Though there are many legal complexities that can arise in a typical ERISA lawsuit, one thing that is typically not in dispute is whether there is an ERISA Plan at issue. Pension plans, 401(k) plans, health plans, and group insurance plans are all easy to spot, categorize and confirm as ERISA plans. There are outliers, to be sure, like when the plan is established or maintained by a possibly exempt employer (like a religious organization, community college, or Native American tribe). Or when the plan allows employees to purchase individual insurance policies at a discount. Or when the dispute involves a severance plan, as is demonstrated by Atkins v. CB&I, L.L.C., No. 20-30004, 2021 WL 1085807 (5th Cir. Mar. 22, 2021).
In Atkins, the defendant construction company established a Project Completion Incentive Plan (“PCIP”) that would pay eligible employees a bonus of 5% of their earnings while they worked on a particular construction project, if they stayed on the project until their work was completed. The plaintiffs, who acknowledged that they were not eligible for bonuses because they quit before their work on the project ended, sued in Louisiana state court, arguing that the PCIP involved a wage forfeiture that was illegal under Louisiana law. The employer removed the case to federal court on the grounds of ERISA complete preemption, and the district court agreed that ERISA governed. As the Fifth Circuit noted, “[t]hat jurisdictional determination also resolved the merits” because, if ERISA governs, “then everyone agrees the Plaintiffs do not have a claim” because ERISA preempts Louisiana law, and because the plaintiffs “are not eligible for the bonus under the terms of the plan.”
The Fifth Circuit held that the PCIP was not an ERISA plan.
The court began its analysis by noting that severance plans are particularly troublesome when considering whether ERISA governs: “As the answer depends on the particulars of each plan, some severance plans have qualified while others have not.”
The court then stated that the “key Supreme Court case” is Fort Halifax Packing Co. v. Coyne, 482 U.S. 1 (1987), which “addresses a state law requiring one-time severance payments to employees if their plant closed.” In Fort Halifax, the Court held that ERISA does not govern a severance plan that required only a “one-time, lump-sum payment triggered by a single event [which] requires no administrative scheme whatsoever.” Id. at 12. Instead, ERISA governs only a severance plan that requires an “ongoing administrative program,” requiring “complex administrative activities” such as “determining the eligibility of claimants, calculating benefit levels, making disbursements, monitoring the availability of fund for benefit payments, and keeping appropriate records in order to comply with applicable reporting requirements.” Id. at 9, 11.
The Fifth Circuit analyzed these factors and held that there was insufficient complexity in the PCIP to give rise to an ERISA plan. Among the factors that the court evaluated were:
- The PCIP calls for only a single payment. “A one-time payment usually does not require an ongoing administrative scheme because the ‘employer assumes no responsibility to pay benefits on a regular basis, and thus faces no periodic demands on its assets that create a need for financial coordination and control.’”
- The PCIP does not provide for additional benefits, such as COBRA insurance coverage
- Calculating the one-time payment – 5% of the employee’s project-related pay – involves “a single arithmetic calculation” that “is not the type of complex determination ERISA plans often make.”
The court noted that “mixed signals” were sent by the fact that different employees would have different project completion dates (unlike the plan in Fort Halifax, which was tied to a plant closure). However, “the fact that eligibility is tied to workers’ completion of their duties on a discrete project makes this Plan different from most ERISA plans.”
The court had the most difficultly evaluating whether the PCIP required the employer to exercise discretion to a sufficient degree to justify ERISA governance. The court noted that ERISA might govern where a plan requires the employer to determine whether an employee had “good reason” to stop working, or whether a termination was for “good cause;” though such a requirement is not alone sufficient. The court acknowledged that there was no “clear dividing line on when cause-type determinations involve the requisite level of discretion,” but held that it was not necessary to consider that further, because the PCIP does not require a “for cause” determination. Instead, the bonus is earned when a worker’s role in the project is “complete,” which “does not seem to require a significant degree of discretion.” Moreover, “some eligibility determinations under the Plan will be clear as day.”
Summing up, the court explained:
Consistent with the lack of complexity needed to answer the “who” and “how much” questions about the bonus, we do not see any special administrative apparatus dedicated to overseeing the Plan. A plan is more likely to be governed by ERISA when it includes administrative procedures, such as procedures for handling claims and appeals, is administered on a large-scale to many employees, requires continuous monitoring of payees, or requires additional oversight once the benefit has been paid, either because of continuing insurance benefits or the possibility of clawing back severance payments if the employee returns to work, The record shows none of that here. [citations omitted].
In sum, the Project Completion Incentive Plan involves a single and simple payment. Determining eligibility might require the exercise of some discretion, but not much. An administrative structure is not devoted to overseeing the Plan. The Plan thus lacks the complexity and longevity that result in the type of “ongoing administrative scheme” ERISA covers.
Accordingly, the court remanded the case to state court, where the plaintiffs will be permitted to litigate their state wage-forfeiture claim.
Atkins thus highlights, and explores to a limited degree, a big gray area involving severance plans. At one end of the spectrum is Fort Halifax, where ERISA plainly does not govern a severance plan tied to a single event. At the other end of the spectrum would be company-wide severance plans covering large numbers of diverse employees, where determination of eligibility and calculation of benefits require monitoring and potentially complex determinations. In the uncertain middle are plans like the PCIP where a limited number of employees are eligible, the circumstances for eligibility are discrete, and the benefit calculations are simple.