Releases Signed by Former Employees Do Not Bar ERISA Claims

The court first noted that Fearless Farris Service Stations did not consult with any legal advisers when establishing or maintaining their Deferred Compensation Plan, and that the only documents evidencing the plan were certain letters and memoranda distributed to participants over the years, or in some cases placed in company files. There was no summary plan description ever distributed to participants as required by the Employee Retirement Income Security Act (ERISA), which the court said could mean the former employees released claims they did not know they possessed.

In his opinion, Chief U.S. District Judge B. Lynn Winmill said questions of fact also remain as to whether the releases were obtained as the result of misrepresentations about the former employees’ legal rights. Specifically, according to Winmill, there is a question whether Fearless improperly induced the former employees to sign the releases by suggesting that the ERISA plan had been legally terminated, and that Fearless had no financial obligation to them.

In addition, the court questioned whether money given to the employees in exchange for their signed releases – $30,000 to one and $3,000 to the other – was adequate. “The record indicates that their potential benefits under the Plan significantly outweighed the compensation they received in exchange for the releases,” Winmill wrote.

Fearless had asked the court for summary judgment in its favor since the release and waivers signed by the former employees said they would not pursue any actions against the company, including ERISA actions. The court denied Fearless’ motion for summary judgment.

Since Fearless did not supply summary plan descriptions and also led participants to believe it had no financial obligation to them because the plan was terminated, the court said the six-year statute of limitations rather than the three-year statute applies to the case and rejected Fearless’ argument that the former participants were time-barred from bringing the suit.

The Deferred Compensation Plan improperly set up by Fearless guaranteed participants an annuity upon retirement and beneficiaries an annuity in cases where the participant died before retiring. Fearless sold its operations to another employer and employees were told at that time that the plan was terminated.

Each employee who separated from service was given a release and waiver to sign that among other things, said they would not pursue any legal actions against the employer, including ERISA actions.

The case is Brasley v. Fearless Farris Service Stations Inc.,   D. Idaho, No. CV-08-173-S-BLW, 3/9/09.