Unlike pension plans where there is a separate trust fund, executive compensation promises are not usually funded. If the employer goes under, so does the compensation. So what are typical issues with employers not honoring promises made regarding executive compensation? To find out, we asked Ron Dean, a California attorney who has been practicing ERISA (Employee Retirement Income Security Act) law for over 35 years.

California Attorney Ron Dean

Dean says that these cases depend so much on the exact language in the plan document and that’s why lawyers become involved so quickly. He explained:

Employers make easy promises when they want the executive’s services, but when the executive is gone and wants her money, the employer’s motivations are the opposite. A situation we see over and over is the “change in control” case. When there is a change in control of the company and executives are let go or demoted, the plan promises certain benefits. However, the new company that takes over control has very little interest in paying out this money, so we see every trick in the book in their trying to avoid these obligations.

Unfortunately, Dean says that not honoring executive compensation promises is quite common when the company no longer needs anything from the executive.

Severance pay

What is severance pay, when is it required and when would someone have a claim against their employer for not paying it? According to Dean, “Severance pay is never required unless the employer is closing a whole plant or facility, in which case the employer has to give 60 days advance notice, or 60 days pay [depending on the number of employees involved]. Otherwise, a claim for severance pay must be based on some agreement by the employer to pay it. If there is such a promise and it’s not paid, then you would have a claim. However, most severance plans also say an employer can terminate the plan. In such a case, when the employer sees that it’s about to lay off a bunch of people, it will simply terminate the severance pay plan. In addition, severance pay can be waived – as long as the waiver is voluntary.

If you’ve been denied compensation under ERISA, consult with an experienced ERISA attorney to discuss your situation and evaluate your options. Consultations are free, without obligation and strictly confidential.