Employment Agreement Release Proves a Buffer to ESOP Fiduciary Claim

The recent case of Innis v. Bankers Trust Co. of South Dakota, No. 4:16-cv-00650-RGE-SBJ, United States District Court for the Southern District of Iowa (April 30, 2019) has been watched with interest by businesses who either have, or are considering, an Employee Stock Option Plan (ESOP). A summary judgement decision in Innis explains how the use of employment release agreements can bar an employee from using ERISA to pursue an ESOP fiduciary claim.

In short, ERISA imposes a liability on plan fiduciaries to care for the plan and protect it from loss. This fiduciary duty does not extend to individuals enrolled in the plan or their beneficiaries. If there is a loss, the plan, not the individual, is the plaintiff, and an individual who wants to bring an action against the plan fiduciary must show that the loss the plan suffered also caused his or her account to suffer a loss. If the individual has signed a release, then they lose this standing.

In Innis, the plaintiff worked at Telligen, Inc for over 18 years and had signed a release that barred her from suing ESOP plan trustees over the plan’s purchase of stock. When she was terminated, she signed a severance agreement. She also received a severance package including pay and job-search services. The court found that her signing the release was a voluntary action and she knew what she was doing. Further, the court found that the release she signed was broad and included ERISA claims that she wanted to bring on behalf of the ESOP plan.

Impact of the Innis Ruling

In interpreting the release, the court ruled in favor of Banker’s Trust. For companies that want to avoid any grey areas in their release, certain points extracted from the court’s decision should be considered. While adding these details to a release won’t guarantee a favorable result, it could make a court more likely to find in the fiduciary’s favor.

  1. The language of the release should make it clear that the document includes a release of the right to bring lawsuits for damages, both as an individual and on behalf of another.
  2. The release should also clearly state that the released parties include everyone associated with the ESOP plan, including all trustees and fiduciaries.
  3. Finally, the release should clearly state that the employee is knowingly and voluntarily signing the release agreement and receiving payment as consideration of their signing. Further, the employee has had the opportunity to seek advice and legal counsel before signing.

Hall Benefits Law’s attorneys are working with our current clients to ensure their release documents are up to date and their ESOPs are protected against potential litigation. We pay attention to the outcome of court cases to help our clients avoid the costs and headache of litigation when possible. To learn more or to get help making changes to your benefit plans, call 678-439-6236 today, or visit the Hall Benefits Law website.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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