Labor & Employment Law Daily Wrap Up, PENSION AND BENEFIT PLANS—D. Mass.: Former senior director plausibly alleged deferred bonus plan was not preempted by ERISA, (Feb 11, 2025)

By Marjorie Johnson, J.D.

The guaranteed bonuses, paid out over a three-year period, fell under an exemption for certain bonuses that are not “systematically deferred to the termination of covered employment or beyond, or so as to provide retirement income to employees.”

An investment banker who alleged her former employer and its top execs failed to fulfill their promises of a prestigious job title and then denied her a special deferred grant award and guaranteed bonuses by terminating her when she gave notice of her intent to resign based on the dilution of her job title survived a motion to dismiss her ERISA enforcement action as to the ERISA-governed deferred grant award and some of her state law claims related to the guaranteed bonuses, including her claims for retaliatory discharge under the stage’s wage law and breach of contract and of the implied covenant of good faith and fair dealing. A federal district court rejected the defendants’ contention that the state law claims were preempted by ERISA, concluding that at least at the pleadings stage, she stated a claim that the guaranteed bonuses fell under the bonus exemption set forth in the applicable federal regulations (Rooney v. Leerink Partners, LLC, No. 1:24-cv-11165-AK (D. Mass. Feb. 6, 2025)).

In April 2021, the employee left her position as a managing director at a top investment firm and joined SVB Leerink LLC after the company offered her the higher title of senior managing director (SMD). Her offer letter described three forms of compensation: (1) an annual salary of $450,000; (2) a special deferred grant award of over $5M to replace a forfeited unvested deferred compensation award from her previous employer; and three minimum guaranteed bonuses of approximately $2.8M for 2021, $4.5M for 2022, and $2.5M for 2023.

Differed compensation plan. Both the special deferred grant award (the SDG award) and the minimum guaranteed bonuses (the MG bonuses) were subject to an unfunded deferred compensation plan (the plan), which was “established in order to encourage key executives of the Company to achieve higher levels of performance and to remain in the service of the Company.” The plan set forth a three-year vesting schedule for the MG bonuses and a five-year vesting schedule for the SDG award, with complete vesting upon eligibility for retirement, death, total disability, or involuntary termination. The plan was administered by a committee and provided that claimants could seek review under ERISA for any denied claims.

The offer letter stated that the employee would be paid a portion of the SDG award within 30 days of each vesting date (August 2) for five years. The MG bonuses were to be paid according to the bonus cycle schedule, generally expected in February of each year. In order to receive the bonuses, she was required to be either “an active, full-time employee in good standing when payment is made” or to have been terminated “without Cause.” The offer letter also reserved the right for the firm to determine if “Cause” existed and specified that “[a]ny reduction in title shall be deemed a termination without Cause.” Any unvested portions would be forfeited upon termination for “Cause” or resignation.

Job title dilution. By February 2022, the employer allegedly promoted all lower ranked bankers to SMD positions and created a new title of partner without elevating the employee to the higher position. Believing these actions diluted her job title and responsibilities, she gave written notice in October 2023 of her intent to resign for “Good Reason” on March 1, 2024—the day after all her MG bonuses became completely vested. The plan explained that before resigning for “Good Reason,” a participant must have provided written notice to the committee, along with a description of the conditions, and the company must have failed to cure such conditions within 45 days of such notice, unless such conditions are not curable.

The employer terminated her position in January 2024, effective immediately, exactly 90 days after she gave written notice of her intent to resign if defects were not cured. Additionally, the committee determined that she had forfeited the remaining MG bonuses and SDG award.

ERISA enforcement claim. At the outset, the court found that the SDG award was governed by ERISA and as such all the employee’s state-law claims related to the award were preempted. However, the court allowed her claim for civil enforcement under ERISA to advance against both the employer and the individual defendants. In particular the employee asserted that they breached the ERISA deferred compensation plan by failing to honor her “Good Reason” resignation, which deemed her termination an “Involuntary Termination of Employment” under the plan and entitled her to payment of the award. Though she failed to exhaust administrative remedies she plausibly alleged deficient notice by alleging she never received notice of her internal appeal rights and her right to pursue legal claims pursuant to the mandate in the plan.

Bonuses and ERISA preemption. The court also found that at the pleadings stage, she plausibly stated a claim that the MG bonuses fell under the bonus exemption and thus not subject to ERISA preemption. The Department of Labor regulatory guidance explains that the exemption applies to “payments made by an employer … as bonuses for work performed, unless such payments are systematically deferred to the termination of covered employment or beyond, or so as to provide retirement income to employees.”

Here, the MG bonus payments were not “systematically deferred” to the post-employment period as the plan expressly deferred them for only three years. And while it was possible for disbursement to occur after retirement or termination this was “an incidental occurrence.” Additionally, bonus plans have been found to be exempt from ERISA when they exist to incentivize employee performance and provide “current” income, as was the case here. Insofar as the employer argued that the bonuses were part of a “top hat” plan subject to ERISA preemption, this inquiry was better suited after discovery.

Wage Act claims. The court dismissed the employee’s claim that the defendants violated the Massachusetts Wage Act by failing to pay MG bonuses since courts have held that a bonus that is “discretionary or contingent upon the employee remaining with the company” is not considered a wage subject to the Act. However, she plausibly alleged a retaliation claim under the Act by alleging that because of her notice of intent to resign, the employer shortened her notice period, withheld portions of the bonus, and terminated her in retaliation for complaining about non-payment of compensation.

Breach of contract. She also advanced her claim that the defendants breached their agreement to pay her the bonuses as set forth in the offer letter and with regard to their promise regarding her title. A crucial issue was whether she was terminated or resigned, explained the court. If the firm’s waiver to the notice period after she announced her intent to resign for “Good Reason” constituted a termination, the factual next inquiry was whether it was with or without cause, and no allegations indicated with the defendants discussed whether cause existed.

Other state law claims. The employee also made out a plausible claim for quantum meruit/unjust enrichment by alleging that she provided services and the defendants retained her compensation—the MG bonuses—that was intended for these services. She also plausibly alleged that the employer breached the implied covenant of good faith and fair dealing by implementing the new promotion scheme and withholding her expected compensation by purposefully waiving her notice period to withhold her MG bonuses. However, the court dismissed her claim of fraud in the inducement since she failed to plausibly allege that at the time the defendants offered her the position, they knew their promise of title and compensation was false or misleading.

The case is No. 1:24-cv-11165-AK.

Judge: Kelley, A.

Attorneys: Benjamin Flam (Gordon Law Group) for Mairin Rooney. Christian A. Garcia (Foley Hoag) for Leerink Partners, LLC.

Companies: Leerink Partners, LLC

Cases: PensionBenefitPlans ContractClaims StateLawClaims TortClaims Discharge WageHour Retaliation MassachusettsNews