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Termination of Employment Following Rescission of an Involuntary Termination Notice is a Voluntary Termination

The U.S. Court of Appeals for the Seventh Circuit recently held that the decision by the plan administrator of an ERISA-covered severance pay plan was not arbitrary or capricious when it denied severance benefits to employees who terminated employment after the company sent involuntary termination notices, but later rescinded such notices. The court held that the employees’ termination was voluntary. In Reddinger v. SENA Severance Pay Plan, the employees received notices stating that the plant where they worked was closing, their employment would be terminated effective May 2, 2008, and severance pay would be provided if they timely executed and returned a release agreement. Following receipt of the termination notices, the employees sought alternative employment. Two weeks after the termination notices were sent, the company notified the employees that the plant was going to stay open until October 1, 2008, and that releases were no longer being accepted. A retention bonus and severance pay was provided to employees who remained with the company until October 1, 2008. After being notified of the delayed plant closing, the employees returned signed releases and terminated employment on May 2, 2008. When they sought severance benefits, the plan administrator concluded that they voluntarily terminated. The court noted that the plan’s explicit purpose was to provide severance benefits to those employees whose employment was involuntarily terminated. Because the employees voluntarily quit working after being informed that the plant would remain open and that severance benefits would not be paid if they quit in May, the court held that the plan administrator’s decision was not arbitrary or capricious. The court further reasoned that it did not matter that the company gave severance benefits to other employees who terminated in May but had returned their releases prior to the date the company revoked the acceptance of releases. The court further noted that there was no breach of fiduciary duty because the company’s decision regarding the timing of the plant closure was a business decision, not an ERISA fiduciary decision. Reddinger v. SENA Severance Pay Plan, Nos. 10-2361 & 10-2362 (7th Cir. Feb. 19, 2013).

The lawyers of our Employee Benefits and Executive Compensation Practice Group are readily able to assist companies on a nationwide basis with implementing sophisticated benefit plans and providing answers to their most challenging compensation issues. Additionally, our lawyers are well aware of the daily employee benefits challenges facing companies of all sizes and are capable of helping in-house lawyers and human resources personnel with the day-to-day advice and guidance necessary to properly administer employee benefits plans.

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