ERISA preempted state-law claims arising from denial of severance benefits

ERISA preempted state-law claims arising from a denial of severance benefits because the separation plan, which granted discretion to the plan administrator and contained typical ERISA benefit payments, was an ERISA plan, a federal district court in Massachusetts ruled. In granting the employer’s motion to dismiss, the court denied the employee leave to amend the complaint to include an ERISA claim because he had failed to exhaust his administrative remedies.

The employee worked for the employer for 18 years at its Westborough, Massachusetts, facility. In August 2014, the employer announced its decision to close that facility and, at the employee’s request, gave him a copy of the Separation Plan Summary. That summary detailed what would be involved in an involuntary termination, which would entitle employees to severance benefits, including a lump-sum payment, the continuation of health and life insurance benefits, and access to the employee assistance program.

In May 2015, the employee received oral notice that he would be terminated as of September 10. He declined job offers prior to that date in order to receive his severance pay, but after he had obtained another job, the employer announced that his facility would remain open for another year. After the employee’s termination date, the employer issued a letter to employees stating that employees who left the company without receiving a Notice of Termination would forfeit severance benefits. The company denied the employee’s request for benefits and he filed claims under the Massachusetts Wage Act and common-law breach of contract. The employer moved to dismiss, contending that ERISA preempted the state-law claims.

ERISA plan. The court granted the motion. ERISA preempts state-law causes of action if the plan at issue is an employee benefit plan and if the cause of action relates to that plan. The employer argued that the plan was an ERISA plan because it gave an administrative committee the sole right to interpret and implement it and to determine which employees would be eligible for plan benefits and because it provided a detailed appeals process for bringing claims that mandated ERISA compliance. The employee argued that the plan was not an ERISA plan because it offered a lump-sum severance payment that was determined by nondiscretionary factors such as length of employment and target incentive performance. He further argued that the plan summary did not indicate that the plan was governed by ERISA, although the court noted that it specifically provided a notice of ERISA rights and explained how to appeal claim denials.

The court agreed that the plan was an ERISA plan. It found that the lump-sum payment was only available to eligible employees and that plan administrators had the discretion to determine eligibility. Thus, the court found that the lump-sum payment itself was paid on a discretionary basis. It further found that the remaining benefits were the kind of ongoing benefits that constitute typical ERISA plans. Lastly, the court found that the plan and plan summary clearly stated the intent to be an ERISA plan.

Plan related to state-law cause of action. The court next analyzed whether the state-law causes of action related to the plan. It determined that the causes of action in this case provided an alternative enforcement mechanism to ERISA because the complaint asserted that the employee had complied with the plan terms, but had been denied benefits to which he was entitled. The court further noted that the employee sought damages of severance pay under the state laws for the alleged breach. This, the court ruled, was an alternative enforcement mechanism that sought to enforce the terms of an ERISA plan through state-law causes of action and ERISA prohibits such mechanisms. Thus, the court ruled that the plan related to the state-law causes of action and that ERISA preempted those claims.

Failure to exhaust administrative remedies. Finally, the court denied the employee’s request for leave to amend the complaint to add an ERISA claim. The plan provided a detailed procedure to appeal claim denials that imposed 60-day time limits for such appeals. Despite knowing of the deadline, the employee failed to appeal under the plan’s appeal process. He contended that any appeal would have been futile, but failed to provide evidence in support of this argument. Thus, the court found that the employee had failed to exhaust his administrative remedies as required by ERISA and therefore granted the employer’s motion to dismiss.

SOURCE: Gordon v. AstraZeneca AB, No. 4:16-CV-40042-TSH, August 9, 2016.

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