On December 29, California’s Second Appellate District held that employees who settle and dismiss their individual wage claims may not assert claims under the state’s Private Attorneys General Act (“PAGA”) on behalf of other employees. PAGA allows employees to file lawsuits to recover civil penalties for violations of the California Labor Code on behalf of themselves, their fellow workers, and the State of California. To assert PAGA claims, employees generally do not have to meet the rigorous standards required for class certification.

In Kim v. Reins International California Inc., an employee sued his former employer, a restaurant operator, for wage and hour violations under the Labor Code. Mr. Kim sued on behalf of a class of all “training managers” currently or previously employed by Reins, claiming that they were misclassified and thus entitled to overtime, meal breaks and rest periods. The trial court judge dismissed the class claims, and ordered Mr. Kim’s individual wage claims to arbitration, as per the arbitration agreement he had signed during his employment. His PAGA claims, however, were stayed pending the arbitration’s resolution.

During the arbitration process, Mr. Kim settled his individual claims and dismissed them with prejudice. Reins then moved for summary judgment on the PAGA claims remaining in the state court action. The court granted the motion, noting that because Mr. Kim no longer had any viable Labor Code claims himself, he was no longer an “aggrieved employee” and lacked standing to assert a PAGA suit.

The Reins decision provides California employers with another basis for attacking meritless PAGA claims, reinforcing the concept that employees must actually have the same claims as those they purport to represent.

Please contact your Hogan Lovells labor and employment team with any questions concerning the ramifications of this decision for your business.

We’ve previously written about the NYPFL here, but this post focuses on how employers should prepare now that the NYPFL has taken effect, and how employers should prepare when an employee decides to take paid leave.

 

What Employers Should Do Now:

Right away, if employers have not already done so, employers should contact their disability insurance carrier about obtaining Paid Family Leave (“PFL”) coverage. Generally. PFL coverage will be added to the disability insurance policy that employers already carry, but if the employer is self-insured for disability, then the employer may purchase a separate policy or apply to self-insure.  Employers may deduct the premium for the PFL insurance policy from employees through a payroll deduction, or they may choose to cover the cost themselves. If an employer wishes to offer more generous paid leave benefits in lieu of those required by law, they must submit their plan to the NYS Workers’ Compensation Board for approval.  Such employer should seek reimbursement from their insurance carriers, similar to the process employers follow if they have their own, more generous workers’ compensation benefits.  To do so, employers should purchase the statutory PFL coverage as a rider on their disability policy and supplement the pay that they receive from their insurance carrier.  Alternatively, employers could apply to self-insure and prove to the NYS Worker’s Compensation Board that their plan covers at least what the NYPFL requires.  It is important to note that employers also need to do this for disability coverage—employers cannot apply only to self-insure for paid family leave.  To self-insure, employers need to notify the Self-Insurance Office of the Workers’ Compensation Board and pay a security deposit.

Second, if employers obtain Paid Family Leave insurance (as opposed to self-insuring), the insurance carrier will provide a Notice of Compliance and this should be posted in a conspicuous setting by January 1st (just like what is required under Workers’ Comp and Disability Insurance coverage). Simultaneously, all employee handbooks and written materials should be updated to include the Paid Family Leave information.  Although most employees will be covered by the law, those that are exempt due to the limited amount of time that they have worked with the employer should be provided with information letting them know that they may waive coverage by completing a waiver form.

What to do when an Employee Takes Paid Family Leave:

When employees decide to take PFL, they must alert their employer with 30 days’ notice, or, if it is not possible, they must alert the employer as soon as they know. Participating employees should alert their employers by submitting a completed claim package to the employer’s insurance carrier, who must process the claim and issue a determination within 18 days.  Employers may provide the corresponding claim form, but employees may also obtain this form and other information that they need to provide to the insurer from the NYPFL website or from the insurance carrier directly.  Simultaneously, the employer must tell the insurance provider what dates the employee intends to use Paid Family Leave.

