DATE POSTED 14. 02. 2011, By

The Need to Consult an ERISA Lawyer Before Signing a Severance Agreement

Workers in Chicago and the Midwest now have even more compelling of a reason to consult an ERISA lawyer before signing a severance agreement. In late January, the United States Court of Appeals for the Seventh Circuit rendered an opinion in Howell v. Motorola, Inc., No. 07-3877, 2011 U.S. App. LEXIS 1193 (7th Cir. Jan. 21, 2011) holding that any member who signed a release as part of a severance agreement after being terminated from employment could not pursue a claim against the former employer or the plan for a breach of fiduciary duty–even if that breach of fiduciary duty resulted in a denial of benefits due.

The case stemmed from Motorola’s offering of employer stock as part of its participant-directed 401(k) plan. In 1999, Motorola involved itself, though an affiliate, in a lending deal with a Turkish telecom company, Telsim, whereby Motorola loaned Telsim $1.8 billion. Telsim pledged a number of shares of its own stock as security. Prior to July 1, 2000, Motorola only had 4 options in its 401(k) plan, employer stock being one of them, and the plan limited participants to investing no more than 25% of their account balances in employer stock. Thereafter, Motorola began offering 9 different options, including employer stock, but lifted the restriction so that employees could invest 100% of their retirement savings in Motorola stock.

In April 2001, Telsim missed the first repayment deadline and had diluted the stock that served as collateral for the Motorola loan, and as Motorola released more information about the Telsim deal, the stock price declined. The plaintiffs alleged that Motorola did not adequately disclose the terms of the Telsim deal or the risk to which Motorola was exposed, and that as more information was released regarding the deal, the stock price declined.

The Seventh Circuit held Howell’s claims against Motorola were dismissed because he signed a release as part of a severance agreement that would release Motorola from any past breaches of fiduciary duties under ERISA. Even though Howell tried to argue that his claim was really one for benefits due under ERISA 502(a)(1)(B), the court nevertheless dismissed. This case demonstrates precisely why it is so important to consult an attorney versed in ERISA prior to signing any severance agreement.

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