Typically, ERISA litigation starts with a concrete plan, whether it is a retirement plan or an insurance plan. It is much more unusual to have an ERISA dispute turn on whether there is a plan at all. It is still more unusual to have the employee arguing that ERISA governs, and the employer arguing that it does not. But that is the dispute in Okun v. Montefiore Med. Ctr., 793 F.3d 277, 279 (2d Cir. 2015).

Montefiore Hospital had a decades-old severance policy providing that full-time physicians where were employed before August 1, 1996 and who were “terminated for other than cause” are entitled to either twelve months’ notice or six months’ severance pay. The policy stated that it “may be changed, modified or discontinued at any time … with or without notice.”

Okun worked as a full-time physician at Montefiore since 1988. On May 1, 2011, he gave notice that he would be leaving in September 2011. He was fired on May 13, 2011, purportedly for cause, allegedly due to comments made at a May 11, 2011 meeting. Okun then sued, arguing that his for-cause termination was a pretext to interfere with his right to severance payments under the policy. The district court dismissed the complaint for lack of subject matter jurisdiction, finding that the severance policy was not an ERISA employee welfare benefit plan.

The core dispute on appeal was “whether the Policy is adequately alleged to constitute the kind of undertaking to pay severance benefits that can be described as a ‘plan, fund, or program,’ as that phrase is used in the definition of ‘employee welfare benefit plan.’” The Second Circuit held that the policy was an ERISA plan and vacated the dismissal.

The court first observed that ERISA’s definition of employee welfare benefit plan was expansive, including “any plan, fund, or program,” and explained: “[u]se of the word ‘any’ and inclusion of three undefined, overlapping descriptors (plans, funds, and programs) suggests that Congress intended the definition of ‘employee welfare benefit plan’ to be broad and independent of the specific form of the plan.”

Next, the court distinguished cases, like Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 107 S.Ct. 2211, 96 L.Ed.2d 1 (1987), which held that ERISA did not govern promises to make a one-time severance payment upon a plant closing. The Second Circuit stated that Fort Halifax and similar cases did not involve an “ongoing administrative program,” and that without such a program, “the promise to make a one-time, lump-sum payment triggered by a single event will rarely if ever implicate the need for uniformity that Congress sought when it included within ERISA a provision that preempted state laws relating to benefit plans.”

The court continued:

Since Fort Halifax, we have identified three non-exclusive factors to help determine whether an employer’s particular undertaking involves the kind of ongoing administrative scheme inherent in a “plan, fund, or program”: (1) whether the employer’s undertaking or obligation requires managerial discretion in its administration; (2) whether a reasonable employee would perceive an ongoing commitment by the employer to provide employee benefits; and (3) whether the employer was required to analyze the circumstances of each employee’s termination separately in light of certain criteria.

The court noted that ERISA did not require long-term commitments or discretionary determinations, but stated that “these factors are useful analytic tools to the extent that they help us decide the ultimate question of whether a particular undertaking or obligation is a ‘plan, fund, or program.’”

Applying these factors to Montefiore’s program, the court held that it was an employee welfare benefit plan:

  • “First, the Policy requires discretion and individualized evaluation to administer. In particular, Montefiore must determine whether an employee left voluntarily or was terminated; it must determine whether the termination was “for cause” or for one of the other reasons listed in the Policy[.]”
  • “Second, Montefiore has maintained a severance policy in one form or another since 1987 and has retained the Policy in its current form since 1996. At the motion to dismiss stage, we think it plausible that such a longstanding policy would give employees the reasonable impression that Montefiore has undertaken an ‘ongoing commitment’ to provide severance benefits.” While the court noted that Montefiore retained the unilateral right to modify it without notice, it held that such a provision does not preclude finding that a longstanding commitment existed.
  • “As for the third factor, it is true that the Policy leaves somewhat less room for managerial discretion than other policies that we have held constitute plans under ERISA. … But there remains some managerial discretion in the President’s review of the amount of severance and in the classification of the termination of each eligible employee as for or without cause, and here that is enough.”

Finally, the court observed that other employers would benefit from ERISA governance of similar plans: “absent ERISA preemption of a plan such as this one, under circumstances in which an employer operates in multiple States, the different States might define termination ‘for cause’ differently, or might impose different constraints on the discretion an employer can exercise in reviewing the amount of severance due to long-time employees.”