Employees cannot combine PFL with workers’ compensation benefits, and, to the extent that an employee is eligible for both PFL and FMLA, they must be taken concurrently.

Additional Employee Protections:

The NYPFL has a similar retaliation policy to the FMLA. While an employer may hire temporary workers during the time an employee takes PFL, employers cannot penalize an employee for taking this time or restrict an employee’s ability to return to the same or similar position with comparable pay, benefits, and other terms and conditions of employment.  Additionally, while taking PFL, an employer must maintain an eligible employee’s existing health insurance benefits as if the employee was still working.

For many workers throughout the US, the New Year has begun with increased hourly wages.  On January 1, 2018, 18 states and 22 cities/counties across the nation increased their minimum wage.  Ten of these states raised their minimum wage through legislation, while the remaining states will see an increase because of cost-of-living adjustments to existing minimum wage laws.  According to various think tanks, the minimum wage increase is likely to affect roughly 3.9 to 4.5 million workers nationwide.

 

Alaska: $9.84 an hour (.41% increase by inflation adjustment; $.04 increase)

Albuquerque, New Mexico: $8.95 an hour

Arizona: $10.50 an hour (5.0% increase by legislation; $.50 increase)

Bernalillo County, New Mexico: $8.85 an hour

California: $11 an hour for businesses with 26 or more employees (4.8% increase by legislation; $.50 increase); $10.50 an hour for businesses with 25 or fewer employees

Colorado: $10.20 an hour (9.7% increase by legislation; $.90 increase)

Cupertino, California: $13.50 an hour

El Cerrito, California: $13.60 an hour

Flagstaff, Arizona: $11 an hour

Florida: $8.25 an hour (1.9% increase by inflation adjustment; $.15 increase)

Hawaii: $10.10 an hour (9.2% increase by legislation; $.85 increase)

Los Altos, California: $13.50 an hour

Maine: $10 an hour (11.1% increase by legislation; $1 increase)

Michigan: $9.25 an hour (3.9% increase by legislation; $.35% increase)

Milpitas, California: $12 an hour

Minneapolis, Minnesota: $10 an hour for businesses with more than 100 employees

Minnesota: $9.65 an hour for businesses with annual gross revenue of $500,000 or more (1.6% increase by inflation adjustment; $.15 increase); $7.87 an hour for businesses with annual gross revenue of less than $500,000

Missouri: $7.85 an hour (2.0% increase by inflation adjustment; $.15 increase)

Montana: $8.30 an hour (1.8% increase by inflation adjustment; $.15 increase)

Mountain View, California: $15 an hour

New Jersey: $8.60 an hour (1.9% increase by inflation adjustment; $.70 increase)

New York City, New York: $13 an hour for standard New York City businesses with greater than 10 employees; $12 an hour for standard New York City businesses with 10 or fewer employees; $13.50 for fast food workers

Long Island, New York: $11 an hour for standard workers

Westchester, New York: $11 an hour for standard workers

New York: $10.40 for standard workers (7.2% increase through legislation; $.70 increase); $11.75 for fast food workers

Oakland, California: $13.23 an hour

Ohio: $8.30 an hour (1.8% increase by inflation adjustment; $.15 increase)

Palo Alto, California: $13.50 an hour

Rhode Island: $10.10 an hour (5.2% increase by legislation; $.50 increase)

Richmond, California: $13.41 an hour

San Jose, California: $13.50 an hour

San Mateo, California: $13.50 an hour for standard businesses; $12 an hour for nonprofits

Santa Clara, California: $13 an hour

SeaTac, Washington: $15.64 an hour for hospitality and transportation employees

Seattle, Washington: $15.45 an hour for businesses with 501 or more employees that don’t offer medical benefits ($15 an hour for those that do offer medical benefits); $14 an hour for businesses with 500 or fewer employees that don’t offer medical benefits ($11.50 an hour for those that do offer medical benefits)

