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Is the
general release and waiver language found in your standard employee
severance and release agreement enforceable with respect to claims a
former employee might have against an employer-sponsored benefit plan?
It depends on the facts and circumstances of each individual case.
Unfortunately for some employers, that is the message of a recent case
from the U.S. District Court for the District of Connecticut (Linder
v. BYK-Chemie USA Inc., D. Conn., 2006 U.S. Dist. LEXIS 13823,
3/10/06).
In Linder, an executive signed a separation and
release agreement in connection with his separation from the employer.
The agreement contained a covenant not to sue the employer and provided
that:
The Executive hereby fully and forever
releases the Company Group from any and all claims, causes of action and
charges, of whatever kind or nature, whether known or unknown, which he
now or hereafter may have against any member of the Company Group,
including, but not limited to, claims arising under or in any way
connected with his employment with the Company or the termination of
such employment.
When the executive learned that the
compensation amount used in calculating his benefits under the
employer’s nonqualified supplemental executive retirement plan (SERP)
would not include amounts received in connection with his exercise of
certain stock options, he sued his former employer and the SERP.
While the District Court
rejected the executive’s ERISA claim in this case, finding that the
release and covenant not to sue he signed was effective to bar his
lawsuit, the Court’s analysis highlights that a different result might
be reached for a plaintiff in different circumstances or if a different
employer-sponsored plan was involved. In reaching its decision, the
District Court followed a rule already adopted by several Circuit Courts
requiring closer scrutiny of a waiver of a claim for benefits under
ERISA than of a waiver of general contract claims. To determine if a
beneficiary has released claims under ERISA, the Court had to consider
whether under the totality of the circumstances the waiver was ‘knowing
and voluntary.’ The Court placed significant weight on the executive’s
extensive business and financial experience and his involvement in the
administration of the employer’s retirement plans in finding that the
executive was fully aware of the implications of signing the separation
and release agreement.
The Court also rejected the
executive’s argument that since the SERP was not mentioned anywhere in
the release agreement, he had not waived his right to bring an ERISA
claim. The Court recognized that under ERISA, an employee benefit plan
in some situations is recognized as separate and distinct from the
employer and may sue and be sued as an entity. However, in this case,
the Court found that since the SERP was an unfunded “top hat” ERISA plan
where benefits are paid solely from the general assets of the employer,
the employer and the plan were actually the same entity and should be
considered as such in interpreting the release agreement.
The court’s reasoning implies
the outcome would have been different if the plaintiff had been a lower
level officer, or an executive who was not involved in the
administration of the company’s benefit plans. To avoid such an
unfavorable outcome under those facts, the employer may have had to
include a specific reference to the SERP in the release agreement.
The Linder case serves as a reminder that employers need to be
careful using standard form releases. Employers seeking to ensure that
ERISA claims are released should obtain the advice of their legal
counsel in preparing release agreements.
For questions
about this Employer Alert, please contact
Gene Griggs at
704.342.5320 or
ggriggs@poynerspruill.com or
Susie Gibbons at
919-783-2813 or
sgibbons@poynerspruill.com |
