Labor & Employment Law Daily Wrap Up, PENSION AND BENEFIT CLAIMS—9th Cir.: Court must examine whether fiduciary obtained release in violation of its duties to beneficiary, (Jun 6, 2025)

By Ronald Miller, J.D.

The court must examine the totality of the circumstances in which the release was signed to ensure the fiduciary did not obtain the release in violation of its duties to the beneficiary.

The Ninth Circuit reversed a district court’s grant of summary judgment against employees in a case concerning the enforceability of release of claims under ERISA. The appeals court held that releases and waivers under ERISA must “withstand special scrutiny designed to prevent potential employer or fiduciary abuse.” This scrutiny requires courts to consider whether the plaintiff entered into the release knowingly and voluntarily, and will be of particular importance where there is evidence that the defendant potentially breached its fiduciary duty by or in the course of obtaining a release of ERISA claims (Schuman v. Microchip Technology Inc., Nos. 24-2624 and 24-2978 (9th Cir. June 5, 2025)).

Severance plan. In anticipation of a potential merger, Atmel Corporation created a benefits plan governed by ERISA, for employees to receive severance in the event that an acquiring company fired the Atmel staff. The plan included significant cash severance.

The plan would only pay out benefits if several conditions were met. First, the plan would expire “on November 1, 2015 unless an Initial Triggering Event... ha[d] occurred prior” to that date. An initial triggering event occurred only if the company entered a definitive agreement on or before November 1, 2015, that would result in a change of control of the company. If such an event occurred, the plan would “remain in effect for” the next eighteen months.

Second, if the “Initial Triggering Event” occurred by the deadline, Atmel employees could then receive the benefits only if two more conditions were met: (A) “[a] Change of Control actually occur[red];” and (B) “[t]heir employment [was] terminated without ‘Cause’ by the Company (or its successor) at any time within 18 months of the execution date of the Definitive Agreement.”

Whether an eventual “Change of Control” had to involve the same company with which Atmel entered into a “definitive agreement” on or before the November 1, 2015, deadline remains in dispute.

Merger activity. In September 2015, Dialog Semiconductor agreed to acquire Atmel. But before the merger closed, Microchip Technology put in a competing offer. Microchip agreed in January 2016 to acquire Atmel. Between the Dialog deal and the announcement of the Microchip agreement, an Atmel HR executive assured employees that the plan would provide benefits for those terminated without cause in connection with a change of control of the company. After the Microchip agreement, Atmel’s human resources department circulated a document stating that Microchip would honor the Atmel Plan. Microchip’s merger with Atmel officially closed in April 2016.

Terminations. Soon after the merger, Microchip terminated the named plaintiffs in this suit without cause and offered them significantly lower benefits than promised in the plan in exchange for a release of all potential claims. Microchip’s stance was that the plan had expired because the deal initiated before the deadline, with Dialog, had not resulted in a finalized merger. The employees signed the releases.

The employees later filed a class-action against Microchip, Atmel, and the severance plan on behalf of 200 former Atmel employees who had also signed releases. The complaint alleged violations of ERISA. Specifically, the complaint alleged that Microchip breached its “fiduciary duties by misinterpreting the [Plan] as having expired and encouraging Plaintiffs to sign releases in exchange for reduced severance benefits” because Microchip allegedly knew or should have known that the plan remained valid. The district court certified the class, and Microchip eventually moved for summary judgment.

Companion case. Meanwhile, a group of nine former Atmel employees who had not signed releases also sued Microchip, alleging similar violations of ERISA. In the nine former employees’ suit, the district court initially found that the plan’s key language regarding the “Change of Control” and “definitive agreement” unambiguously meant that the plan had not expired by the time of the Microchip merger, and that Microchip had breached its fiduciary duties. On appeal, the Ninth Circuit concluded that the language was ambiguous, and remanded. Thereafter, the parties settled, leaving the meaning of the plan’s key language unresolved.

Present case. In the present case, Microchip renewed its summary judgment motion in the class action. Microchip “argue[d] that Plaintiffs knowingly and voluntarily waived their right to pursue claims under the Atmel Plan.” The employees argued that even if they had knowingly and voluntarily signed the releases, the releases were unenforceable because “Microchip violated its fiduciary duties by the very act of obtaining releases in exchange for sharply reduced severance payments” when it knew or should have known employees were still entitled to benefits under the plan, contrary to Microchip’s misrepresentations.

Strictly applying a six-part test from the First and Second Circuits, the district court found the named plaintiffs’ releases were enforceable and therefore disposed of their claims. That test asks whether a release was “knowing and voluntary” in light of the totality of the circumstances. The district court found that the employees understood the terms and stakes of the release and signed it willingly. It thus granted summary judgment against the named plaintiffs.