South Dakota: $8.85 an hour (2.3% increase by legislation; $.20 increase)

Sunnyvale, California: $15 an hour

Tacoma, Washington: $12 an hour

Vermont: $10.50 an hour (5% increase by legislation; $.50 increase)

Washington: $11.50 an hour (4.6% increase by legislation; $.50 increase)

 

More increases are set to take effect later in the year, as Oregon and Maryland will raise their respective minimum wages in July.  And on July 1, 2018, Chicago will raise its minimum wage to $12 an hour and Los Angeles will raise its minimum wage to $13.25 an hour for employers with 26 or more employees and $12 an hour for employers with less than 26 employees.

It’s that time of year for all employers in New York to confirm that their payroll is set up to pay the new minimum wage that went into effect on December 31, 2017. Additionally, in order for exempt employees to remain exempt into the new year, employers will need to ensure that their annual salaries meet the new required minimum salary threshold.

Beginning December 31, 2017, the following minimum wages are in effect:

Hourly Rates:

Employers outside of Nassau, Suffolk and Westchester counties or NYC $10.40
Nassau, Suffolk and Westchester employers $11.00
New York City employers with 10 or fewer employees $12.00
New York City employers with 11 or more employees $13.00

Beginning December 31, 2017, the minimum salary for exemption as an “administrative” or “executive” employee increased as follows:

Salary Rates:

Employers outside of Nassau, Suffolk and Westchester counties or NYC

$780 per week

$40,560 annually

Nassau, Suffolk and Westchester employers $825 per week $42,900 annually
New York City employers with 10 or fewer employees

$900 per week

$46,800 annually

New York City employers with 11 or more employees

$975 per week

$50,700 annually

Remember, under New York’s Wage Theft Prevention Act (“WTPA”), employers are required to give written notices to each new hire with the following information:

  • Rate or rates of pay, including overtime rate of pay if applicable;
  • How the employee is paid (hourly, per shift, daily, weekly, by commission, etc.);
  • Regular payday;
  • Official name of the employer and any other names used for business;
  • Address and phone number of the employer’s main office or principal location;
  • Allowances taken as part of the minimum wage (tip, meal, and lodging deductions); and
  • The notice must be in English and in the employee’s primary language if the Department of Labor offers a translation

If any of the above data changes, employers must give the employee a week’s notice, unless the employee’s new paystub carries the notice. However, employers must notify an employee in writing before reducing his or her wage rate.  Employers in the hospitality industry must give notice every time an employee’s wage rate changes.

In a flurry of decisions late last week, the newly-constituted majority of the National Labor Relations Board (NLRB or the Board) issued a number of decisions that signal a less interventionist approach with respect to the employer-employee relationship. Three of these decisions in particular will have wide-reaching benefits for union and non-union employers alike, as they will:  (1) heighten the standard for finding that two entities are so-called “joint employers,” (2) reduce Board scrutiny over workplace rules and policies, and (3) relax the showing an employer must make to add employees to a petitioned-for bargaining unit.

 

In Hy-Brand Indus. Contractors, Ltd., the Board addressed the joint-employer standard, restoring joint-employer status to entities only with “direct and immediate” control over terms of employment.

Two-plus years ago, on August 27, 2015, the Board overturned longstanding precedent when it issued a then widely-anticipated decision in Browning-Ferris Industries of California Inc., 362 NLRB No. 186.  That decision significantly broadened the standard—beyond any other statutory or common law test—for when two entities may be considered “joint employers” under the National Labor Relations Act (NLRA or the Act).  Under the broad Browning-Ferris standard, a company could face liability under the Act (and be required to bargain with another employer’s union) if the company merely reserved the right—even an attenuated or indirect right—to exert control over those employees’ terms and conditions of employment. Browning-Ferris was a controversial decision that had an acute impact on several close but arms-length business relationships, including franchisor-franchisee, creditor-debtor, parent-subsidiary and contractor-subcontractor relationships.

