Grey v. Forescout Technologies, Inc.

Background

Holly Grey sued Forescout Technologies, Inc. in the Santa Clara County Superior Court. The complaint alleged breach of contract and violations of the California Labor Code based on a Change of Control Amendment to Grey’s employment offer. The amendment provided severance compensation and acceleration of unvested equity awards if Forescout underwent a change of control and Grey was terminated without cause or resigned for “Good Reason.”

The parties agreed that Forescout was acquired by Advent International on or about August 17, 2020. Grey alleged that the change in ownership materially reduced her duties, giving her “Good Reason” to resign and claim the benefits. She resigned on or about October 14, 2020, and alleged that Forescout refused to pay the cash severance or accelerate her equity awards.

The complaint asserted six causes of action based on the amendment: California Labor Code claims for wages wrongfully withheld and unlawful wage forfeiture, breach of contract, breach of the covenant of good faith and fair dealing, conversion, and a request for declaratory relief, including a declaration that Grey resigned for “Good Reason.”

Removal and jurisdiction

Forescout removed the case to federal court based on federal-question jurisdiction. Forescout argued that the Change of Control Amendment benefited Grey and other upper-level managers and required an ongoing administrative scheme. It therefore argued that the amendment was an employee benefit plan governed by ERISA and that ERISA completely preempted Grey’s state-law claims.

A federal court must remand a removed case if it lacks subject-matter jurisdiction, meaning legal authority to hear the case. Because ERISA preemption was the only asserted basis for federal jurisdiction, the court focused on whether the amendment was an ERISA employee benefit plan.

Court’s analysis

The court explained that an arrangement is not necessarily an ERISA plan merely because it provides severance benefits. The key question was whether the arrangement required an ongoing administrative scheme involving significant, particularized, and continuing discretionary analysis of employee claims.

The court compared the amendment with decisions involving lump-sum severance payments and with a case involving repeated, case-by-case decisions about whether replacement employment was substantially equivalent. The court found that the amendment required only limited discretion. It did not assign an administrator to decide whether “Good Reason” existed; the agreement appeared to place the burden on the employee to identify the qualifying condition. The payment amounts and duration were fixed, the amounts did not depend on a discretionary decision, and the agreement did not require ongoing administrative procedures.

The court concluded that determining whether “Good Reason” existed was more like determining whether an employee was terminated “for cause” than evaluating whether replacement employment was substantially equivalent. The court held that the Change of Control Amendment was an employment-contract arrangement governed by state law, not an ERISA plan.

Disposition

Because the amendment was not an ERISA plan, the court held that it lacked subject-matter jurisdiction and was required to remand the action. The court granted Grey’s motion to remand, directed the Clerk to remand the case to the Santa Clara County Superior Court, and directed the Clerk to close the file.

The court also terminated Forescout’s motion to dismiss because it granted the motion to remand. The court denied Forescout’s motion for permission to file a sur-reply because the court did not rely on the portion of Grey’s reply to which Forescout objected.