District Court Holds Terminated Employees’ Severance Claims Can Proceed

A federal judge in Illinois earlier this month denied an employer’s motion to dismiss two employees’ claims under the Employee Retirement Income Security Act that the firm manufactured negative performance reviews to push them out of the company and avoid paying them severance benefits.

The U.S. District Court for the Central District of Illinois held in a November 2 order that the employer’s severance plan qualified as an ERISA plan, plaintiffs qualified as ERISA plan participants, plaintiffs stated an ERISA breach of duty claim and one plaintiff’s signing a release did not bar him from receiving benefits.

Background

The complaint in Ahmed v. Deere was filed in May by two longtime employees of Deere & Co. who were terminated from employment as part of a workforce reduction program and sought severance benefits.

According to court documents, Deere in 2024 eliminated the positions of nearly 500 salaried employees in Iowa and Illinois, and as a part of that reduction in force, sponsored a severance program for those terminated. Under the program, Deere would pay up to 12 months of a terminated employee’s salary based on their time of service to the company.

The program provided other benefits in addition to the lump-sum severance payments, including discretionary unpaid leave for up to 30 days to apply for an open position with the company and an unpaid leave of absence to bridge to retirement and attain pension and retiree medical benefits. Employees terminated under the severance program also remained eligible for several other benefits, including stock options, bonus compensation, health insurance, job search assistance and mental health counseling.

To receive the payments, employees needed to continue working in their current position after being notified of the termination, “performing to a standard their managers consider satisfactory,” until their last day of employment. They needed also to sign a release of claims, agree to remain bound by confidentiality agreements and refrain from soliciting Deere employees, suppliers or customers for 12 months.

During the workforce reduction, all employees who lost their jobs through position elimination received severance payments pursuant to the severance program, even if the employee recently received ratings of “performance needs improvement” or “unsatisfactory performance.”

Shortly after the workforce reduction, Deere informed employees that additional positions would be eliminated through “attrition” and “forced attrition.” To execute that next round of reductions, Deere established percentages of the workforce that must receive ratings of “performance needs improvement” or “unsatisfactory performance.” As a result, the number of employees receiving a “performance needs improvement” rating increased substantially, and plaintiffs began receiving negative reviews after years of positive reviews.

Deere provided the plaintiffs with two choices: accept three months’ severance pay, sign a release and leave; or complete a 60-day performance improvement period and face job loss if they failed to meet expectations. Deere did not inform the plaintiffs they were eligible for benefits under the severance program, according to the complaint.

One plaintiff accepted the three months’ pay and signed the release—without input from a lawyer—but would have received 12 months’ pay under the severance program. The other plaintiff chose the performance improvement period, and Deere terminated him at the end of it. Both plaintiffs contested Deere’s refusal to pay benefits under the severance program.

Deere did not respond to one plaintiff and told the other that it did not sponsor a formal severance program. Plaintiffs brought an ERISA claim for severance benefits and breach of fiduciary duty against Deere, Deere as administrator of an employee welfare benefit plan and the Deere & Co. Severance Pay Plan for Salaried Employees.

Severance Program Qualifies as an ERISA Plan

U.S District Judge Sara Darrow found that Deere’s severance program qualified as an ERISA plan based on the allegations in the complaint. Darrow cited a Supreme Court case, Fort Halifax Packaging Co. v. Coyne, that held an ERISA plan requires “an ongoing administrative program for processing claims and paying benefits.” She added that later cases have held the need to arithmetically compute each person’s severance amount does not by itself create an “administrative scheme.”

Darrow wrote that courts also weigh several considerations, including whether payments are continuous or one-time, whether the program imposes long-term obligations on the employer, whether many separate events trigger payment rather than a single event, whether the program required individualized review and whether the program involves managerial discretion.

First, the court found that the program imposed long-term obligations because Deere had to pay varying amounts indefinitely into the future to each employee who lost a job for a qualifying reason. Second, the court found many separate events triggered the obligation, recurring regularly and with unpredictable frequency.

Third, Darrow wrote that the program required a case-by-case review, including determining eligibility for year-end bonuses, assessing eligibility to bridge to retirement, tracking which employees signed releases so Deere could enforce a non-solicitation provision and monitoring whether employees performed satisfactorily. Lastly, managers held substantial discretion over the reason for each determination, whether an employee performed “satisfactorily,” and whether to grant unpaid leave to apply for a new position.

Plaintiffs Were ERISA Participants

The court also held that plaintiffs were ERISA participants even though Deere fired them for poor performance. Citing Kamler v. H/N Telecommunication Services, Inc., a case decided in 2002 in the U.S. Circuit Court of Appeals for the 7th Circuit, Darrow wrote that every person with a “colorable claim to vested benefits” has standing under ERISA.

Darrow added that under ERISA’s anti-interference statute, which prohibits an employer from discharging participant to interfere with their rights under a plan, a rule allowing a pretextual termination to strip an employee of participant status would violate the statute.

Darrow found that the allegations of forced attrition, ratings quota and revised rating system suggested Dere pretextually created the performance process to reduce the workforce. Plaintiffs therefore plausibly alleged that the true reason for their separations was job elimination and Deere’s business needs, which would make them eligible under the severance program.

Plaintiffs Stated an ERISA Breach of Fiduciary Duty Claim

The court also held that plaintiffs stated a breach of fiduciary duty claim, by alleging that Deere changed its evaluation policy to force out well-performing employees and avoid paying severance benefits, and that Deere did not tell plaintiffs about their rights under the program. Such conduct would violate Deere’s duties to communicate and to not misrepresent plan terms.

Release Did Not Bar 1 Plaintiff’s ERISA Claim

Applying a totality of circumstances test, the court found that the release signed by the plaintiff who accepted three months’ pay did not bar that plaintiff’s claim.

Plaintiffs are represented by Hasso and Wilson Law Firm and O’ Brien & Marquard PLC, which did not immediately respond to requests for comment.

Deere & Co. is represented by Benesch Friedlander Coplan & Aronoff LLP, which also did not immediately respond to a request for comment.