A federal judge grounded a class action lawsuit facing aerospace giant Northrop Grumman, a defeat for former employees who alleged the company came up short on severance payments.
U.S. District Judge Andrea Wood issued an opinion March 31, settling cross motions for summary judgment and ending a suit from named plaintiffs Alan Carlson and Peter DeLuca, who were among a group of employees Northrop Grumman subsidiary Northrop Grumman Technical Services laid off in 2013. The employees say under Northrop Grumman’s severance plan, governed by the Employee Retirement Income Security Act, they were entitled to continued benefits and severance pay they never received.
Wood said a 2012 document governing severance eligibility explicitly stated that employees only qualified if they had written confirmation signed by a human resources vice president. She explained the administrator of the plan denied severance claims for workers who “had not received the HR memo and therefore had not been designated as eligible.”
In their initial complaint, the plaintiffs alleged Northrop Grumman interpreted the severance plan inconsistently by providing benefits regardless of whether an employee received the memo but paying out cash severance only to those who received the memo. They also took issue with the fact the memo was not a condition of receiving severance until 2012. In moving for summary judgment, the plaintiffs said they met all other eligibility criteria.
However, Wood, wrote, their “proposed interpretation contradicts the basic, unambiguous reading of the plan document’s terms.”
Wood said the plaintiffs’ other arguments that the company’s interpretation of its own documents were capricious or arbitrary failed to persuade her to rule in their favor. Although the workers cited U.S. Seventh Circuit Court of Appeals opinions, Wood said those involved companies adding new requirements without reflecting the changes in plan language, whereas the Northrop Grumman “document expressly conditions severance benefits on receipt of the HR memo.”
She further rejected arguments based on the way the contract was constructed, reiterating the importance of the memo requirement as a condition for collecting severance. Terminated employees who didn’t get cash severance continued to be given medical, dental and vision benefits as part of their severance, but Wood said companies are allowed to establish different criteria for different benefits, among other permissible conduct.”
“There is no evidence that Northrop Grumman misrepresented the truth to plan participants to prevent a condition from occurring,” Wood wrote. “Northrop Grumman merely set terms for eligibility, which included designation of eligibility by means of the HR memo. Benefits governed by ERISA often rely on events within the employer’s control, such as the beneficiary’s continued employment. Indeed, employers may have the power to abolish their plans entirely.”
The plaintiffs also alleged Northrop discriminated against them, because declining to issue the HR memo interfered with their ability to get severance benefits. But Wood said the company was only exercising discretion, writing that “some ability to ‘discriminate’ was built into the plan, as Northrop could choose which employees would receive the contested severance benefits and which would not. But when a benefits plan expressly affords an employer such discretion over eligibility, it is not prohibited discrimination for the employer to exercise that discretion.”
Wood said the company didn’t intervene to prevent eligible employees from getting benefits, nor are their allegations the eligibility determinations had rooting in animus toward employee groups.
“To the contrary,” Wood wrote. “Even the evidence to which plaintiffs point indicates that the decision to treat employees in the Technical Services sector differently than employees of other sectors was based on financial considerations.”
Finally, Wood rejected the argument Northrop breached a fiduciary duty. She said the company didn’t withhold any critical information. It started enforcing the HR memo requirement in October 2011, but that clause was already in the plan.
“Employees who were concerned about their own eligibility for severance could have read the plan document, seen the requirement, and inquired about the HR memo at any time,” Wood wrote. She granted summary judgement to Northrop on all counts.
Plaintiffs have been represented by attorneys Michael Bartolic and Rebecca Kay Bryant, of Chicago, and Robert J. Barton and Vincent Cheng, of Block & Leviton LLP, of Washington, D.C.
Northrop has been defended by attorneys Nancy Ross, Samuel Myler and Abigail M. Bartine, of Mayer Brown, of Chicago.