Ninth Circuit Adopts Multifactor Test for Determining Enforceability of Release of ERISA Claims

Schuman v. Microchip Tech. Inc., No. 24-2624, —F.4th—-, 2025 WL 1584981 (9th Cir. June 5, 2025) involves a class action brought by former employees of Atmel Corporation against the acquiring company, Microchip Technology, alleging breach of fiduciary duty and denial of benefits under ERISA. The Ninth Circuit was tasked with considering what legal tests must apply when evaluating the enforceability of a release of claims under ERISA. It held “that courts must decide whether the employee entered into the release knowingly and voluntarily by examining the totality of the circumstances, including enumerated factors. This inquiry requires an assessment of whether any improper fiduciary conduct, such as an employer’s breach of an ERISA-imposed fiduciary duty in the course of obtaining the release, undermines the validity of the release.”

When Microchip Technology acquired Atmel Corporation, the company terminated the employment of plaintiffs Peter Schuman and William Coplin. The company offered them reduced severance benefits in exchange for signing release agreements, which plaintiffs did. However, the employees later filed a class-action lawsuit, claiming that Microchip misled them about the expiration of a benefits plan governed by ERISA. This, they argued, constituted a breach of fiduciary duty.

The heart of the case was whether the employees entered into these release agreements “knowingly and voluntarily.” The Ninth Circuit held that ERISA demands a thorough examination of such agreements, particularly when allegations of fiduciary breaches are involved. The court emphasized the need for “special scrutiny” to prevent potential employer or fiduciary abuse. This aligns with ERISA’s goal of protecting employees’ interests. The court decided that the totality of circumstances surrounding the signing of the release should be evaluated. This includes examining whether the release was both informed and voluntary.

The Ninth Circuit, joining the approach of the Seventh and Eighth Circuits, adopted a comprehensive multi-factor test to determine the enforceability of the release. District courts in the Circuit should consider the following:

(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.

The Ninth Circuit reversed the summary judgment in favor of Microchip against the named plaintiffs. The court also found that the district court properly certified the order for interlocutory appeal and that it lacked appellate jurisdiction over Microchip’s cross-appeal from the underlying partial summary judgment order as to the non-named former employees. The court remanded the case for further proceedings consistent with this enhanced scrutiny and multifactor analysis.