Are All Severance Plans Subject To ERISA?

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I blogged recently about an ERISA case involving an executive severance plan where the executive sued claiming that his employment termination was effective before the first anniversary of a change in control, thereby entitling him to severance benefits under the plan. The court had concluded that the severance occurred after the first anniversary but allowed the executive to proceed on a claim that the employer had interfered with the employee’s rights under the ERISA severance plan by manipulating the termination date.

The court in that case did not give many facts surrounding the severance plan but accepted the fact that it was governed by ERISA. In contrast, a recent federal district court case from the District of Puerto Rico determined that a severance plan was not an ERISA plan and therefore no claim for benefits could be made in federal court. That plan provided for severance payments over a period of 12, 26 or 52 weeks, plus a continuation of benefits during that time period. Amounts varied based upon years of service and were owed if the employee was terminated involuntarily without cause and signed a release of claims.

In reaching its decision, the court looked to the Supreme Court case of Fort Halifax Packing Co., Inc. v. Coyne, 482 US 1 (1987). That case involved a Maine statute requiring a lump sum payment by employers to employees on certain terminations of employment. The Court concluded that the statute was not preempted by ERISA because it did not create an employee benefit plan due to the lack of administration required to implement the statute (one time lump sum payment in limited events). The Puerto Rican court determined that not much administration was involved in sending severance checks every month and continuing to pay insurance premiums, concluding that the arrangement it was considering did not constitute an ERISA plan.

Although this case found there to be no ERISA severance plan, other courts have reached contrary determinations. In fact, it is difficult to rationalize the decisions in this area. Different courts seem to reach different conclusions about which severance arrangements are and are not subject to ERISA.

So the answer to the question posed in the headline is that not all severance plans are subject to ERISA, but in some cases it can be difficult for an employer to be certain whether its particular plan is or is not an ERISA plan. There are advantages and disadvantages to ERISA coverage. Employers may wish to consult with their benefits attorneys regarding their specific arrangements, decide whether their severance arrangements are or are not ERISA plans, and then report, communicate and document the arrangement in a manner consistent with the conclusion reached about ERISA coverage.

 

Topics:  ERISA, Severance Agreements, Termination

Published In: Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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