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Board Resolution Insufficient to Terminate Severance Pay Plan

by | Apr 13, 2023 |

The U.S. Court of Appeals for the Fourth Circuit has ruled, in Messer v. Bristol Compressors, that a Board of Directors resolution intended to terminate a severance pay plan was insufficient because the plan’s provisions required additional actions to amend or terminate the plan.

Facts. The employer terminated a group of employees who were denied severance benefits when the employer claimed that its severance benefit plan had previously been terminated.

The provisions of the severance benefit plan were incorporated into the company’s employee handbook. Specifically, the handbook provided that: “[t]he Company may change the provisions of this Handbook at any time and the programs and policies outlined in this Handbook are not contractual in nature.…Nothing in this handbook is meant to create an employment contract and nothing in this handbook may be modified or amended except in writing by the Human Resources [HR] department.”

Prior to the employees’ termination, the employer’s Board of Directors unanimously passed a resolution terminating the severance plan.

The employees sued the employer in federal district court for their severance benefits. However, the district court ruled in favor of the employer, noting that, under prior rulings, because the severance plan was an unvested employee welfare benefit plan under ERISA, the employer was “free to amend the terms of the plan or terminate it entirely.” Based on this logic, the court determined that the Board’s resolution to terminate the plan was, by itself, sufficient. The court noted that, “[t]he provision of the handbook regarding amendments prepared by the Human Resources department was merely an administrative procedure designed to communicate changes to employees.”

Fourth Circuit. The Fourth Circuit agreed with the district court that, under ERISA, the employer had given itself the right to amend or terminate the plan at any time. Nonetheless, it noted that, “every employee benefit plan covered by ERISA, however, must be established pursuant to a written instrument, with procedures outlined for amending the plan and identifying those with authority to make amendments.” It explained that amendments or modifications of ERISA plans must be “implemented in conformity with the formal amendment procedures and must be in writing.” In this case, the Fourth Circuit observed that the plan’s provisions plainly stated that amendments needed to be made “in writing by the Human Resources department.”

The Fourth Circuit ultimately concluded that because the employer had failed to direct its HR Department to amend the plan provisions in writing, it had failed to follow the plan’s own procedures, and its attempt at plan termination was therefore ineffective.

Accordingly, the Fourth Circuit overruled the district court and remanded the case back to it for further proceedings.