Now Browning-Ferris is no longer.  In Hy-Brand, the Board reversed Browning-Ferris and returned to the previous joint-employer standard accepted by federal courts in other employment contexts.  Now, as before, “a finding of joint-employer status requires proof that the alleged joint-employer entities have actually exercised joint control over essential employment terms (rather than merely having ‘reserved’ the right to exercise control), the control must be ‘direct and immediate’ (rather than indirect), and joint-employer status will not result from control that is ‘limited and routine.’”  Established arms-length business relationships are again free from Board scrutiny to the extent parent companies, franchisors, creditors and contractors do not actually exercise control over the employees of their subsidiaries, franchisees, debtors and subcontractors, respectively.

The Hy-Brand decision can be found here:  https://dlbjbjzgnk95t.cloudfront.net/0995000/995174/hy-brand.pdf.

 

In The Boeing Co., the Board relaxed its scrutiny over potentially unlawful workplace rules and policies by holding that an employer’s justifications for such rules must be taken into consideration. 

In 2004, the Board issued Lutheran Heritage, 343 NLRB 646.  There the Board held that maintaining a facially neutral rule in an employee handbook could be unlawful if employees “would reasonably construe the language to prohibit” activity protected by the Act.  Over the past decade-plus, the Board has applied Lutheran Heritage to find that employers violated the Act by maintaining policies, by way of example, that:

  • promoted “harmonious interactions and relationships,”
  • prohibited “inappropriate discussions about the company” on social media,
  • prohibited “loud, abusive, or foul language,”
  • required employees to “keep customer and employee information secure,” and
  • directed employees to “voice your complaints directly to your immediate supervisor or to Human Resources through our ‘open door’ policy.”

In Boeing, the Board scrapped Lutheran Heritage and announced a new rule:

“[W]hen evaluating a facially neutral policy, rule or handbook provision that, when reasonably interpreted, would potentially interfere with the exercise of NLRA rights, the Board will evaluate two things: (i) the nature and extent of the potential impact on NLRA rights, and (ii) legitimate justifications associated with the rule.”

Under this new standard, a facially neutral rule will be deemed lawful if either (a) the rule, when reasonably interpreted, does not prohibit or interfere with protected NLRA rights or (b) the potential adverse impact on protected rights is outweighed by justifications associated with the rule.  Thus, rules requiring employees to abide by “basic standards of civility” will now be lawful.  (That said, the application of any given rule to employees who have engaged in NLRA-protected conduct may violate the Act depending on the circumstances.)

Conversely, a rule will be deemed unlawful if it would prohibit or limit protected conduct that is not outweighed by justifications associated with the rule. An example of a “facially neutral” but still unlawful rule is one prohibiting employees from discussing wages or benefits.

Other rules will warrant individualized scrutiny as to whether the rule would prohibit or interfere with NLRA rights, and, if so, whether any adverse impact on NLRA-protected conduct is outweighed by legitimate justifications. The Board did not provide guidance on this category of rules—a point criticized by the dissent in Boeing.

The Boeing decision can be found here:  https://dlbjbjzgnk95t.cloudfront.net/0995000/995170/decision.pdf.

 

In PCC Structurals, Inc., the Board reversed the Obama Board’s “micro-unit” standard, relaxing the showing that an employer must make to add employees to a petitioned-for bargaining unit.

In 2011 the Board issued Specialty Healthcare & Rehabilitation Center of Mobile, 357 NLRB 934.  There the Board held that once a proposed unit of employees is deemed appropriate for union representation, the burden shifts to the proponent of a larger unit (typically the employer) to demonstrate that the additional employees the proponent seeks to include share an “overwhelming community of interest” with the petitioned-for employees, “such that there is no legitimate basis upon which to exclude certain employees from” the unit.  As a result of this substantial burden, employers were largely unable to challenge so-called “micro-units,” which allowed unions to more easily organize employers by targeting smaller groups of employees who favored union representation. Specialty Healthcare also caused uncertainty for employers trying to determine how best to organize their workforces.

