Vague Pay Promise Fails To Bind Employer

September 12, 2002 ( - A promise to make severance payments was too vague to create an obligation to do so, according to a federal appeals court.

The US 7th Circuit Court of Appeals agreed with a lower court judge that Illinois-based purchasing firm XTRA Corp.’s statements about making severance payments weren’t enough to force the company to pay anything to workers who sued to get the promised benefits, Washington legal publisher BNA reported.

Circuit Judge Richard A. Posner, writing for the appeals court, said the promise was not legally enforceable because its “vagueness alone would make it impossible for a court to provide any relief” to the 55 plaintiffs.

XTRA Corp.’s 1992 severance plan provided that the company would pay a specific amount of severance benefits if the company should undergo layoffs.

According to the appeals court, the plan was replaced in 1993 with a provision that the company would “develop and implement an appropriate separation program if business and economic conditions necessitate a reduction in force.”

Statements Not a Promise

According to court records, the plaintiffs were laid off after XTRA transferred part of its business to another company. They sued when XTRA refused to pay them severance benefits.

A US District Judge for the Southern District of Illinois threw out the employees’ lawsuit, finding they were not entitled to severance benefits.

Affirming, the appeals court found that the 1993 version of the plan “did not promise severance pay to workers who were terminated, whether because of a reduction in force or otherwise.”

In addition, the court rejected the employees’ contention that the 1992 plan was replaced with an “informal” plan that was ERISA enforceable.

Not only that, the appeals judges ruled that XTRA had not obligated itself to pay severance to the plaintiffs because it had made similar benefit payments to other workers in the past.

The case is Brines v. XTRA Corp., 7th Cir., No. 01-3977, 9/10/02.