Severance Denied for Refusal to Sign Agreement

October 14, 2005 ( - The US District Court for the Northern District of Texas has ruled in favor of an employer who denied a terminated employee severance benefits when he refused to sign a noncompetition agreement.

BNA reports that, in granting summary judgment to Sabre Inc., the court found that the company did not act arbitrarily and capriciously when it conditioned Ninan Chacko’s right to severance pay on the condition of his signing a release and noncompetition agreement.

As of the date Chacko was informed that his position at the company was being involuntarily terminated at a future date, the company’s severance plan provided for 26 weeks of salary to be paid in a lump sum, conditioned upon the execution of an agreement and general release of all claims.   Two days after the notification, however, Sabre amended the plan to provide for benefits to either be paid in a lump sum or over an eight month period.   The plan was also amended to require signing a noncompetition agreement as a condition for receiving severance benefits, according to BNA.

Chacko refused to sign the agreement and was denied benefits.   Chacko filed a lawsuit claiming the denial of benefits was arbitrary and capricious in violation of the Employee Retirement  Income Security Act (ERISA), and that Sabre discriminated against him in violation of ERISA Section 510.

The court found that, as a welfare plan, the severance plan could be amended at any time before Chacko’s benefits became vested.   In addition, the court determined that ERISA does not prevent plan sponsors from “discriminating” in the creation, alteration, or termination of employee benefits, saying in the opinion, “Since Chacko was not entitled to any ERISA benefits at the time the plan was amended, it is flawed to suggest that the amendment itself was discriminatory.”

The opinion was in re: Chacko v. Sabre Inc., N.D. Tex., No. 4:04-CV-886-A, 10/5/05.