In Orabona v. Santander Banks, the U.S. Court of Appeals for the First Circuit confirmed the extent of ERISA preemption over state laws.
Law. ERISA generally preempts “any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.” A state law relates to an ERISA plan if it has a “connection with” or a “reference to” an ERISA plan.
Facts. Shortly before a reduction in force took effect, an employee was terminated for cause and informed that she was not eligible for benefits under the employer’s ERISA-covered severance pay plan. Rather than file an appeal under the plan’s claims procedures, the employee sued under state law, saying that the reasons her employer gave for terminating her employment were pretextual. Specifically, the employee claimed: breach of implied contract and covenant of good faith and fair dealing; wrongful termination; fraud and intentional misrepresentation; and negligent misrepresentation.
The employer responded by filing a motion to dismiss, arguing that ERISA preempts all these claims because each “relates to” the ERISA-covered plan since the court would need to refer to the plan to determine liability and damages. The district court agreed with the employer and dismissed the case. In turn, the employee appealed the adverse determination to the First Circuit.
First Circuit. The First Circuit began by noting that the employee conceded that severance benefits would “be a portion of consequential damages of her claims,” and, therefore, it held that “a calculation of [her] damages would require reference to the severance plan.”
The First Circuit then said that, “In determining whether a state law cause of action is preempted, we look beyond ‘the form or label of the law’ and to the ‘facts of the particular case.’”
In this case, where the employee’s claim or theory alleged that the employer terminated her to avoid paying severance benefits or sought to prevent the discharged employee from obtaining benefits, ERISA preempts the claim.
In addition, in the case of those claims that seek to recover, under state law, damages and/or other relief for the denial of severance benefits, the state laws duplicate, supplement, or supplant the ERISA remedies and are separately preempted.
Finally, the First Circuit concluded that the employee had merely attempted an “end run” around ERISA with allegations that she relied on misleading statements when not claiming benefits under plan procedures. But ERISA provides the exclusive cause of action in precisely such circumstances. Therefore, the First Circuit ruled that the employee’s claims “fall squarely within the ambit of ERISA remedies.”