Deferred compensation claim of exec fired for not accepting transfer revived, but severance pay claim fails

An executive terminated after he refused to accept a new position within the company was not terminated for “cause” so as to make him ineligible to receive deferred compensation benefits, ruled the D.C. Circuit. The appeals court agreed with the employee that his refusal to accept the transfer to the new position could not reasonably be considered cause for terminating him. Rather, when he was offered the opportunity to assume a different position in Kansas, the offer involved a new set of “material duties and obligations.” But the appeals court agreed with the district court’s grant of summary judgment in favor of the employer on the exec’s severance pay plan claims.

During the course of his 15-year career with the employer the exec rose through the ranks, eventually holding an executive marketing position. On August 23, 2012, the employer’s CEO met with the exec and informed him that he was being removed from the marketing position due to poor performance. He was offered a transfer back to Kansas for an executive quality control position where he had significant expertise. In an exchange of letters following the meeting, the executive confirmed his decision not to accept the Kansas position. The employer urged him to reconsider his decision and expressed the view that refusal to do so would constitute “cause” for his termination. A for-cause termination would affect his eligibility for certain deferred-compensation and severance benefits. He was terminated after he refused to transfer to the Kansas position.

Deferred comp claim. After his termination, the exec filed separate claims for benefits under the employer’s deferred-compensation plan and its severance policy. Under the deferred compensation plan, his benefits would vest after five years of participation. However, the plan provided that his right would vest before five years if he was terminated without cause. According to the plan’s terms, an administrative committee had authority to determine whether employees were eligible for payouts, but the committee concluded that the exec had been terminated for cause.

Severance claim. With regard to the exec’s claim for severance benefits, under the employer’s policy, separation benefits were available to eligible full-time employees “whose employment terminates due to a lack of work, elimination of position, or change of control.” However, an employee terminated for cause would be ineligible for severance pay. Accordingly, both of the exec’s claims were denied on the same ground: His termination for refusing to transfer positions rendered him ineligible for benefits.

The employee filed suit against the employer and its Key Employee Deferred Compensation Plan alleging that the denial of benefits violated ERISA and breached the employer’s contractual duty to provide severance pay to eligible employees. The district court granted summary judgment in the employer’s favor on the deferred-compensation claim. Following trial, the district court entered judgment in favor of the employer on the severance-pay claim.

Deferred compensation plan. On appeal, the exec challenged the judgment against him on his deferred-compensation and severance-pay claims. He argued that the employer acted unreasonably in determining that he was terminated for cause and was thus ineligible to receive deferred compensation. However, the employer countered that his refusal to accept the offer of a new position amounted to cause for his termination under the terms of the deferred compensation plan. But the D.C. Circuit agreed with the employee’s understanding: His refusal to accept a transfer to a new position could not reasonably be considered cause for terminating him.

The appeals court determined that the committee’s denial of the exec’s claim for deferred compensation could not be sustained as a reasonable determination under the company’s plan. Under the deferred compensation plan an employee was vested after five years, but the employee’s right to benefits vested before five years if he was terminated without cause. The plan provided that “cause” for termination arises from “habitual neglect of or deliberate or intentional refusal to perform any material duties.” The appeals court rejected the employer’s contention that the employee engaged in a “refusal to perform” material duties. It concluded that the employer’s reading of the plan upsets the parties’ reasonable expectations about the duties of a person’s employment with the company.

An employee does not refuse to perform the material duties of his employment if he declines to accept materially different duties and obligations. When the executive was offered the opportunity to assume a different position in Kansas, the offer involved a new set of “material duties and obligations.” Accordingly, the appeals court vacated summary judgment in favor of the employer on the deferred compensation claim.

Severance pay plan. The court next turned to the claim for severance pay. Severance pay was available for full-time employees “whose employment terminates due to a lack of work, elimination of position, or change of control.” The exec asserted an entitlement to severance pay based solely on the second ground. He contended that the employer had eliminated his marketing position. However, at no point did he contest the district court’s finding that he was terminated because he refused to accept the Kansas position, not because of the elimination of his position. Instead, he argued that the district court erred in finding that the employer did not eliminate his position.

Contrary to the executive’s contention, the employer did not change its position on the reason for denying him severance pay. In an October 2012 letter, the company’s CEO advised him that his employment was terminated because he refused the assignment to the Kansas position. Further, the employer continued to maintain that it terminated the executive solely because he refused to accept the new position. Accordingly, the appeals court rejected the exec’s estoppel argument and affirmed judgment in favor of the employer on the severance pay claim.

SOURCE: Peck v. SELEX Systems Integration, Inc., (D.C. Cir.), No. 17-7138, July 17, 2018.

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