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Former Employee Awarded Severance Pay Benefits Under ERISA Plan By Fourth Circuit

Published by on May 12, 2008

In Ahuja v. Ericsson Inc., the U.S. Court of Appeals for the Fourth Circuit reversed an award of summary judgment in favor of the Ericsson Plan and remanded the case to the district court for the entry of an award in favor of the plaintiff, a former Ericsson employee who challenged the Plan Administrative Committee’s […]

In Ahuja v. Ericsson Inc., the U.S. Court of Appeals for the Fourth Circuit reversed an award of summary judgment in favor of the Ericsson Plan and remanded the case to the district court for the entry of an award in favor of the plaintiff, a former Ericsson employee who challenged the Plan Administrative Committee’s denial of severance pay benefits.

Ritesh Ahuja, the former employee, participated in Ericsson’s Standard Plan and its Enhanced Plan, which entitled participants to severance pay in the amount of six months of their base salary in the event of a covered employment loss.  The challenged denial of benefits was based upon Clause No. 8b in the Ericsson Enhanced Plan that stated, in summary, that a participant is not eligible for Enhanced Severance Benefits upon the “reorganization” of Ericsson. 

In early 2005, Ericsson closed the Rockville, Maryland, office where Ahuja worked and consolidated its operations in Raleigh, North Carolina.  Ahuja was offered to continue his employment in Raleigh, but he declined and his employment with Ericsson was accordingly terminated soon thereafter.  Ahuja was denied his claim for benefits by both the plan administrator and the Plan Administrative Committee.  The district court granted Ericsson’s motion for summary judgment finding that the Committee had acted within its discretion in denying Ahuja’s claim pursuant to Clause No. 8b.

The Fourth Circuit disagreed, finding that the plain meaning of Clause No. 8b did not include the internal reorganization that led to Plaintiff’s separation.  8b referred to reorganization “with another entity,” and although that phrase was not immediately preceding the term reorganization, it indeed modified the term reorganization.  The meaning of a term, the Court noted, must be read in context and not in isolation.  Based on the terms surrounding “reorganized,” in context, the reorganization referred to in Clause No. 8b was a reorganization with another entity.  Further, the title of the clause was “Sale or Merger of Ericsson.”  Accordingly, the Court found that Clause 8b did not embrace an internal reorganization and remanded the case for entry of an order awarding Ahuja benefits under the Enhanced Plan.  Because Ahuja had not filed a claim with the Plan Administrator for benefits under the Standard Plan, the Fourth Circuit affirmed the dismissal of that claim for failure to exhaust administrative remedies.

Contributed by Michael K. Wilson

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