A district court recently dismissed a former employee’s state breach of contract claim, relating to his employer’s denial of severance benefits, on the grounds that the claim was preempted by the Employee Retirement Income Security Act (ERISA). In 2011, the plaintiff’s employer implemented a voluntary executive separation program (VESP), offering certain employees a one-time lump sum payment based on their years of service with the company in exchange for voluntarily resignation within a specified time period. On applying for the VESP, the plaintiff was informed that his estimated severance benefit would be $245,353. The plaintiff resigned his employment and executed a standard release of claims. Shortly after resigning, the plaintiff submitted a reimbursement claim for travel expenses for $4,700. The large reimbursement claim triggered an investigation, resulting in an audit of the plaintiff’s expense reimbursement history. The company subsequently determined that the plaintiff had collected more than $42,000 in expense reimbursements that he was not entitled to receive. Based on the improper expense reporting, the company informed the former employee that his termination had been reclassified as a termination for cause, resulting in his disqualification for the severance payment under the VESP. Following denial of his claims appeal by the company, the employee filed a state claim for breach of contract.
Focusing on whether the VESP qualified as an employee benefit plan within the meaning of ERISA, the court determined that the program required an ongoing administrative scheme and required the company to exercise a non-trivial degree of discretion in deciding which employees were permitted to participate. The discretion retained by the company to deny eligible employees participation in the program based upon the needs of the business, along with the existence of a comprehensive appeals process to challenge any denials, was determined by the court to sufficiently implicate the necessary “ongoing administrative scheme.” The fact that some employees were denied enrollment indicated that the company did, in fact, exercise “ongoing particularized discretion” with respect to the administration of the VESP. Even though only a handful of employees were denied enrollment, the court concluded that the exercise of this type of discretion is sufficient to “transform a simple severance agreement into an ERISA employee benefits plan.” Finally, the court pointed to the circumstances triggering the severance offer, noting that the company’s strategic decision to “de-layer” its upper management level workforce required the company to exercise discretion in determining which employees would be allowed to participate. Concluding that the VESP is precisely the type of employee benefit plan that “by nature requires an ongoing administrative program to meet the employer’s obligation,” the court granted the company’s motion for summary judgment on ERISA preemption grounds. (Edwards v. Lockheed Martin Corp. E.D. Wash., 2013)