Labor & Employment Law Daily Wrap Up, PENSION AND BENEFIT PLANS—1st Cir.: ERISA preempted state law claims challenging employee’s denial of severance benefits, (Jun 17, 2025)

By Ronald Miller, J.D.

The fact that the employee’s claims attempt to seek remedies beyond those authorized by ERISA § 502(a), such as punitive damages, did not put the claims outside the scope of the ERISA civil enforcement mechanism.

An employee’s state law claims alleging that the reasons given by her employer for terminating her employment were pretextual and were meant to render her ineligible for severance benefits, were rejected by the First Circuit. Just days prior to a mass layoff of the employees in her department, the employee was terminated for violation of the employer’s Code of Conduct for forwarding company documents to her personal email account. She was rendered ineligible for severance benefits. The district court found her claims preempted by ERISA. The appeals court agreed, holding that her claims were preempted by ERISA, because all of her claims “relate to” the severance policy as the court must refer to that policy to determine both liability and damages as to each claim and, as to her claims seeking relief for the denial of severance benefits, they “conflict[] with the remedial scheme established by 29 U.S.C. § 1132(a)” (Orabona v. Santander Bank, N.A., No. 24-1905 (1st Cir. Jun. 16, 2025)).

Bank employee. The employee worked for the employer as a mortgage development officer (MDO). She was “one of the top five MDO performers in the country for Santander overall,” and her wages, which were based only on commission, were $525,000 in 2020 and $680,000 in 2021.

On January 18, 2022, the employee told her supervisor that she had an offer of employment from another bank, “but she was still considering staying at Santander and wanted to re-negotiate her salary.” Her supervisor responded that “he wanted [her to] stay and... would talk to his supervisors and get back to her to work something out.”

Discharge. On January 21, 2022, the employee was informed that her employment was terminated effective immediately, for cause, because she had forwarded company emails from her company email address to her private email address. According to the employee, she received no warning or initial reprimand prior to the termination of her employment. She asserted that she had only forwarded company emails “due to working remotely during the state of emergencies for the COVID-19 pandemic since March 2020,” that all company emails she had forwarded were “encrypted and did not contain any personal information,” and that “[o]ther Santander employees had [also] been forwarding company emails to their private email due to working remotely" but “were not reprimanded or terminated.”

Layoffs. In the fourth quarter of 2021, and prior to the employee’s termination, the employer had decided to exit the U.S. residential mortgage market, which would lead to the layoffs of all MDOs. On February 1, 2022, only a few days after the employee’s termination, the employer officially announced the layoffs.

The employee asserted that the reasons the employer gave for terminating her employment were pretextual and that the timing of her January 21, 2022 termination was pretextual because that timing was meant to render her ineligible for severance benefits under the February 1, 2022 announcement. The employee conceded that she “took no steps to appeal [her] termination or apply for any benefits.”

The employee’s lawsuit alleged that “a possible severance payout to [her would have been] significant” and so the employer fraudulently advised her she was terminated for cause and concealed the planned layoff to deprive her of any eligibility of benefits.

Severance policy. The employer’s severance policy stated the terms of employee eligibility and calculation of severance benefits, reserved discretion to the employer, and sets forth appeals rights. Among other things, the severance policy provided that employees are not entitled to any severance benefits if their employment is terminated for any number of reasons, including “[m]isconduct or violation of company policies, procedures, practices, or the Code of Conduct.” The Code of Conduct provides that employees shall not send, forward or transmit company information to their personal email account.

On June 22, 2023, the employee sued the employer in state court. The employer removed the case to federal court and filed a motion to dismiss all claims for failure to state a claim and on ERISA preemption grounds. The district court denied the motion to dismiss and granted limited discovery into the applicability of the potential ERISA plan.

After discovery, the employee filed an amended complaint alleging claims, all under state law, of breach of implied contract and covenant of good faith and fair dealing, wrongful termination, fraud and intentional misrepresentation, and negligent misrepresentation. The employer filed a motion to dismiss the amended complaint and for summary judgment based on ERISA preemption. On September 25, 2024, the district court granted the employer’s motion for summary judgment on ERISA preemption grounds. This appeal followed.

ERISA preemption. The First Circuit concluded that all the employee’s claims were statutorily preempted under Section 514(a) of ERISA, which states that ERISA “shall supersede any and all State laws insofar as they may now or hereafter relate to any” ERISA plan. “[A] state law relates to an ERISA plan if it has a connection with or reference to such a plan.”

In determining whether a state law cause of action is preempted, the court looks beyond “the form or label of the law” and to the “facts of the particular case.” Here, the employee conceded that each of her claims was premised on the employer’s alleged pretextual, fraudulent, and wrongful termination of her employment for cause in order to deprive her of the benefit of the employer’s ERISA severance plan. Thus, the court had to evaluate or interpret the terms of the ERISA-regulated plan to determine the employer’s liability for her claims.

The court had to consult the severance policy to determine whether the employee was ineligible for severance benefits because of the grounds on which the employer terminated her employment. The court also had to consult the Code of Conduct because the severance policy rendered employees terminated for violating it ineligible for severance benefits. Further, the court would need to consult the severance policy to determine whether the employee would have been eligible for severance benefits had her employment been terminated under the layoff rather than for cause. The court would also need to consult the policy to determine whether the employer would exercise its reserved discretion when deciding whether to grant severance benefits.

The fact that the employee’s claims sought remedies beyond those authorized by ERISA § 502(a), such as punitive damages, also did not put the claims outside the scope of the ERISA civil enforcement mechanism.

The case is No. 24-1905.

Judge: Lynch, S.

Attorneys: Jennifer Leigh Sylvia (Moses Ryan Ltd.) for Lorna Orabona. Leslie D. Parker (Adler Pollock & Sheehan) for Santander Bank, NA.

Companies: Santander Bank, NA

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