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Texas Supreme Court Holds that Severance Arrangements Relating to an ERISA Plan are Preempted by ERISA

When Tyco Valves & Controls, L.P. closed one of its facilities, it offered certain employees severance benefits pursuant to either (i) a severance pay schedule for that facility or (ii) retention agreements. At that time, Tyco employees were covered by Tyco’s severance plan, which was undisputed to be governed by ERISA (the “ERISA Plan”). After Tyco sold one of the production units located in the facility, several former employees who had been denied severance filed a breach-of-contract claim under state law against Tyco. The trial court ruled in favor of the plaintiffs and awarded the severance pay. The court of appeals reversed, and the Texas Supreme Court agreed, holding that ERISA preempted the plaintiffs’ breach-of-contract claims. The plaintiffs involved were two separate groups. The first group was promised severance pay under a schedule that referenced the ERISA Plan, copied and used terms from the ERISA Plan, and purported to supersede “any prior plan.” The second group was promised severance pay in written and oral promises that referenced the schedule, but did not refer to the ERISA Plan. The Texas Supreme Court held that (i) ERISA preempted the contract claims with respect to the first group because the schedule that contained the severance benefits clearly referenced the ERISA Plan, depended on that plan for interpretation of terms, and amended that Plan, and therefore related to an ERISA plan; and (ii) ERISA preempted contracts claims with respect to the second group because those promises referenced the schedule, which in turn referenced the ERISA plan.  Colorado v. Tyco Valves & Controls, L.P., No. 12-0360 (Tex. Mar. 28, 2014).

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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