In PCC Structurals the Board ditched Specialty Healthcare, holding that its standard “effectively makes the extent of union organizing ‘controlling,’ or at the very least gives far greater weight to that factor than statutory policy warrants.”  Thus the Board stated it was “returning to the traditional community-of-interest standard that the Board has applied throughout most of its history, which permits the Board to evaluate the interests of all employees—both those within and those outside the petitioned-for unit—without regard to whether these groups share an ‘overwhelming’ community of interests” (emphasis added).

Under that “traditional” standard, the Board will examine whether petitioned-for employees share a community of interest “sufficiently distinct from the interests of employees excluded from the petitioned-for group to warrant a finding that the proposed group constitutes a separate appropriate unit.” The Board will consider the following factors, as it has “[t]hroughout nearly all of its history”:

whether the employees are organized into a separate department; have distinct skills and training; have distinct job functions and perform distinct work, including inquiry into the amount and type of job overlap between classifications; are functionally integrated with the Employer’s other employees; have frequent contact with other employees; interchange with other employees; have distinct terms and conditions of employment; and are separately supervised.

By overturning Specialty Healthcare, the Board claims to “correct[ ] the imbalance” created by making the relationships between petitioned-for unit employees and excluded coworkers “irrelevant in all but the most exceptional circumstances.”  Now, says the Board, “the determination of unit appropriateness will consider the Section 7 rights of employees excluded from the proposed unit and those included in that unit, regardless of whether there are ‘overwhelming’ interests between the two groups.”

Under PCC Structurals employers will undoubtedly have greater success challenging proposed bargaining units than in previous years.  Perhaps more importantly, unions will not be able to use slight differences in terms and conditions of employment between groups or classifications of employee as an organizing tool to gain a foothold at an employer’s business.  Nevertheless, employers—particularly those in industries subject to union organizing—should continue to think carefully about how their workforces are structured.

PCC Structurals can be found here: https://dlbjbjzgnk95t.cloudfront.net/0995000/995764/board%20decision.pdf.

 

 

Last month, New York City Mayor Bill de Blasio signed a bill into law amending and expanding the NYC Earned Sick Time Act (ESTA). The law previously allowed full-time and part-time NYC employees who work more than 80 hours in a year to accrue up to 40 hours of paid sick leave per year to be used for:

  • an employee’s own mental or physical illness, injury or health condition
  • an employee’s need for medical diagnosis, care, or treatment of a mental or physical illness, injury or health condition
  • care of a family member who needs medical diagnosis, care, or treatment of an illness, injury, or health condition, or who needs preventative medical care
  • an employee’s need to care for a child whose school or child care provider is closed due to a public health emergency.

Under the current version of the law, family members were defined as children (biological, adopted, or foster children, legal wards, children of an employee standing in loco parentis), grandchildren, spouses, domestic partners, parents, grandparents, children or parents of an employee’s spouse or domestic partner, or siblings (including half, adopted, or step siblings).

How the Amendment Expands the Old Law:

The amendment, which will go into effect on May 5, 2018, renames the law to the “NYC Earned Sick and Safe Time Act” and provides employees with additional situations in which they can use accrued paid leave. It expands the law to allow employees to use accrued paid leave where an employee or an employee’s family member has been the victim of a family offense matter, sexual offense, stalking, or human trafficking.  For example, an employee may use accrued paid leave to:

  • obtain services from a domestic violence shelter, rape crisis center, or other shelter or services program for relief from a family offense matter, sexual offense, stalking, or human trafficking;
  • participate in safety planning, temporarily or permanently relocate, or take other actions to increase the safety of the employee or employee’s family members from future family offense matters, sexual offenses, stalking, or human trafficking;
  • file a complaint or domestic incident report with law enforcement;
  • meet with a district attorney’s office; and/or
  • enroll children in a new school.

