Oral Promise Does Not Amend ERISA Plan

May 28, 2003 (PLANSPONSOR.com) - An oral promise of severance benefits is not allowed for an Employee Retirement Income Security Act (ERISA) governed plan, and therefore state law claims for remuneration are not preempted.

The U.S. Court of Appeals for the Eighth Circuit found the oral promise did not amend the existing ERISA plan since it was a one-time offer for benefits, and not a change to the existing plan in Eide v. Grey Fox Technical Services Corp.   Oral statements are unenforceable under ERISA when they amend or supersede contradictory terms in an ERISA plan, said Circuit Judge Roger Wollman in the opinion, according to Washington-based legal publisher BNA.

Therefore, the appellate court reversed and remanded to state court a district court decision that found the employees’ state law claims to recover severance benefits were preempted by ERISA.

Promises, Promises

In 1995, employees of Ceridian Technology Center were told of ongoing negotiations with Grey Fox Technical Services Corp. to sell the technology center. Ceridian allegedly informed employees that if they accepted employment with Grey Fox and were then discharged within the first year of the acquisition, Ceridian would pay them severance equal to what they would have received under the Ceridian severance plan. Under the plan, only active, full-time employees of Ceridian or its affiliates were eligible to participate in the plan.

The sale occurred in May 1996, and a number of employees accepted employment with Grey Fox. Between October and December 1996, Grey Fox discharged the employees. Both Grey Fox and Ceridian refused to pay the employees severance benefits.

Following the nonpayment of the alleged benefits, 27 former technology center employees brought action in state court seeking to recover severance benefits under the Ceridian Corporation Severance Pay Plan. The employees alleged breach of contract, promissory estoppel, and false statements made to induce them to enter employment.

Not Amended

The district court found the employees’ claims were preempted by ERISA. Additionally, the court held the employees could not recover severance pay based on Ceridian’s alleged oral promise because this would be inconsistent with the plan’s terms and ERISA does not permit oral modification of existing plans.

On appeal, the court reversed the decision, though it agreed that the Ceridian severance plan was a welfare benefit plan as defined by ERISA, and acknowledged that ERISA does not permit oral modifications to plan documents.  

>However, the appellate court found the claims were not preempted by ERISA because the oral benefit promises were not ERISA governed.  Since the claims were not preempted, the determination was made that the appeals court lacked jurisdiction.

The case is Eide v. Grey Fox Technical Services Corp. , 8th Cir., No. 02-1572, 5/22/03.