In anticipation of a potential merger, Atmel created a benefits plan for employees to receive severance in the event that an acquiring company fired Atmel staff. Atmel told employees that the Plan, which included significant cash severance, was “intended to ease concerns.”  The Plan would only pay out benefits if several conditions were met…. The meaning of the key language in these conditions — specifically, whether an eventual “Change of Control” had to involve the same company with which Atmel entered into a “definitive agreement” on or before the November 1, 2015 deadline — remains in dispute. In September of 2015, Dialog Semiconductor agreed to acquire Atmel; but before the merger closed, Microchip Technology put in a competing offer, and ultimately acquired Atmel. Between the Dialog deal and the announcement of the Microchip agreement, an Atmel human resources executive assured employees that the Plan would provide benefits for those “terminated without Cause in connection with a Change of Control of the company, including an acquisition by Dialog or Microchip.” After the Microchip agreement, Atmel’s human resources department circulated a “Frequently Asked Questions” document — which evidence suggests Microchip reviewed and approved — stating that Microchip would honor the Atmel Plan. Soon after the merger, Microchip terminated the named plaintiffs without cause and offered them significantly lower benefits than promised in the Plan in exchange for a release of all potential claims. Letters to them accompanying the proposed releases stated that Atmel and Microchip “are making this offer, in part to resolve any current disagreement or misunderstanding regarding severance benefits previously offered by Atmel.” Microchip’s stance was that the Plan had expired because the deal initiated before the deadline, with Dialog, had not resulted in a finalized merger. The named plaintiffs signed the releases.  But later filed a class-action complaint against Microchip, Atmel, and the Atmel Severance Guarantee Benefit Program on behalf of about 200 similarly situated former Atmel employees who had also signed releases. The complaint alleged violations of ERISA, including breach of fiduciary duty and denial of benefits, and challenged the enforceability of the releases. Microchip, they alleged, breached its fiduciary duties “by misinterpreting the Plan as having expired and encouraging Plaintiffs to sign releases in exchange for reduced severance benefits” because Microchip allegedly knew or should have known that the Plan remained valid. The district court certified the class, and Microchip eventually moved for summary judgment.

Meanwhile, a group of other former Atmel employees who had not signed releases also sued Microchip, alleging similar violations of ERISA.  The District Court initially found that the Plan’s key language regarding the “Change of Control” and “definitive agreement” unambiguously meant that the Plan had not expired by the time of the Microchip merger, and that Microchip had breached its fiduciary duties. On appeal, however, the U.S. Ninth Circuit concluded that the language was ambiguous, and remanded for further proceedings. Berman v. Microchip, 838 F.App’x 292, 293 (9th Cir. 2021). The parties in that case settled, leaving the meaning of the Plan’s key language unresolved.

Microchip then renewed its summary judgment against the plaintiffs (and absent class members) who had signed releases.  The District Court granted summary judgment against the named plaintiffs but denied summary judgment for the non-named plaintiffs’ claims. As for the absent classmembers, the District Court found that the six-factor test was too individualized to support a class-wide conclusion that all of the releases were signed knowingly and voluntarily. Because the Court had certified the class based in part on the expectation of evaluating the releases’ enforceability on a class-wide basis, and the parties had not briefed the six-factor test at certification, the court ordered the parties to show cause why the class should or should not be decertified.  In the meantime, final judgment was entered against the named plaintiffs.

On appeal, the Ninth Circuit initially considered whether ERISA requires heightened scrutiny of a waiver or release of ERISA claims, and concluded that: “In accord with ERISA’s purposes and guided by other circuits’ approaches, we conclude that, when a breach of fiduciary duties is alleged, courts must evaluate releases and waivers of ERISA claims with special scrutiny designed to prevent potential employer or fiduciary abuse.”

The Court of Appeals further determined that “courts must consider alleged improper conduct by the fiduciary in obtaining a release as part of the totality of the circumstances concerning the knowledge or voluntariness of the release or waiver.”  And: “Combining the two sets of factors, we hold that, in evaluating the totality of the circumstances to determine whether the individual entered into the release or waiver knowingly and voluntarily, courts should consider the following non-exhaustive factors: (1) the employee’s education and business experience; (2) the employee’s input in negotiating the terms of the settlement; (3) the clarity of the release language; (4) the amount of time the employee had for deliberation before signing the release; (5) whether the employee actually read the release and considered its terms before signing it; (6) whether the employee knew of his rights under the plan and the relevant facts when he signed the release; (7) whether the employee had an opportunity to consult with an attorney before signing the release; (8) whether the consideration given in exchange for the release exceeded the benefits to which the employee was already entitled by contract or law; and (9) whether the employee’s release was induced by improper conduct on the fiduciary’s part.

“Where, as here, the district court has found a genuine issue of fact material to the issue of a breach of fiduciary duty in obtaining the release of claims, the final factor warrants serious consideration and may weigh particularly heavily against finding that the release was ‘knowing’ or ‘voluntary’ or both.”

 

Schuman v. Microchip Technologies, No.24-2624, 2025 WL 1584981 (9th Cir. June 5, 2025).