I’m Quitting, Where’s My Severance?

By Bill Wright

An employer and its Severance Plan just defended the discretion and authority under the Plan to distinguish quitting from getting fired. Reddinger et al. v. SENA Severance Plan et al., Nos. 10-2361 & 2362 (7th Cir. February 19, 2013). A paper mill planned to close in May. Eligible employees were told they would be offered severance if they signed a release. Before the plaintiffs in this case could sign the release, the mill changed its mind. Now it would stay open until October. The company offered employees a stay bonus and then severance upon signing a release in October. The plaintiffs here had already found jobs starting in May, so they went ahead and signed the old release and claimed severance from the Severance Plan. The Plan denied the claims, and the plaintiffs sued on various theories under ERISA. The Seventh Circuit decided that the Plan had not acted arbitrarily or capriciously and that the company had breached no fiduciary duty. After all, the original offer of severance in exchange for a release was revoked before the plaintiffs signed it. Moreover, the Severance Plan applied only to involuntary terminations and the plaintiffs here still had jobs (through October) so their decision to leave in May was voluntary.

If a Severance Plan is covered by ERISA, and properly drafted, employees can’t quit and still claim severance; they also can’t have their cake and eat it too.

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