Additionally, the amendment expands the definition of family member to include any other individual related by blood to the employee and any other individual whose close association with the employee is the equivalent of a family relationship.

What Employers Need to Know

Employers will be permitted to require employees to provide reasonable documentation of an employee’s request to use accrued paid time following an employee’s absence of more than three consecutive work days. This documentation can take many forms, such as a signed note from a victim’s organization, attorney, member of a clergy, or medical provider, a police or court record, or a notarized letter from an employee documenting the need for leave.  Employees supporting documentation must remain confidential, and employers are not permitted to seek additional information (beyond the reasonable documentation described above) relating to the domestic violence, sexual offenses, stalking or human trafficking.

Employers must notify their workforce of the new law by May 5, 2018.

Transgender and gender non-conforming employees now have added protections in California workplaces. On October 15, 2017, Governor Jerry Brown of California signed an amendment to California’s Fair Employment and Housing Act (“FEHA”) requiring certain California employers to provide additional sexual harassment prevention training. The original law, Government Code 12950.1, requires employers with at least 50 employees to train supervisors in sexual harassment and abuse prevention for at least two hours. The new amendment (SB 396) requires that the training include instruction on gender identity, expression and sexual orientation by an experienced and knowledgeable teacher.

What must employers do to comply? Besides providing the updated training, beginning on January 1, 2018 employers must display an informational poster on transgender rights in a central part of the workplace.

Your Hogan Lovells labor and employment team is available to assist you in complying with these new requirements, including updating your training modules and advising on any issues.

Employers generally assume, correctly, that an employee who fails to report for duty at the end of an FMLA leave with a specified end date can be terminated.  But it is important not to send out that termination letter too quickly, because employees sometimes need more leave than originally anticipated.  Federal regulations require employees to provide “reasonable notice (i.e., within two business days) of the changed circumstances where foreseeable.”  29 C.F.R. § 825.311.  This “reasonable notice” rule seems designed to benefit the employer.  However, a federal district court in Virginia recently interpreted it to permit an employee who learned from her doctor on the very last day of her FMLA leave that she needed additional leave to wait several days after her leave ended to tell her employer she needed a brief extension.  Because the employer fired the employee the day after her leave expired, before the end of the “reasonable notice” period, the court found an FMLA violation and awarded the employee liquidated damages and front pay totaling nearly $750,000.  Perry v. Isle of Wight County, No. 2:15-cv-204 (E.D. Va. Aug. 10, 2017), appeal docketed, No. 17-2054 (4th Cir. Sept. 11, 2017).

Employers can take measures to avoid being caught by surprise when an employee who has not exhausted her available FMLA leave time needs to extend her leave.  For example, employers should consider requiring periodic updates of the employee’s status and anticipated return date during the leave, particularly as the return-to-work date approaches.  In addition, employers should review their FMLA forms and policies to be sure that employees are clearly informed of their duty to provide reasonable notice of any changed circumstances.  Employers should also consider defining “reasonable notice” to mean two business days, rather than the four business days afforded by the employer in Perry.  Finally, when an employee, such as the Perry plaintiff, has a doctor’s appointment scheduled for the last day of leave, consider requesting same-day notice of any need for additional leave, while bearing in mind that the law may afford the employee a grace period in which to provide such notice.

New York employers may soon be subject to new scheduling and pay requirements pertaining to their non-exempt employees who work “on-call” shifts. New York Governor Andrew Cuomo recently announced that the New York State Department of Labor (NYDOL) is advancing regulations on “just-in-time” or “on demand” scheduling, which allows employers to schedule employees’ shifts shortly before they start.

