Northrup Grumman ends nearly decade-long class action with hundreds of members, all thanks to careful and compliant drafting of a severance plan. Here’s what you need to know.

In Alan Carlson et al. v. Northrop Grumman Severance Plan et al., case number 22-1764 (May 8, 2023), the Seventh Circuit affirmed summary judgment granted in Northrup Grumman’s favor in a class action arising from an Employment Retirement Income Security Act (“ERISA”) severance plan. The severance plan at issue provided that laid off employees would receive a severance benefit if they worked more than 20 hours a week and received a memo from Human Resources (“HR”) notifying them of their eligibility. Plaintiffs alleged the memo was a mere administrative notification; Northrup Grumman argued that an employee’s receipt of the memo was a condition precedent for benefits.

Unlike retirement plans, welfare-benefit plans like the severance plan here are entirely controlled by the entities that establish them — here, Northrup Grumman. The company had established the plan such that eligibility was based on the discretion of the company, which was expressed through who received an eligibility memo.

The company did not owe fiduciary duties to the plaintiffs, and instead, administered the plan in accordance with its interests. Undeterred, Plaintiffs advanced a promissory estoppel argument — that they relied upon the promise of severance benefits and remained employed. The Seventh Circuit did not buy that argument either. The court made clear that pension and welfare plans must be applied as written and rights under ERISA are not subject to estoppel.  

Careful drafting carried the day, and because the HR department was not a fiduciary, Plaintiffs were out of luck.