Scott v. Gulf Oil Corp.

• Decision Date: 06 March 1985
• Docket Number: No. 83-6423,83-6423
• Citation: 754 F.2d 1499
• Parties: Ted SCOTT, Jack Leverenz, John R. Miller, Tom Arima and Dennis Neumann, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants, v. GULF OIL CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1499

754 F.2d 1499

Ted SCOTT, Jack Leverenz, John R. Miller, Tom Arima and Dennis Neumann, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants, v. GULF OIL CORPORATION, Defendant-Appellee.

No. 83-6423.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Dec. 6, 1984.

Decided March 6, 1985.

John C. McCarthy, Claremont, Cal., for plaintiffs-appellants.

Kenneth Oder, Los Angeles, Cal., for defendant-appellee.

Appeal from the United States District Court for the Central District of California.

Before SNEED, ANDERSON, and FERGUSON, Circuit Judges.

SNEED, Circuit Judge:

Former employees of Gulf Oil Corporation brought suit against Gulf on state-law contract and tort claims arising from Gulf's alleged failure to provide severance pay that was due them, and from Gulf's alleged improper negotiations with Thrifty Oil Corporation over the terms of their future employment. The basis of jurisdiction in district court was diversity of citizenship. The district court dismissed the action for failure to state a claim on which relief could be granted, holding that all the claims were preempted by the Employee Retirement Income Security Act (ERISA), 29 U.S.C. Secs. 1001-1461 (1982). The dismissal We affirm in part, reverse in part, and remand.

was without prejudice to such rights as plaintiffs might have under ERISA. Plaintiffs appealed.

I. FACTS

Plaintiffs are 101 former salaried, non-union employees of Gulf Oil Corporation. They worked at Gulf's oil refinery in Santa Fe Springs, California. Gulf sold the refinery to Thrifty Oil Corporation on July 31, 1983. Gulf arranged with Thrifty for Thrifty to hire the former Gulf employees who had worked at the refinery. All but one or two of the plaintiffs accepted employment with Thrifty.

The plaintiffs brought this diversity action in which they assert the following four claims against Gulf:

1. "Breach of Employment Agreement." Plaintiffs allege that Gulf "expressly and impliedly promised, orally and in writing" to pay severance pay to plaintiffs upon termination of their employment with Gulf, at the rate of two weeks salary for each year of employment with Gulf, but failed to do so.

2. "Violation of Public Policy." Plaintiffs allege that Gulf, without their knowledge or authorization, negotiated the terms of their future employment with Thrifty and "agreed privately with Thrifty to coerce and deceive [plaintiffs] into accepting employment with Thrifty on terms less favorable than the terms of their employment with defendant Gulf."

3. "Breach of the Duty to Act Fairly and in Good Faith." This count is based on the same allegations as counts 1 and 2, but recharacterizes the acts alleged in those counts as a breach of Gulf's "duty implied in the employment agreement to deal fairly and in good faith" with the plaintiffs.

4. "Fraud and Breach of Fiduciary Duties." Plaintiffs allege that Gulf defrauded them by representing falsely in writing that they were not entitled to severance pay and that the benefits they would receive from Thrifty were equal to those that they were receiving from Gulf.

The district court, in effect, held that each of the plaintiffs' claims was preempted by ERISA. We hold, however, that ERISA preempts all of plaintiffs' claims except insofar as they allege the loss of benefits that plaintiffs would have accumulated while employed by Thrifty were it not for Gulf's alleged improper negotiation of the terms of their employment with Thrifty.

II. THE PURPOSE AND SCOPE OF ERISA

ERISA is a remedial statute designed to protect the interests of employees in pension and welfare plans, see Shaw v. Delta Airlines, 463 U.S. 85, 103 S.Ct. 2890, 2896, 77 L.Ed.2d 490 (1983), and to protect employers from conflicting and inconsistent state and local regulation of such plans, see id. 103 S.Ct. at 2901, 2904. The former purpose is achieved through requirements for reporting, disclosure, participation rights, vesting of rights to benefits, funding, fiduciary responsibilities, and claims procedures. See 29 U.S.C. Secs. 1021-1145. The latter purpose is achieved through the preemption, with a few exceptions not relevant here, of all state laws relating to employee pension and welfare benefit plans. See id. Sec. 1144.

ERISA creates federal causes of action for recovery of benefits due under pension and welfare plans, see 29 U.S.C. Sec. 1132(a)(1)(B), and for breach of fiduciary duty by plan fiduciaries, see id. Secs. 1109, 1132(a)(2). In appropriate circumstances, extracontractual and punitive damages may be obtained under the latter cause of action. See Russell v. Massachusetts Mutual Life Insurance Co., 722 F.2d 482, 489-92 (9th Cir.1983).

ERISA does not contain a body of contract law to govern the interpretation and enforcement of employee benefit plans.

