ERISA-Third Circuit Dismisses Suit On The Grounds That The Severance Plan At Issue Is Not Subject To ERISA

In Girardot v. The Chemours Company, No. 17-1894 (3rd Circ. 2018), the plaintiffs, who were certain employees (the “Employees), brought claims under ERISA against their former employer, the Chemours Company (“Chemours”) related to an employee severance plan. Chemours moved to dismiss the claim pursuant to Fed. R. Civ. P. 12(b)(6), on the basis that the severance plan was not subject to ERISA. The United States District Court for the District of Delaware granted the motion, and the Employees now appeal the District Court’s decision. Upon reviewing the case, the Third Circuit Court of Appeals (the “Court”) affirmed the District Court’s decision.

In this case, in September 2015, Chemours announced a voluntary reduction-in-force program called the Chemours Voluntary Separation Program (“VSP”). Under the terms of the VSP, Chemours had sole authority and discretion to determine which employees would be eligible to participate in the VSP, and that it would approve all of the eligible employees no later than November 30, 2015. Participants were entitled to payment of a lump sum severance benefit of one week of base pay for each full year of service, with both a minimum benefit of two (2) weeks of base pay and a cap of twenty-six (26) weeks of base pay, i.e., a maximum benefit of six (6) months of base pay. They were also entitled to a lump sum payment equal to the costs of three (3) months of COBRA medical coverage and to the payment of a ‘prorated bonus for their year of separation to be made in accordance with Chemours’ procedures and based on Company performance.

Unhappy with this arrangement, the Employees brought ERISA claims related to the VSP against Chemours. However, as stated above, the District Court dismissed their claim, and the Employees appealed.

The issue in the case was whether the VSP is subject to ERISA.  In analyzing this issue, the Court said that severance benefits do not implicate ERISA unless they require the establishment and maintenance of a separate and ongoing administrative scheme. The crucial factor in determining whether a program constitutes an ERISA plan is whether the employer expresses the intention to provide benefits on a regular and long-term basis. Quoting from the Supreme Court’s decision in Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 12 (1987), the Court said that the requirement of a one-time, lump sum payment triggered by a single event requires no administrative scheme whatsoever to meet the employer’s obligation. This employer’s obligation is predicated on the occurrence of a single contingency that may never materialize. Further, based on other case law, continued the Court, simple or mechanical determinations do not necessarily require the establishment of an administrative scheme.

In this case, when creating the VSP, Chemours did not express an intention to provide regular and long-term benefits. On the contrary, the allegations suggest that Chemours merely entered into an obligation to provide lump-sum payments to a class of employees over a defined and relatively brief period. Determining the amount of these lump sum payments did not require a new administrative body or the exercise of discretion — rather, it involved the mechanical application of a simple formula based on time of employment with the Company. This aspect of the VSP fits squarely within the Fort Halifax analysis and does not indicate the need for an ongoing administrative scheme. Nor does the potential payment of prorated bonuses imply such a need. Chemours was under no obligation to pay bonuses, and because it would be paid — if at all — per usual company practices and on a one-time basis, there was no need to create a new administrative program to determine eligibility or amounts. The Court was likewise unconvinced that Chemours’ individualized determinations of the employees’ eligibility to participate in the VSP — which involved denying VSP applications of those employees that the Company needed to retain for business reasons — make the VSP an ERISA plan. While this process unquestionably involved an exercise of discretion and constituted more than a simple or mechanical decision, the selections took place in a period of less than two months. The Court could not say that this involves long-term or ongoing administrative processes; eligibility, once determined, was not conditioned on the occurrence of any future event that would require administrative consideration or adjudication. Based on the foregoing, the Court concluded that the VSP is not subject to ERISA.