Summary
Former Gulf Oil employees brought state-law contract and tort claims seeking severance pay and damages arising from Gulf’s negotiations concerning their subsequent employment with Thrifty Oil. The Ninth Circuit held that ERISA preempted claims concerning severance benefits allegedly accrued during employment with Gulf, but did not preempt claims concerning prospective benefits the employees allegedly would have earned at Thrifty; the case was affirmed in part, reversed in part, and remanded.
Topics
Practice areas
Questions Presented
- Whether Gulf's alleged severance-pay promise constituted an employee welfare benefit plan under ERISA.
- Whether the absence of a written instrument prevented the alleged severance arrangement from being an ERISA plan.
- Whether ERISA preempted plaintiffs' state-law claims concerning accumulated severance benefits.
- Whether ERISA preempted state-law claims seeking benefits plaintiffs allegedly would have accumulated during future employment with Thrifty.
Holdings
- Severance pay is an employee welfare benefit within the meaning of ERISA, even when funded from an employer's general assets rather than a special fund.
- A written instrument is not a prerequisite to ERISA coverage; written-plan requirements are obligations imposed on administrators and fiduciaries of covered plans.
- The complaint sufficiently alleged the establishment of an ERISA plan because its allegations would permit a reasonable person to ascertain the intended benefits, beneficiaries, source of financing, and procedures for receiving benefits.
- ERISA preempts state-law claims insofar as they seek severance benefits allegedly accumulated during plaintiffs' employment with Gulf.
- ERISA does not preempt state-law claims insofar as they seek benefits plaintiffs allegedly would have accumulated during employment with Thrifty because the alleged conduct prevented the existence of a Thrifty benefit plan.
Key quotations
“Once it is determined that ERISA covers a plan, the Act’s fiduciary and reporting procedures do require the plan to be established pursuant to a written instrument, [citations omitted], but clearly these are only the responsibilites of administrators and fiduciaries of plans covered by ERISA and are not prerequisites to coverage under the Act.” (754 F.2d at 1504)
“The principle manifested in these cases is that preemption of state law claims by ERISA depends on the conduct to which such law is applied, not on the form or label of the law.” (754 F.2d at 1505)
Factual background
Gulf sold its Santa Fe Springs, California, refinery to Thrifty Oil Corporation and arranged for Thrifty to hire nearly all of the 101 former Gulf employees who worked there. The employees alleged that Gulf had promised severance pay based on salary and length of service but failed to pay it when their employment ended. They also alleged that Gulf improperly negotiated with Thrifty and misrepresented the terms of future employment, causing them to lose both accumulated Gulf severance benefits and prospective benefits they would have earned at Thrifty.
Procedural history
Former Gulf employees brought a diversity action asserting claims for breach of an employment agreement, violation of public policy, breach of the duty to act fairly and in good faith, and fraud and breach of fiduciary duties. The district court dismissed all claims without prejudice on the ground that ERISA preempted them. The Ninth Circuit affirmed dismissal of claims concerning benefits allegedly accumulated during employment with Gulf, reversed as to claims concerning prospective benefits that plaintiffs allegedly would have accumulated while employed by Thrifty, and remanded for further proceedings and leave to amend.
Remand instructions
Affirm the dismissal without prejudice of claims preempted by ERISA; allow plaintiffs leave to amend to add ERISA claims to claims not preempted; and conduct further proceedings on the nonpreempted claims.