Non-named plaintiffs. As for the non-named plaintiffs, the district court found that the six-factor test was too individualized to support a class-wide conclusion that all of the releases were signed knowingly and voluntarily. The court then separately considered the non-named plaintiffs’ claim that Microchip breached its fiduciary duties under ERISA because it knew or should have known that the Plan had not expired. The court denied summary judgment as to these plaintiffs.

Subsequently, the district court entered final judgment under FRCP 54(b) in favor of Microchip, certifying for appellate review the question of what legal test the court should apply in determining the enforceability of the releases signed by the named-plaintiffs and the majority of class members.

Breach of fiduciary duties. The primary question in this appeal is what legal test determines whether an ERISA release is enforceable. The Ninth Circuit first considered whether ERISA requires heightened scrutiny of a waiver or release of ERISA claims. The appeals court concluded that when a breach of fiduciary duties is alleged, courts must evaluate releases and waivers of ERISA claims with “special scrutiny designed to prevent potential employer or fiduciary abuse.”

The question, then, is how to apply the required special scrutiny in practice. The Ninth Circuit observed that four other circuits, the First, Second, Seventh, and Eighth, have adopted ERISA-specific tests for the enforceability of releases. The court must examine the totality of the circumstances in which the release was signed to ensure the fiduciary did not obtain the release in violation of its duties to the beneficiary.

Thus, the Ninth Circuit concluded that courts must consider alleged improper conduct by the fiduciary in obtaining a release as part of the totality of the circumstances concerning the knowledge or voluntariness of the release or waiver.

Totality of the circumstances. Concluding that the approach of the Seventh and Eighth Circuits provides the right balance between a strictly traditional voluntariness examination and an ERISA-based analysis, the Ninth Circuit joined their approach.

In evaluating the totality of the circumstances to determine whether the individual entered into the release or waiver knowingly and voluntarily, courts should consider the following non-exhaustive factors: (1) the employee’s education and business experience; (2) the employee’s input in negotiating the terms of the settlement; (3) the clarity of the release language; (4) the amount of time the employee had for deliberation before signing the release; (5) whether the employee actually read the release and considered its terms before signing it; (6) whether the employee knew of his rights under the plan and the relevant facts when he signed the release; (7) whether the employee had an opportunity to consult with an attorney before signing the release; (8) whether the consideration given in exchange for the release exceeded the benefits to which the employee was already entitled by contract or law; and (9) whether the employee’s release was induced by improper conduct on the fiduciary’s part.

Where the district court found a genuine issue of fact material to the issue of a breach of fiduciary duty in obtaining the release of claims, the final factor warrants serious consideration and may weigh particularly heavily against finding that the release was “knowing” or “voluntary” or both.

Given the Ninth Circuit’s formulation of the applicable test, it remanded the question to the district court for its application of the factors.

Rule 54(b) certification. Further, the appeals court concluded that the district court’s Rule 54(b) certification of the question of what legal test the court should apply in determining the enforceability of the releases signed by employees was not improper.

The district court’s reasoning as to the “juridical concerns” properly centered on the need to answer the threshold legal question of the test for enforceability of all class members’ releases to “streamline the ensuing litigation.” The district court’s “assessment of equitable factors such as prejudice and delay” was similarly proper, since all parties and the court will benefit from a prompt interlocutory review to resolve the legal question. Thus, there was no error in the certification order.

Appellate jurisdiction. Finally, the appeals court determined that it lacked appellate jurisdiction over Microchip’s cross-appeal from the underlying partial summary judgment order, since an order granting partial summary judgment is not an appealable final order. The issue on appeal was whether the district court applied the correct legal test for enforceability of the releases, and, if not, what test is proper. The resolution of that legal issue does not “necessarily resolve[]” the issue of whether the district court should have granted summary judgment against the non-named plaintiffs as well.

Further, the legal standards relevant to the appeal and cross-appeal are “separate and distinct,” as they “turn on wholly different factors.” Resolution of the appeal depends on legal standards specific to the enforceability of releases under ERISA, whereas the cross-appeal requires application of legal standards governing the adjudication and management of class actions.

Accordingly, the judgment of the district court was reversed and the case remanded and the employer’s cross-appeal was dismissed.

The cases are Nos. 24-2624 and 24-2978.

Judge: Thomas, S.

Attorneys: Michael Rubin (Altshuler Berzon), Keith Ehrman (McGuinn Hillsman & Palefsky) and William B. Reilly (Law Office of William Reilly) for Peter Schuman and William Coplin. Mark G. Kisicki (Ogletree Deakins Nash Smoak & Stewart) for Microchip Technology Inc. and Amtel Corp.

Companies: Microchip Technology Inc.

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