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Schumacher v. AK Steel, No. 12-3061 (6th Cir. Mar. 28, 2013)

| Mar 28, 2013 | Daily Developments in EEO Law |

A Sixth Circuit case demonstrates that a employee’s release of claims, even a broad general release, may not be effective against ERISA claims. The court affirms class certification and liability in favor of the plaintiffs in a case where a class of release-signers challenged the calculation of their pensions. The court holds that the future accrual of retirement benefits may not be within the scope of a standard release.

Schumacher v. AK Steel, No. 12-3061 (6th Cir. Mar. 28, 2013): This appeal is a spin-off of West v. AK Steel, 484 F.3d 395 (6th Cir. 2007), which awarded over $37 million in benefits to a class for misapplication of the “whipsaw” method of calculating a lump-sum distribution of a retirement benefits (i.e., participant’s account balance projected forward to its value at the participant’s normal retirement age, then discounted back to its present value on the date of the actual lump-sum distribution).

The Schumacher case involved a class of 92 participants who had been terminated during a reduction in force, all of whom accepted severance agreements that included releases that stated in relevant part:

“You waive and release and forever discharge, on behalf of yourself and your heirs, representatives and assigns, AK Steel Holding Corporation, AK Steel Corporation and its predecessors, and past, current and future, subsidiaries, related entities, their officers, directors, shareholders, agents, employees, successors, or assigns, from any and all claims, causes of action, and rights of recovery of any kind or nature, including without limitation back or front pay or benefits, damages of any sort, debts, liabilities, and contract rights, and any costs, fees, or other expenses or attorneys’ fees incurred in law or in equity, whether known or unknown. This waiver, release and discharge also includes but is not limited to any claims, whether known or unknown (including those arising out of or relating to your employment with the CCompany and/or the separation of your employment with the CCompany) for discrimination, slander, libel, damage to reputation, emotional distress, attorney fees, compensatory damages, punitive damages, tort damages, breach of contract, quasi-contract, promissory estoppel, any violation of federal, state, local, statutory or common law, including but not limited to the Age Discrimination in Employment Act of 1967, the Older Workers’ Benefit Protection Act, Title VII of the Civil Rights Act of 1964, the Family and Medical Leave Act, and the Americans with Disabilities Act. However, you do not waive, nor shall this Agreement be construed to waive, any right which is not subject to waiver as a matter of law. . . . However, [you do not waive any rights or claims you may have under the federal Age Discrimination in Employment Act that arise after the date you sign this Agreement. In addition,] you do not waive, nor shall this Agreement be construed to waive, any right which is not subject to waiver as a matter of law.”

While broadly inclusive, the agreement did not mention ERISA or name the plan or plan committee as released defendants. The claims of the 92 plaintiffs in this case were detached from the larger class of participants who did not sign a release.

The district court held, and Sixth Circuit affirms, that the release language – however broad – did not cover a challenge to the calculation of pension benefits. While observing that ERISA claims – even future claims – may be waivable by release, the language used here did not release a challenge to the benefit calculation: “The Class’s future pension claims were not released as a matter of law because the whipsaw claims had not accrued at the time of the execution of the Severance Agreements and because the scope of the contracts did not relate to future ERISA claims.

The court also affirms class certification, and remands for recalculation of the pre-judgment interest award on the benefits (finding that the district court applied too low a rate to adequately compensate the class for the lost use of money).

Please visit the professional bio of Paul W. Mollica at the Outten & Golden LLP website.

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