Employees in Chicago covered by an employer-sponsored benefit plan governed by ERISA, such as severance, health insurance, or long-term disability, often do not realize the systemic issues involved in their denial of benefits. Often, even their lawyers do not realize it, until litigation is underway and reveals droves of other individuals had benefits withheld for the same reason. This most commonly occurs where there is a uniform application of some plan term that would operate to deny others a benefit for the identical reason. That is precisely what happened in Carlson v. Northrop Grumman Corporation et al., No. 13-2635, pending in the United States District Court for the Northern District of Illinois. Days ago, the District Court granted Michael Bartolic’s motion, over defendants’ objection, to amend the complaint to restate two individuals’ claims for severance benefits under ERISA § 502(a) and unlawful interference with attainment of benefits on behalf of a class of all similarly situated individuals.
In the Carlson case, Plaintiffs initiated the litigation because two long-time employees of well-known government defense contractor, Northrop Grumman Corporation, were laid off amid defense funding cuts, but denied severance benefits under the company’s severance plan. The severance plan states employees are eligible for severance if they were regularly scheduled to work over 20 hours per week in the United States and lost their job due to layoff or reduction in force. The plan further states the laid off employee must receive a memo from a Vice President of Human Resources advising the employee he is eligible for severance. The parties essentially dispute whether receipt of this memo is necessary to receive severance, or is merely the vehicle by which the company gives eligible employees notification of the severance. Plaintiffs were denied severance because they did not get the memo.
Northrop Grumman contends whether or not to give the memo is a discretionary decision, non-occurrence of which makes an employee ineligible for severance. Plaintiffs argue because there is no rule or standard guiding how such a decision to deliver the memo is made, it is not a discretionary decision and is merely a means of notification. When the Court granted Plaintiffs’ motion to assert class-wide relief, it appeared receptive to this argument, stating “the Court cannot determine whether Plaintiffs’ ineligibility for severance benefits was based on a reasonable interpretation of the Plan because there is no indication of what standard, if any, Northrop used to determine who receives the Memo and who does not. Although Defendants gloss over the issue by claiming that the only relevant consideration is whether Plaintiffs in fact received the Memo, this argument puts the cart before the horse.” Carlson v. Northrop Grumman Corp., No. 13-2635, 2014 U.S. Dist. LEXIS 149141, at *18–19 (N.D. Ill. Oct. 20, 2014). Shortly after the order, Bloomberg BNA reported on the outcome in Pension and Benefits Daily. 41 BPR 2230.
Through additional discovery, the parties must still determine just how many individuals are in the putative class, and once identified, provide the class members with notice. If you have been denied a claim for benefits due to what appears as an unreasonable application of plan terms, contact an experienced ERISA attorney.