A U.S. District Judge dismissed a former Lord & Taylor employee’s class-action lawsuit against Hudson’s Bay Company, a retail business group that sold Lord & Taylor to fashion rental company Le Tote in 2019. Hudson’s Bay retained a 25% equity stake in Le Tote, and two company board positions.
According to the original complaint filed in January 2023, former employee Roxanne Cope worked at Lord & Taylor from 2013 until she was laid off in March 2020. Cope accepted the severance agreement provided by Lord & Taylor, and she also applied for severance under Hudson’s Bay’s severance pay plan. Despite the sale of Lord & Taylor to Le Tote prior to Cope’s termination, Cope argued that Hudson’s Bay’s 25% stake in the company made them liable for fulfilling their severance plan to those who were impacted by Lord & Taylor’s 2020 layoffs. Furthermore, Cope claimed Lord and Taylor qualified as an “affiliate” under the definition in Hudson’s Bay’s severance plan and that no documents were provided to her regarding the sale between Lord & Taylor to Le Tote.
The Court’s Response
A Pennsylvania court granted Hudson’s Bay request to dismiss the case with prejudice – meaning that the plaintiff, in this case, cannot refile the same claim again in this court. In the memorandum, Judge Chad F. Kenney asserts that “HBC’s 25% ownership stake in Le Tote clearly does not satisfy the 80% ownership test of Section 1563(a)” of the Internal Revenue Code. Thus, Lord & Taylor did not qualify as an “Affiliate” under Hudson’s Bay’s severance plan. Accordingly, since the “Plaintiff has not alleged facts that Lord & Taylor was an ‘Affiliate’ of HBC at the time Plaintiff was laid off, Plaintiff is not entitled to benefits under the 2017 HBC Plan. Therefore… Plaintiff’s Complaint fails to state a claim and must be dismissed….No allegations could be stated to overcome this deficiency and satisfy the definition of ‘Affiliate’ from the Plan.” The district court denied Cope’s appeal of the case’s dismissal.
The Laws on Severance Plans: ERISA and the Tax Code
Severance agreements are not required under the Fair Labor Standards Act (FLSA), and are usually determined through agreements made between employers and employees. However, whether an employer makes an informal or formal severance plan for their employees, it is important to note that such plans can be subject to regulations under the Employee Retirement Income Security Act of 1974 (“ERISA”) and the rules for deferred compensation under Section 409A of the Internal Revenue Code.
Under ERISA, a program that “(i) provides retirement income to employees or (ii) results in a deferral of income by employees for a period extending to or beyond the termination of employment generally is treated as a pension plan subject to complex rules for participation, benefits, vesting, and funding.” Employers who have severance plans which qualify for coverage under ERISA may be subject to penalties if they do not comply with ERISA rules.
Section 409A of the Internal Revenue Code states that “non-qualified deferred compensation” must abide by rules that regulate the timing of deferred compensation. The Internal Revenue Code provides definitions for legal conditions with respect to corporations, employers, and subsidiaries.
Seek Legal Assistance Today
Are you unsure about the legal guidelines on severance plans? The Law Office of Christopher Q. Davis is here to help! Our employment lawyers are located in New York City and in Livingston, New Jersey. Contact us today at (646) 453-5878 to schedule a free case evaluation and receive experienced legal counsel.
Expert attorneys at our law firm specialize in many areas of the law, including FMLA and unpaid wages and overtime. Whatever your employment issue is, please reach out for a consultation today.
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