay. The plans provided lump-sum payments funded by the employer’s general assets. For salaried employees, the payment from the SP provided four or eight weeks of "notice pay" depending on length of employment, plus a week of severance for each full year of service. Employees eligible under the ESP received an additional lump sum of 39 weeks of pay. If employees were rehired within the period covered by the severance pay of either plan, there was a repayment contingency preventing the receipt of severance at the same time as pay for work. Plan eligibility. The plan administrator made the initial determination of eligibility and calculated payments. Both plans applied to employees terminated in a RIF. The SP also applied to those who resign for "good reason" (refusing to accept a new position that is too far away from the current job or pays too little). Eligibility under both plans was conditioned on execution and non-revocation of a "satisfactory waiver and release of claims" in favor of the employer. Deleted files. The employee signed the severance agreement but before returning the employer’s laptop, he wiped the hard drive of all files, including work-related ones. He claimed he did it due to safety concerns about the storage of unspecified personal information and confidential employer data. According to employer, the erased work files were important because they were the only copies of the raw data supporting the employee’s final deliverables. As a result, the employer denied the employee any severance benefits. Although the employee then provided his personal hard drive to see if any of the files were there, they were not. He administratively appealed the decision denying benefits but was unsuccessful. Did ERISA govern the dispute? The employee filed suit in federal court asserting an ERISA claim, but also sought a declaration that ERISA did not govern the dispute over the severance plans. He wanted to file a contract claim in state court should he obtain such a ruling. The district court concluded that ERISA governed the case and later granted summary judgment in favor of the employer, ruling that the company had not abused its discretion in denying severance pay. Affirming, the Fifth Circuit first noted that "ERISA is one of the rare examples of a federal statute that does not just preempt state law claims involving a plan in the sense that it provides the governing law. It also ‘completely preempts’ any otherwise applicable state law, meaning the claim is treated as a federal one that provides federal jurisdiction." Some severance plans are covered by ERISA. The parties did not dispute ERISA’s preemptive force, but disagreed on whether the employer’s plans were covered by the Act, which is better known to apply to retirement and health plans. This was not the first time the question had been posed, the Fifth Circuit explained, and some severance plans are covered by ERISA. Under Supreme Court precedent, the key inquiry is whether the plan at issue involves an "ongoing administrative program" that might give rise to "employer abuse" or the risk of "conflicting regulation" of the plan. If there is an ongoing administrative scheme, ERISA applies. Employer’s plans had administrative scheme. Here, ongoing administrative activity was "abundant"—the plans were ongoing on a large scale, covering 10,000 employees across the nation. Aside from demonstrating a need for the uniform regulation that ERISA provides, this size was a far cry from "single event" plans that do not fall under the Act. Moreover, even though the plans involved lump-sum payments, an administrative scheme could be found in other features requiring the administrator’s exercise of discretion, including: eligibility determinations; payment calculations (involving detailed formulas and offsets); and determining whether an employee has "good reason" for voluntary termination. Both plans also had the added feature of requiring compliance with a waiver and release, which was the contested issue here. Based on the foregoing, the appeals court concluded that ERISA governed the plans, and this lawsuit. Severance properly denied. On the merits, the employee argued that the plans only conditioned severance on signing a satisfactory waiver and release, and did not require the return of company property. While the court found "some force" to his argument, there was enough ambiguity in the plans to support the employer’s interpretation that the return of property condition was not inconsistent with plan terms. Said differently, it would be consistent for the plans to impose other conditions reasonably related to the termination of employment. Indeed, a provision requiring the return of company property at the end of employment was both reasonable and common. Thus, the district court did not err in ruling as a matter of law that the plan allowed the employer to deny benefits on the ground that the employee failed to meet the return of property condition.

Interested in submitting an article?

Submit your information to us today!

Learn More