ERISA-Fifth Circuit Rules That A Severance Arrangement Is A Plan Subject To ERISA

In Gomez v. Ericsson, Inc., No. 15-41479 (5th Cir. 2016),  Ericsson, Inc. laid off Mark Gomez. Gomez was eligible for severance compensation if he complied with the terms of a Release and Severance Agreement. Ericsson determined that he did not comply with a provision requiring the return of all Ericsson property because work files were missing on the company laptop he returned. According to the Fifth Circuit Court of Appeals (the “Court”), this case requires the Court to answer two questions. Does ERISA govern this dispute? If so, did Ericsson abuse its discretion in concluding that Gomez was not eligible for severance pay? The district court had ruled against Gomez, holding that ERISA did apply, and that Ericsson-as administrator- had not abused its discretion in denying severance pay.

As to the first question, the Court said that it is the existence or nonexistence of an “ongoing administrative program” that is the key determinant of whether severance arrangements- such as the one at issue here-are governed by ERISA. Even where the arrangement’s benefit is a single lump sum payment-again as here-the administrative scheme can be found in a number of other features that require discretion: the eligibility determination; calculations of the payment amount (such as deductions and detailed formulas); the provision of additional services beyond the severance payment (such as insurance); and the establishment of procedures for handling claims and appeals.

In this case, said the Court, administrative activity is abundant when it comes to Ericsson’s severance arrangements (the “Plans”). The Plans are ongoing on a large scale. They cover over 10,000 employees across the nation, which could result in hundreds of different events that the Plans have to administer. Further, the Plans also require the administrator to exercise a great deal of discretion, as it must determine whether a “good reason” exists that qualifies an employee’s voluntary termination and thus severance entitlement. The Plans have the added feature of requiring compliance with the waiver and release, the contested issue here. And once eligibility is determined, further acts of the administrator are required to determine the amount of benefits, and whether any deductions apply. Ericsson’s plans check off most of the factors indicative of ERISA plans and are therefore subject to ERISA, so that ERISA governs the dispute.

As to the second question, the Court held that Ericsson’s decision to deny the severance benefit was correct, and therefore did involve an abuse of discretion. As such, the Court affirmed the judgment of the district court.

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