Are Employment Agreements a Protection Against ERISA Claims?

Can employment agreements limit an employer’s exposure to the risk of ERISA fiduciary breach claims? A recent blog entry addresses that question by zeroing in on a recent court decision.
In “Employee Agreements: A Method for Mitigating ERISA Fiduciary Exposure?” Hall Benefits Law examines that matter by looking at the Innis v. Bankers’ Trust Company of South Dakota ruling by the U.S. District Court for the Southern District of Iowa.

“Employment agreements cover a wide range of topics,” they write, calling it “not surprising” plan fiduciaries include wording in them intended to limit their exposure to ERISA fiduciary breach claims and encourage arbitration instead of litigation. For instance, they say, agreements sometimes are worded to limit claims periods and establish in which jurisdiction claims will be heard.

In Innis, they note, the court said that an employer that required employees who were leaving the company to sign releases was preventing plan participants from suing the employer’s ESOP for a fiduciary breach. In addition, the blog notes, the ruling included a list of factors that should be considered in determining whether such releases are valid and enforceable. Such factors, the court said, include that the release must be:

• in writing;
• signed by the employee; and
• a knowing and voluntary waiver of the employee’s right to sue for a fiduciary breach.

In addition:

• the release cannot cover future claims after the employee signs it; and
• the employee must receive adequate consideration for signing the release; this can take the form of a severance package that includes pay, a portion of COBRA contributions, and other support that is more than what the employee otherwise would have received.

In Innis, the blog notes, the court found that the plaintiff had signed the release knowingly and voluntarily, and took into account that she had signed an acknowledgement that she had read and understood the release. The court also noted that the release did not prevent the plan from asserting claims against the plan fiduciaries in the future.

The blog argues that in its consideration of the case, the court “also opened the door to a few questions,” such as:

• how much education and experience it takes for someone to be sufficiently sophisticated to sign a release;
• the extent to which a release is valid against plan trustees; and
• whether a shorter timeline for signing a release would be equally sufficient.