Employment agreements cover a wide range of topics, from setting the compensation terms to protecting a company’s intellectual property rights. It’s not surprising, then, that plan fiduciaries put terms in employment agreements aimed at limiting their exposure. The goal is to limit litigation and instead require arbitration for resolving ERISA claims. They may also choose to try to limit the claims period or set the jurisdiction in which the claims are heard. Whether or not these limitations are allowed is still a topic being debated by the courts.

Innis v. Bankers’ Trust Company of South Dakota

In this recent case, heard by the federal district court in Iowa, the court discussed the practice of having employees who were leaving the company sign releases that include ERISA fiduciary breach claims. While the release in this case did not mention ERISA specifically, the court held that the release did prevent the plan participant from suing the company’s ESOP for a fiduciary breach. The ruling also included a list of factors considered when determining whether the release signed by the departing employee was valid and enforceable.

The release must be in writing and it must be signed by the employee. Further, it must be a knowing and voluntary waiver of the employee’s right to sue for a fiduciary breach and can’t cover future claims that may arise after the signing of the release. The employee must also receive adequate consideration for their signing of the release. This consideration is often a severance package that includes pay, a portion of COBRA contributions, and other support that is beyond what the employee would have otherwise received.

In Innis, the court focused on whether the signing of the release was knowing and voluntary. They considered the employee’s education, business experience, the knowledge of her rights, her knowledge of relevant facts, her input into negotiating the release, the length of time she had to consider the release before signing, and the length of time she had to revoke the release after signing. Finally, the court looked at the employer’s behavior around having the release signed to ensure that the employee was not improperly induced to sign the release.

After a review of relevant facts, including the length of time the employee had to consider and sign the release, the court concluded that, even though the employee did not consult an attorney or try to negotiate the release, that her signing was both knowing and voluntary. The court also considered that, although there was no evidence that she had read the release, she signed an acknowledgment stating that she had read and understood the release.

When the court was considering the specific case of Innis, they also opened the door to a few questions, such as how much education and experience does it take for someone to be sophisticated enough to sign a release, the extent to which the release was valid against plan trustees, and whether a shorter timeline for signing would be equally sufficient. Further, the court noted that the employee’s release did not bar the plan itself from asserting claims against the plan fiduciaries in the future.