First Circuit Affirms ERISA Preemption in Severance Dispute

What Happened in the Santander Severance Fight?

Lorna Orabona worked as a mortgage development officer and, by the court’s account, was a high-earning employee. Santander terminated her employment in January 2022 for cause after determining that she had forwarded company emails to her personal email account in violation of the company’s Code of Conduct. Under Santander’s severance policy, employees terminated for misconduct or policy violations were not entitled to severance benefits.

A few days later, Santander announced layoffs tied to its exit from the U.S. residential mortgage market. Orabona argued that her termination was pretextual and timed to keep her from receiving severance that she otherwise would have collected in the layoff. She sued under state law, asserting claims such as breach of implied contract, wrongful termination, fraud, and negligent misrepresentation. Her theory was straightforward: Santander allegedly used a “for cause” label to block severance and then hid behind it.

That theory may sound like classic employment litigation, but the details mattered. The severance policy was not some vague promise floating in the HR atmosphere. It set eligibility rules, excluded employees terminated for misconduct, described how severance would be calculated, gave Santander discretion, and included a written claims-and-appeals procedure. After limited discovery, the parties agreed the policy was subject to ERISA. At that point, the case became much less about the label on the complaint and much more about whether the claims “related to” the plan.

Why the First Circuit Said ERISA Controlled the Case

The First Circuit’s reasoning was both technical and practical. Under ERISA preemption rules, state-law claims are displaced when they relate to an ERISA plan. Courts often describe that test by asking whether the claim has a connection with, or reference to, the plan. In this case, the appellate court said the answer was yes across the board.

Why? Because the court could not decide Orabona’s claims without reading the severance policy. To determine liability, the court would have to examine whether she was truly ineligible for benefits because of the grounds for termination, whether she would have been eligible had she remained employed until the announced layoffs, and whether Santander’s reserved discretion under the policy mattered. To determine damages, the court would also need the plan. That meant the severance policy was not sitting in the background like an extra in a courtroom drama. It was the plot.

Liability Required Interpreting the Plan

The First Circuit emphasized that her claims were all premised on the idea that Santander terminated her to deprive her of severance benefits. That is important because the court was instructed to look beyond clever pleading and focus on the real substance of the dispute. Once the substance was stripped bare, the case asked questions only the ERISA plan could answer. Was she disqualified by the misconduct provision? Would the layoff provision have covered her? Would Santander have exercised discretion in her favor? If a judge must answer those questions by consulting plan terms, ERISA preemption becomes very hard to escape.

Damages Also Pointed Back to ERISA

The damages theory did not help. Orabona conceded that severance benefits were at least part of the damages she sought. That mattered because it reinforced the conclusion that the case was not merely about hurt feelings, abstract unfairness, or some free-floating state-law injury. The money she wanted was tied to benefits allegedly owed under the severance policy. Once again, ERISA was not a side character. It was the building.

Section 514, Section 502, and Section 510: The ERISA Trifecta

The decision is especially useful because it shows how multiple ERISA provisions can work together in a severance dispute.

Section 514(a): Broad Preemption

First, the court held the claims were preempted under ERISA Section 514(a), the broad preemption clause. This is the provision that sweeps away state laws that relate to an ERISA plan. The First Circuit relied on Supreme Court and First Circuit precedent stating that a claim relates to an ERISA plan when a court must evaluate or interpret the plan to decide liability. That fit the Santander case almost too neatly.

Section 502(a): Exclusive Civil Enforcement

Second, the court said that claims seeking damages or relief for denial of severance benefits were also preempted under ERISA Section 502(a), the statute’s civil-enforcement mechanism. This matters because ERISA does not just preempt some state-law rules; it also supplies the exclusive vehicle for participants who want to recover benefits, enforce plan terms, or seek certain equitable remedies. In other words, ERISA not only closes one door. It points to the one door you are supposed to use.

Section 510: Interference With Protected Rights

Third, the court explained that allegations of being fired to prevent the attainment of benefits fall squarely within ERISA Section 510, which makes it unlawful to discharge or discriminate against a participant for the purpose of interfering with rights under an ERISA plan. That was a big deal. It meant the employee’s theory was not outside ERISA at all. It was the sort of claim ERISA specifically anticipates. So trying to repackage it as fraud, wrongful termination, or negligent misrepresentation did not avoid federal law. It simply confirmed ERISA’s grip on the dispute.

Why Calling It “Wrongful Termination” Did Not Save the Complaint

This is where the decision becomes especially valuable for employers, employees, and lawyers. Courts do not let parties dodge ERISA by renaming the fight. The First Circuit leaned on prior decisions, including Ingersoll-Rand and earlier First Circuit precedent, to say that when an employer is alleged to have acted to prevent an employee from receiving benefits, the claim is usually related to ERISA. A new label does not produce a new legal universe.

Orabona argued that her case was really about wrongful termination, not a claim for benefits. The court was not persuaded. It said that the theory still depended on proving that Santander terminated her for the purpose of depriving her of severance under the ERISA plan. That is classic ERISA territory. The court also rejected the idea that allegedly misleading statements about not applying for benefits created a separate escape hatch. It described that argument as an attempted “end run” around ERISA. Judges, as it turns out, can spot a detour.

The request for punitive damages did not improve the employee’s position either. If anything, it highlighted the clash with ERISA, because one reason preemption exists is to preserve a uniform federal remedial framework rather than expose plans and employers to a state-by-state patchwork of extra-contractual damages. ERISA may be many things, but generous with remedies is not one of them.

What Makes a Severance Arrangement an ERISA Plan?

