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Employees Can Sue Employer for Fraud in Cancellation of Severance Plan

Posted by Frank Steinberg | Jul 27, 2007 | 0 Comments

Here's a report of a very interesting severance benefits case from federal court in Chicago.  Right now we just have a story from Business Insurance, but will provide more extensive coverage when we get a copy of the court's opinion.   Ninety ex-employees of CNA Financial will be allowed to go to trial to try to prove that CNA unlawfully and fraudulently denied them severance benefits. 

As with many things legal, timing and a lack of candor by CNA seem to be the critical considerations in the court's decision. 

Here's the story:

The plaintiffs were working as sales representatives when CNA sold its life business operations to Swiss Reinsurance Co. in 2004. Their positions were eliminated, and they were terminated on April 5, 2004. CNA later denied their claims to severance benefits.

According to the decision, CNA updated its severance pay plan on its intranet site in August 2003, but “did not highlight, underline, or draw attention to the newly added language” that denied severance benefits to the employees. 

CNA sold the plaintiffs' business until in 2004.  Their positions were eliminated their employment  terminated  on April 5, 2005.  Just four days before they were fired they received notice by intranet and mail that the severance plan had been discontinued.

The plaintiffs sued, and while the article is unclear, it appears that the company defended on the basis that state law remedies were preempted by ERISA.  The court held that the plaintiffs could sue in fraud, though not in contract.

“By any objective understanding of CNA's promise to timely notify its employees of material changes to their benefit plans, it was unreasonable for CNA to knowingly wait to tell plaintiffs of the amendment disqualifying them from severance benefits until almost seven months after the amendment took effect, and four days before each was terminated from employment,” said Judge James F. Holderman in his decision.

It sounds like the court made the right decision, but we'll try to find out more.

About the Author

Frank Steinberg

Frank is the founder and principal of Steinberg Law, LLC. A Jersey boy born and bred, he focuses on employment litigation and counseling, business litigation,  and aviation law. Following law school and a clerkship in the federal district court Frank spent his early career with large litigation ...


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