Texas Supreme Court to Decide Whether 17 Former Tyco Employees Are Entitled to Severance Pay
On Friday, the Texas Supreme Court granted the petition for review in Arsenio Colorado v. Tyco Valves and Controls, L.P., No. 12-0360. The case involves the enforceability of employment contracts between Tyco Valves and 17 of its former employees (the Gimpel Employees). The author is counsel for the Gimpel Employees.
The 17 Gimpel Employees worked in Tyco’s Gimpel unit in Houston. In late 2006, Tyco decided to close the Gimpel unit and sell it to a third party. Tyco wanted the Gimpel Employees to stay with the company until the sale was complete. To induce the Gimpel Employees to stay at the company, Tyco entered into written and oral contracts that provided for the payment of severances to the Gimpel employees if they stayed through the sale and were not offered “Comparable Employment with Tyco.” Tyco assured the Gimpel Employees that they would receive the severances even if they went to work for the purchaser of the Gimpel unit. Most of the Gimpel Employees received written contracts, but some of the employees based their claim on unilateral contracts arising from oral promises by Tyco and on promises in a written announcement posted on the bulletin board at the Gimpel unit.
Tyco sold the Gimpel unit to Dresser Rand. All of the Gimpel employees had remained with Tyco, and Tyco did not offer any of the Gimpel Employees “Comparable Employment with Tyco.” However, Tyco refused to pay the severances, claiming that it was Tyco’s “policy” not to pay severances when an employee gets a job with the new company. None of the Gimpel Employees received the contractual severance.
The Gimpel Employees sued for breach of contract. Over two years after reneging on its agreements, Tyco argued for the first time that the Gimpel Employees’ claims were preempted by the Employment Retirement Income Security Act (ERISA), which governs employee benefit plans. Tyco argued that the Gimpel Employees were subject to its company-wide severance plan, which contained an exclusion for employees who obtained employment with the purchaser of a Tyco unit. In fact, the severance plan provided completely different benefits from the contracts and expressly excluded from coverage any employees who had separate severance agreements. None of the Gimpel Employees had ever even heard of the severance plan, but instead had received separate contracts.
Tyco also argued that the contracts defined "Tyco" to mean Tyco and its successors. Tyco took the position that Dresser Rand was a "successor" to Tyco, so that employment with Dresser Rand was "Comparable Employment with Tyco." The Gimpel Employees responded that Dresser Rand was not a "successor" under Texas law because it merely purchased some of Tyco's assets and because the contemplation of the parties was that the Gimpel Employees would receive their severances even if they went to work for a purchaser.
After a bench trial, the trial court found that Tyco breached its contracts with the Gimpel Employees. The district court rejected Tyco’s ERISA preemption defense, finding that the contracts were separate and independent from the ERISA plan.
A divided court of appeals reversed the judgment of the trial court in three separate opinions. One justice would have reversed the judgment on the basis of ERISA preemption, but the other two justices disagreed with that analysis. The second justice found that there was no evidence to support the existence of unwritten unilateral contracts and found that Dresser Rand was a "successor" to Tyco. The final justice found that there was no evidence to support the existence of the unilateral contracts, but rejected the "successor" argument. Because two justices voted to reverse the judgment, the Gimpel Employees lost.
The Supreme Court has now agreed to hear the case. The case presents three issues:
1. Whether the Court of Appeals erred in holding that the six Gimpel Employees without written greements did not form valid unilateral contracts with Tyco, which is contrary to this Court’s holdings in Vanegas v. American Energy Services, 302 S.W.2d 299 (Tex. 2009), and City of Houston v. Williams, 353 S.W.3d 128 (Tex. 2011).
2. Whether the company that purchased the Gimpel unit and hired the Gimpel Employees was a "successor" to Tyco, so that the eleven Gimpel Employees with written agreements were not entitled to severance payments, even though (1) they were promised that they would receive their severance payments if the Gimpel unit was sold to a third party, (2) the purchaser did not assume any of Tyco’s contractual obligations to the Gimpel Employees, and (3) the Gimpel Employees were actually terminated by Tyco before going to work for the purchaser.
3. Whether the Gimpel Employees’ claims are preempted by ERISA, given that the contractual obligations contained in separate and independent agreements that have no connection with Tyco’s ERISA plan.
The case has not yet been set for oral argument. Copies of the briefs are attached.
David C. Holmes is a Houston employment lawyer with The Law Offices of David C. Holmes