J & H Marsh & McLennan vice president properly denied enhanced severance benefits rules court
On January 4, 1999, Marsh sent by email a memorandum (the Broadcast Memo) to all Marsh employees in the United States informing them that the acquisition of Sedgwick would result in certain staff reductions.
The Broadcast Memo explained that those employees laid off in connection with the reduction-in-force would be eligible for severance benefits under a "Merger Severance Pay Plan." The Broadcast Memo explained that, under the proposed Merger Severance Pay Plan, separating employees would be eligible for one of two types of severance benefits: basic or enhanced. According to the Broadcast Memo, basic severance benefits consisted of two weeks base salary paid in a lump sum to all employees terminated under the Merger Severance Pay Plan. Enhanced severance benefits provided greater benefits, but the Broadcast Memo indicated that the receipt of those benefits was expressly contingent upon signing "a waiver and release agreement in the form provided by the company that includes a specific clause on non-solicitation of both accounts and employees of the company."
The Marsh Severance Pay Plan went into effect on March 31, 1999 and terminated on December 31, 1999. The Plan provided that its purpose was "to provide severance pay and benefits to eligible [Marsh] employees" terminated as a result of the acquisition of Sedgwick. The Plan provided that eligible employees would be entitled to one of two types of severance benefits, either basic or enhanced.
Under the Plan, basic severance benefits consisted of two weeks base salary, paid in a lump sum two weeks following termination. An employee was eligible for enhanced severance benefits if the employee signed "a Waiver and Release Agreement in a form prepared by the Company ("Waiver and Release"), and such Waiver and Release becomes effective by its terms." Unlike the language contained in the Broadcast Memo, the Plan did not contain a specific clause pertaining to the solicitation of both accounts and employees of Marsh. Enhanced severance benefits were calculated by using a seniority formula, with a minimum benefit consisting of four weeks base salary, plus a $ 1,500 to $ 3,500 allowance for health benefits continuation, out-placement assistance, and other benefits.
On January 31, 1999, Friz was selected for termination in conjunction with MMC's acquisition of Sedgwick. On April 15, 1999, Friz received written notification of his termination. At that time, he was offered a "Change of Employment Status/Waiver and Release Agreement" (the Agreement). The Agreement provided that in exchange for $ 89,440 and other benefits, Friz would release any real or potential claims against Marsh and forego his right to solicit certain customers and employees of Marsh for one year.
By the terms of the Agreement, Friz had a forty-five day period, or until May 31, 1999, to consider its terms and accept it. Friz did not sign the Agreement during the forty-five day period or any time thereafter, nor did he raise any questions or issues concerning the scope of the Agreement during this period. Thus, under the Plan, he qualified only for basic severance benefits, which he received in due course. Evidently, Friz chose not to accept the Agreement because he intended to, and apparently did in fact, solicit Marsh's clients.
On October 28, 1999, Friz initiated an administrative appeal under the Marsh Severance Pay Plan regarding his failure to qualify for enhanced severance benefits. According to Friz, he was entitled to enhanced severance benefits because the Plan did not condition the receipt of enhanced severance benefits on the non-solicitation of both accounts and employees of Marsh.
After review, Edward Pazicky, the administrator for the Plan, denied Friz's claim for the following reasons: "(1) the Plan's language expressly provided that the terms of the Waiver and Release would be prepared" by Marsh and "Friz failed to sign the Waiver and Release" as prepared by Marsh; "(2) Friz failed to sign the Agreement within the forty-five day period as required under the Plan; (3) the non-solicit clause was reasonable in that it was narrowly drawn"; (4) the Agreement offered generous compensation; and (5) "as early as January 4, 1999, Friz, along with all other potential participants, had been advised that the Waiver and Release would include a 'specific clause on non-solicitation of both accounts and employees'" of Marsh.
On March 14, 2000 Friz filed a complaint in the Circuit Court for Baltimore City, Maryland against Marsh, the Marsh Severance Pay Plan, and Pazicky to recover under the Employee Retirement Income Security Act the enhanced severance benefits denied to him by Pazicky. The case ended up in the United States District Court for the District which dismissed Friz's complaint on June 27, 2000. The district court ruled that Pazicky's interpretation of the Plan to deny Friz's claim for enhanced severance benefits was reasonable.
Fritz appealed to the United States Court Of Appeals For The Fourth Circuit which upheld the district court ruling.
Source: Friz v. J&H Marsh & McLennan, Inc., 2001 U.S. App. LEXIS 869 (United States Court Of Appeals For The Fourth Circuit) (January 22, 2001)