As the law stands today under the Minimum Wage Order for Miscellaneous Industries, non-exempt employees who report to work for on-call shifts are entitled to a minimum of four hours of pay at the basic minimum hourly wage. According to prior NYDOL guidance, employers may offset these call-in payments with amounts paid above the minimum wage and overtime rates in a given workweek.  For example, if the amount paid to an employee for the workweek exceeds the minimum and overtime rate for the number of hours worked and the minimum rate for any call-in pay owed, no additional payment for call-in pay is required.

Under the newly-proposed regulations, employers will be subject to the following requirements:

  1. Employees who report to work for a shift not scheduled at least 14 days in advance will be entitled to an additional two hours of call-in pay.
  2. Employees whose shifts are cancelled within 72 hours of the scheduled start time will be entitled to at least four hours of call-in pay. Those four hours may be reduced to the number of hours that an employee typically works for a call-in shift if the employee’s total hours worked or scheduled to work are consistent on a week-to-week basis.
  3. Employees who are required to be on-call and available to report for any shift will be entitled to at least four hours of call-in pay.
  4. Employees who are required to contact their employer within 72 hours of the start of a shift to confirm whether to report or not will be entitled to four hours of call-in pay.

The call-in payments described above will be calculated at the minimum wage rate with no allowances for meals, lodging, and utilities. Such payments shall not be considered hours worked for purposes of calculating overtime pay.  Notably, the proposed requirements will not apply to employees who are covered by a collective bargaining agreement that expressly provides for call-in pay.

The proposed regulations appeared in the November 22, 2017 State Register and are subject to a 45-day comment period. We will continue to track the progress of these regulations and update our readers with any further developments.

Specialists have long touted certain significant advantages to employers that come along with maintaining ERISA severance plans, and a recent district court case highlights some of these advantages.

On November 9, 2017, in the unpublished opinion of Huddleston v. Scottsdale Healthcare Hospitals Inc, 2017 U.S. Dist. LEXIS 185985 (Nov. 9, 2017), an Arizona district court concluded that because a severance plan unambiguously stated it was a severance plan under ERISA, a former employee’s state-law claims for severance benefits were preempted by ERISA and the resulting claim for benefits under the employer’s severance plan were dismissed based on the employee’s failure to exhaust his administrative remedies under the plan.

The plaintiff had accepted an offer of employment with the defendant, and the offer letter stated that upon receipt of an executed non-compete agreement, the plaintiff would receive a nine-month severance package in the event of an involuntary termination of employment. The plaintiff signed the non-compete agreement. The offer letter included a copy of the applicable severance plan, which explicitly stated that it was intended to be a severance pay plan within the meaning of ERISA § 3(2)(B)(i). The plan also contained a claims procedure, which required a beneficiary to file any claim for severance pay with the Plan Administrator under Department of Labor regulations and using specified procedures.

Approximately one year later, the defendant sent the plaintiff a notice that (i) it had amended its severance plan, which superseded the severance plan that existed at the time of the offer of employment, (ii) the plaintiff’s level of employment was no longer eligible to participate in the severance plan and, (iii) as a result, the non-compete agreement signed by the plaintiff when he accepted the job was null and void. A few months later, the plaintiff was terminated without cause, and the defendant refused to pay severance to the plaintiff.

The plaintiff filed suit, alleging various state law causes action, including breach of contract, breach of an implied covenant of good faith and fair dealing, promissory estoppel, treble wages and declaratory judgment. The defendant moved to dismiss all of the plaintiff’s claims on the grounds that they were preempted by ERISA and the plaintiff failed to exhaust his administrative remedies under the plan. The court agreed with the defendant, dismissing the case in its entirety. The court held that the defendant’s severance plan was clearly and unambiguously an ERISA severance plan and, accordingly, (i) the plaintiff’s state law claims were preempted by ERISA and (ii) in order to bring an action arising from the ERISA severance plan, the plaintiff was required to first exhaust the administrative remedies under the severance plan before filing suit.

This decision illustrates some of the significant advantages of ERISA severance plans, which may be well-worth the inconvenience of the documentary and reporting requirements that come along with maintaining an ERISA plan.