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ERISA can send contract case to federal court

by on
in Employee Benefits Program,Employment Law,Human Resources

Employment agreements are contracts. When disputes arise, they’re typically litigated in state courts because they involve state contract laws. But under the right circumstances, the Employee Retirement Income Security Act (ERISA) may apply to the agreement, effectively making the contract a protected benefit plan.

Recent case: Gloria King worked as the president of the United Way of Central Carolina. King had an employment agreement that provided her with a base salary of $290,000 per year, bonuses and retirement benefits.

The three-year contract included a termination clause: If King were terminated without cause, she would continue to receive paychecks plus benefits until the end of the three years or until she got a comparable job. However, if King were terminated for cause, she lost any right to her salary or benefits.

The United Way made a lump sum contribution to King’s retirement plan, bringing her total compensation to about $1 million.

The press found out and ran stories on King. That’s when the United Way board decided to terminate her and hire someone for considerably less. They told King she was terminated without cause, but retained the right to change that decision if they later found cause. After reviewing records, the board discovered alleged expense-reimbursement irregularities and declared the termination for-cause. It stopped paying King.

She sued, alleging she was entitled to continued payments under state law.

A federal court disagreed, concluding that the pay-on-termination provisions made the agreement an ERISA benefit plan rather than a simple employment contract. It then dismissed the case, concluding the board acted within its rights in terminating King. (King v. United Way, No. 3:09-CV-164, WD NC, 2009)

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