                Instead, Congress intended for the courts, borrowing from state law where appropriate, and guided by the policies expressed in ERISA and other federal labor laws, to fashion a body of federal common law to govern ERISA suits.   See Menhorn v. Firestone Tire & Rubber Co., 738 F.2d 1496, 1499 (9th Cir.1984);  Terpinas v. Seafarer's International Union, 722 F.2d 1445, 1447 (9th Cir.1984);  Amato v. Bernard, 618 F.2d 559, 567 (9th Cir.1980)
                

ERISA's preemption clause declares that ERISA "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan ...". 29 U.S.C. Sec. 1144(a) (1982) (emphasis added). The preemption extends to state common-law causes of action as well as regulatory laws. See, e.g., Russell, 722 F.2d at 487-88.

Preemption by ERISA thus turns initially on whether Gulf's alleged promise to provide severance pay is an "employee benefit plan" within the meaning of ERISA.

III.

IS GULF'S ALLEGED PROMISE TO PAY SEVERANCE PAY AN "EMPLOYEE

BENEFIT PLAN" UNDER ERISA?

"Employee benefit plans" under ERISA include "employee pension benefit plans" and "employee welfare benefit plans." 29 U.S.C. Sec. 1002(3) (1982). While the parties agree that Gulf's alleged promise to provide severance pay is not an "employee pension benefit plan," they disagree vigorously over whether the promise is an "employee welfare benefit plan." For the promise to be an "employee welfare benefit plan," severance pay must be considered an "employee welfare benefit," and the promise must constitute a "plan" within the meaning of ERISA. We shall examine each of these requirements separately.

A. Severance Pay As An Employee Welfare Benefit.

ERISA defines employee welfare benefits to include several enumerated benefits, including medical, disability, unemployment, and vacation benefits, 29 U.S.C. Sec. 1002(1)(A), and, in addition, "any benefit described in [29 U.S.C.] section 186(c)," id. Sec. 1002(1)(B). Section 186(c) concerns, inter alia, money paid to trust funds "for the purpose of pooled vacation, holiday, severance, or similar benefits." 29 U.S.C. Sec. 186(c)(6).

An ERISA regulation promulgated by the Department of Labor states that the effect of ERISA's reference to section 186(c) "is to include within the definition of 'welfare plan' those plans which provide holiday and severance benefits, and benefits which are similar." 29 C.F.R. Sec. 2510.3-1(a)(3). The key point for our purposes is that the regulation does not limit the definition to those severance benefits which are pooled or which are funded by a trust fund. The regulation's interpretation of the statute is reasonable, because the reference to section 186(c) is in the form of an addition to a list of types of benefits, the rest of which are listed without regard to their source of funding or whether or not they are pooled. On the basis of the regulation, therefore, this court, in Blau v. Del Monte Corp., 748 F.2d 1348, 1352 (9th Cir.1985), held that severance pay is an employee welfare benefit under ERISA. Accord, Donovan v. Dillingham, 688 F.2d 1367, 1371 & n. 4 (11th Cir.1982), (en banc ); Petrella v. NL Industries, 529 F.Supp. 1357, 1361-62 (D.N.J.1982); Pinto v. Zenith Radio Corp., 480 F.Supp. 361 (N.D.Ill.1979), aff'd 618 F.2d 110 (7th Cir.1980).

Appellants argue that, notwithstanding ERISA's incorporation of severance benefits by reference to section 186(c), severance pay should nonetheless be considered a "payroll practice," rather than an employee welfare benefit, when it is paid out of an employer's general assets rather than out of a special fund. Appellants rely on regulations that define as payroll practices medical leaves, holidays, and vacations, when they are funded out of an employer's general assets. See 29 C.F.R. Secs. 2510.3-1(b)(2)-(3).

The short answer to appellant's argument is that the regulations that define payroll practices are quite specific and clearly do not cover severance pay. They refer to payment of compensation for periods of time when an employee is absent for medical or psychiatric reasons, id. Sec. 2510.3-1(b)(2), on vacation, holiday, military duty, or jury duty, id. Secs. 2510.3-1(b)(3)(i)-(iii), in training, id. Sec. 2510.3-1(b)(3)(iv), or on sabbatical leave, id. Sec. 2510.3-1(b)(3)(v). They do not refer to payments upon termination of employment.

There is good reason for distinguishing severance pay from the designated payroll practices. The practices described in the regulations require disbursements of funds easily analogized to ordinary wages, and the payments involved invariably take place during the term of employment. Severance pay, in contrast, requires an extra disbursement of funds, above and beyond ordinary wages, at or after the termination of employment. Further, an employer who, as in this case, terminates a large number of employees at once, may be faced with an extremely large severance liability. For these reasons, the danger that an employer may, because of lack of funds, default on an obligation to provide severance pay is greater than the danger of default on an obligation to provide medical leaves or...