Employment Agreement Provisions Not an ERISA Plan

October 7, 2013 (PLANSPONSOR.com) – A federal appellate court found two employment agreements were not benefit plans covered by the Employee Retirement Income Security Act (ERISA).

In the case of Cantrell v. Briggs & Veselka Co., the 5th U.S. Circuit Court of Appeals reversed the decision of the U.S. District Court for the Southern District of Texas, which ruled the employment agreements were subject to ERISA.

After merging their accounting firm with the defendant’s firm, Briggs & Veselka Co., plaintiffs Carol and Patrick Cantrell entered into employment agreements with said company. Patrick later retired and began practicing law. Carol gave notice of her own retirement about two years after Patrick. In the process of Carol giving notice, the defendant believed she was violating a noncompete clause in her employment agreement and eventually terminated her with cause. The defendant also determined that Carol had forfeited her deferred compensation and made no payments to her. Patrick’s payments were stopped, and he too was accused by the defendant of violating his noncompete clause, therefore forfeiting his deferred compensation.

Carol and Patrick filed their lawsuit for deferred compensation payments. The defendant claimed that the employment agreements were considered ERISA plans and, therefore, the Cantrells could not sue them in state court. The Cantrells eventually moved to remand the case back the state court, a request that was denied by the District Court, which ruled that the agreements were ERISA plans. The Cantrells then appealed to the 5th Circuit.

Finding that the employment agreements were subject to state law, the appellate court examined the cases of Fort Halifax Packing Co. Inc. v. Coyne and Tinoco v. Marine Chartering Co. Inc. With Fort Halifax, the court pointed to the standard that “in order to constitute an ERISA plan, a program must necessitate the existence of an ongoing administrative program to meet the employer’s obligation.” With Tinoco, the court pointed to the standard that an arrangement for payment to employees was “based on a one-time calculation using a fixed formula” and that “the option of receiving that payment over a period of time does not … amount to an administrative scheme.”

The full text of the appellate court’s opinion can be found here.