What do Benjamin Franklin, TV Cops and an Old Business Adage Have in Common?
They all provide timely advice to prevent clients from being negatively impacted by accepting severance payments.
One of the harder choices an employee makes when terminating employment is whether to accept a severance payment which usually requires the signing of a release of all claims. That includes a release of all ERISA claims. (Warning: This can arise in the worker’s compensation context, and not just labor law claims.) If the individual has a pension or 401(k), is disabled and has an ongoing disability claim, or may need to file a disability claim, their claims could be impacted. Oral assurances may not help much in avoiding impact of those claims. Many employers will except the ERISA claims from the release that may be at stake, if timely requested. However, if that is refused, every employee needs to carefully weigh whether acceptance of the severance payment is adequate compensation. If the agreement is asserted as a defense, assuming the language of the release is adequate to guarantee, an employee win is not the best approach.
A recent case bears this out, Stephens v. Time Customer Serv., Inc., No. 8:17-CV-1338-T-33AEP, 2017 WL 6042109, at *1 (M.D. Fla. Dec. 6, 2017). Stephens sought ERISA benefits after signing her severance agreement. Eventually, she filed a Complaint against the Time Customer Service (TCS) Inc. Plan and Lescaille as Plan Administrator for denial of benefits, breach of fiduciary duty, and failure to respond to document requests. In response, a counterclaim was filed seeking to enforce the severance agreement. Stephens sought dismissal using the language in the severance agreement. The court noted that all entities and people associated with TCS Inc. were covered as intended third-party beneficiaries of the agreement, and that was a problem:
“Therefore, the TCS Plan and Lescaille have plausibly alleged that they can seek recoupment at least as third-party beneficiaries of the Agreement.”
Stephens, frustrated at this, asserted that the release's terms did not apply to her ERISA claims because “the release expressly provided that it does not constitute a waiver of Stephens' right to vested accrued benefits” or “of claims arising after the date the release was signed.” The court noted this might be true, but agreed with defendants that this argument is more appropriate for the summary judgment stage: “For now, the Amended Counterclaim plausibly alleges that Stephens' ERISA claims were waived under the release, and thus Stephens has breached the terms of the Plan.”
A word to the wise – carefully evaluate a severance agreement before your client signs it! Even if Stephens wins, there will be discovery and briefing, all at a significant cost.