Alleged Employment Contract Breach Not Preempted By ERISA

September 5, 2003 ( - An ex-employee's assertion that his former employer breached the provisions of an employment contract by deceiving him about his job responsibilities is not preempted by ERISA.

>The US 6th Circuit Court of Appeals reversed and remanded a district court’s dismissal of the participant’s state-law claim, since the participant’s claim was not made within the jurisdiction of ERISA.   However, the appellate court upheld the other dismissals made by the district court of the participant’s breach of contract claims.  

>Those claims included:

  • the participant was misled by the job duties
  • the employer violated ERISA Section 503, which prohibits employers from interfering with an employee’s right to benefits
  • the participant was “fraudulently induced” to purchase stock options under the plan.

“[The participant] alleges that, without cause, Newcourt significantly altered his duties and reduced his compensation. Because this conduct may constitute a breach of Marks’s employment contract irrespective of the [severance] plan, the breach of contract claim is not preempted,” Circuit Court Judge Karen Nelson Moore said, writing for the court.

>The appellate court upheld the other lower court rulings because the participant made other claims under ERISA that precluded a simultaneous fiduciary breach claim.   In so ruling, the appeals court affirmed the district court’s determination that even if the company had acted in a deceptive manner in respect to the participant’s employment contract, such deception does not constitute interference or discrimination within the meaning of Section 510.

Case History

Lloyd Marks was a senior manager at AT&T Capital Corporation and participated in the AT&T Capital Leadership Severance Plan, which entitled him to certain benefits in the event he experienced a qualifying termination by October 1, 1998.   Similarly, in the event of a change of control, Marks would be entitled to benefits if he suffered a qualifying termination.  

In January 1998, Newcourt Financial USA, Inc. purchased all outstanding shares of AT&T Capital.   Prior to the acquisition, Newcourt offered Marks continued employment with essentially the same job duties he held before.   Marks accepted the offer, and per his employment contract, he agreed to purchase 14,665 shares of the company’s stock, which he borrowed $453,258 to finance.  

During 1998, Newcourt began making change’s to Mark’s business unit, which Marks received assurances were not intended to reduce his duties or compensation.   In February 1999, Marks suffered a heart attack and took disability leave.   Following his heart attack, in June 1999, Marks filed a claim to the benefits he contends he was entitled to under the severance plan, arguing he had be “constructively terminated” before October 1, 1998.

Newcourt denied Marks’s claims for benefits both initially and on appeal determining Marks had not experienced a qualifying termination prior to October 1, 1998.   Following this determination by Newcourt, Marks filed a claim in state court alleging breach of contract, fraudulent misrepresentation, innocent misrepresentation, fraudulent inducement to purchase stock options, and breach of the plan. Newcourt removed the case to federal district court, where the district judge dismissed Marks’s state law claims as preempted by ERISA. Additionally, the district court found that Newcourt had not violated in ERISA provisions.

The case is Marks v. Newcourt Credit Group Inc., Sixth Circuit Appeals Court, Number 01-1921.