One of the more useful takeaways from this topic is that not every severance promise is governed by ERISA. That point often gets lost. The Supreme Court’s decision in Fort Halifax Packing Co. v. Coyne drew an important line: a one-time payment triggered by a single event, with no ongoing administrative scheme, may fall outside ERISA. So if a company simply promises one mechanical severance payment on one occasion, federal benefits law may not apply.

But that was not the setup here. In Santander’s case, the severance policy contained several features commonly associated with ERISA status: written eligibility rules, exclusions for certain terminations, benefit calculations that could require individualized analysis, employer discretion, and a formal claims-and-appeals process. Those are the kinds of administrative features that make a severance arrangement look less like a one-off payroll event and more like an employee benefit plan.

That distinction matters enormously. If a severance arrangement is not an ERISA plan, state-law claims may stay alive and employers may face broader remedies. If it is an ERISA plan, the procedural and remedial landscape changes fast. Administrative exhaustion becomes a central issue. Federal law governs. The available remedies narrow. And the complaint that started as a dramatic workplace betrayal may end up being treated as a plan-benefits case with much less theatrical range.

Practical Lessons for Employers

For employers, this First Circuit decision is both shield and warning label.

First, a well-drafted severance policy matters. Clear eligibility language, clear exclusions for misconduct, clear claims procedures, and clear reservation of discretion all helped make Santander’s argument stronger. Sloppy drafting is the legal equivalent of assembling furniture with three leftover screws and hoping nobody notices.

Second, internal communication matters just as much as plan language. Even though Santander won, the allegations included statements supposedly made during the termination process discouraging the employee from appealing or applying for benefits. Employers should train HR and managers to avoid improvised commentary that can later be described as threats, misinformation, or benefit interference.

Third, consistency matters. If a company links severance eligibility to a code of conduct, discipline policy, or reduction-in-force process, those materials should fit together cleanly. Courts notice when one document says “strictly ineligible” and another sounds like “maybe, depending on the weather.”

Practical Lessons for Employees and Counsel

For employees and their attorneys, the decision is a blunt reminder that skipping an ERISA claims process can be fatal. If a severance plan is ERISA-governed, the safest path is usually to file the claim, pursue the internal appeal, and preserve an ERISA cause of action. A plaintiff who heads straight to state court may discover that the complaint has built a very expensive ladder against the wrong wall.

It also means lawyers should evaluate the severance arrangement itself early. Does the plan involve ongoing administration? Does it reserve discretion? Does it include claims and appeals? Are Form 5500 filings involved? Those questions may tell you whether the case belongs in the world of ERISA before months are spent drafting state-law theories that a court later sweeps aside.

What Real-World Experience Teaches About ERISA Severance Battles

In real workplace disputes, severance fights almost never begin with a clean legal issue. They begin with confusion, stress, abrupt phone calls, and a stack of documents nobody wanted to read until it was too late. That is one reason decisions like this resonate beyond appellate casebooks. They capture the messy overlap between employment decisions, HR practice, and benefit-plan administration.

A common experience on the employer side is that a severance plan may be carefully drafted by benefits counsel, while the termination process is handled by managers or HR personnel under pressure. That gap can create risk. The policy may say “submit a written claim within sixty days,” but a departing employee may remember only what someone said during a tense call. If that conversation is sloppy, rushed, or inconsistent with the written plan, litigation tends to follow. Even when the employer ultimately wins on preemption, it can still spend significant time and money cleaning up a preventable communication problem.

On the employee side, experience shows that many workers do not instinctively see severance as an ERISA issue. They see it as fairness. They ask simple questions: “Was I singled out?” “Did they fire me right before a layoff?” “Did they invent misconduct to avoid paying me?” Those are human questions, but ERISA answers them through a structured process, not through broad state-law remedies. That mismatch between how employees experience the event and how federal law channels the dispute explains why these cases feel emotionally large but procedurally narrow.

Another practical lesson is that timing drives suspicion. When a termination happens days before a reduction in force, everyone notices. Employees notice. Lawyers notice. Judges notice. That timing does not automatically prove interference with benefits, but it makes documentation especially important. Employers need a clear record of the decision, the basis for it, and the relationship between the termination and any later workforce action. Without that record, even a strong ERISA preemption defense may arrive with an avoidable credibility problem attached.

There is also a broader planning lesson. Companies often focus on whether they want a severance program covered by ERISA, but they should also focus on whether their administration actually matches that choice. If the goal is ERISA coverage, the plan should look and operate like an ERISA plan. If the goal is a simple one-time severance arrangement outside ERISA, the design should avoid unnecessary administrative machinery. Half-measures are where disputes breed.

Finally, the lived experience of these cases teaches that ERISA is less about dramatic courtroom speeches and more about disciplined process. File the claim. Follow the appeal rules. Read the plan. Preserve the record. Confirm what the policy says, not what someone casually paraphrased on a chaotic Friday afternoon. It is not glamorous advice, but in severance disputes it is usually the advice that keeps parties from turning a difficult employment separation into a full-scale litigation marathon.

Conclusion

The First Circuit’s ruling in this severance dispute is a strong reaffirmation of ERISA preemption in the severance context. When a plaintiff’s state-law theories require a court to interpret an ERISA-regulated severance policy to decide liability or damages, those theories are likely preempted. And when the alleged wrong is interference with benefits, ERISA often provides not just a remedy, but the exclusive remedy.

For employers, that means severance plan design and claims procedures matter. For employees, it means the internal ERISA process is not a decorative appendix. It may be the front door. For everyone else, the lesson is simple: in benefit disputes, form matters, but substance matters more. You can call the complaint whatever you want. If the case walks like an ERISA claim and quacks like an ERISA claim, the First Circuit is likely to hand it the federal rulebook.

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