ERISA-Eighth Circuit Holds That An Employment Agreement, A Contract Involving A Single Employee, Is Not A Plan Within The Meaning Of ERISA.

In Dakota, Minnesota & Eastern Railroad Corporation v. Schieffer, No. 10-2484 (8th Cir. 2011), Kevin Schieffer (“Schieffer”) became President and CEO of the Dakota, Minnesota & Eastern Railroad (“DM&E”) in 1996. In December 2004, anticipating a change of control, Schieffer and DM&E entered into an employment agreement (the “Employment Agreement”) to encourage his ongoing employment and to provide Schieffer with severance benefits should he be terminated without cause or resign for good reason. In October 2008, with regulatory approval of a merger imminent, DM&E terminated Schieffer without cause, triggering the Employment Agreement’s various severance provisions. Post-merger disputes arose as to the amounts DM&E owed. Schieffer filed a demand for arbitration under the Employment Agreement. DM&E commenced this action, alleging that the arbitration provisions of the Employment Agreement were preempted by ERISA. The district court granted Schieffer’s motion to dismiss, on the grounds that the Employment Agreement was not a plan covered by ERISA, and consequently the district court did not have subject matter jurisdiction to hear the case. DM&E appealed.

In analyzing the case, the Eighth Circuit Court of Appeals (the “Court”) noted that ERISA preempts any state-law cause of action that duplicates, supplements, or supplants the ERISA civil enforcement remedy. Here, Schieffer’s arbitration demand included a request for double damages under South Dakota’s failure-to-pay-wages statute, a remedy that clearly is preempted by ERISA if the Employment Agreement is an ERISA plan. Further, the Employment Agreement was an individually negotiated contract between DM&E as employer and Schieffer, a single employee. Whether such a “one-person” contract may be an ERISA plan is a question of first impression for this Court.

The Court recognized that several circuit court decisions have concluded that a contract with a single employee to provide severance or other post-termination benefits may be a “one-person” ERISA plan if it satisfies the “administrative scheme” criteria of the Supreme Court’s Fort Halifax case. But the Court said that the reasoning in those cases was quite perfunctory, and none considered the plain language of ERISA section 3(1). That section indicates that an ERISA welfare plan-the only type of plan that the Employment Agreement could be- involves a class of employees or more than one employee. Moreover, none of those cases considered that ERISA broadly preempts state laws that interfere with multi-employee benefit plans. Congress has never preempted state laws that regulate and enforce individual employment contracts between employers and their executives. That remains an important prerogative of the States. As such, the Court concluded that the Employment Agreement is not a plan that is subject to ERISA.

But what about certain provisions of the Employment Agreement that relate to employee benefit plans subject to ERISA? The Employment Agreement promised to allow Schieffer to participate in all employee health, welfare, and retirement benefit plans and programs made available generally by DM&E to its senior executives for a period of three years after paying Schieffer a severance payment due under the Employment Agreement itself. Schieffer generally alleged a failure by DM& E to make those benefits available. If it is determined that Schieffer’s demands involve the payment of benefits under plans subject to ERISA, then ERISA preemption applies, and the district court has subject matter jurisdiction to proceed with this case. However, if it is determined that those demands arise out of the single-employer Employment Agreement, and simply pegg DM&E’s payment obligations to amounts that would have been due under ERISA plans, there is no preemption, and no subject matter jurisdiction. As such, the Court vacated the district court’s decision and remanded the case back to the district court to make that determination.

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