Most public companies designate their Section 16 officers annually, by board resolution, and it is rare for either the SEC staff or the Section 16(b) plaintiffs’ bar to challenge those determinations by alleging that someone not included on the list should have been considered a “significant policy-maker.” In a case pending in the Eastern District of Michigan, however, the former Vice President of Global Tax of Tenneco Automotive Operation Company (TAOC), a wholly owned subsidiary of publicly traded Tenneco Inc., alleges that TAOC violated ERISA by calculating his severance benefits under the plan formula applicable to “Non-Section Officers” rather than the more generous formula applicable to “Section 16 Officers.” The plan defined “Section 16 Officers” as those of Tenneco (the parent).
The defendants in the case moved to dismiss the complaint on several grounds, mainly related to ERISA, and among the issues was whether TAOC “intentionally misclassified [plaintiff]as a Non-Section 16 Officer with the specific intent to interfere with his ability to receive” higher benefits under the plan. The defendants pointed out that the parent, not TAOC (the employer), made the Section 16 officer designations, but the court denied the motion to dismiss, holding that the complaint adequately alleged that the plaintiff should have been designated a Section 16 officer.
The court’s holding means only that the plaintiff adequately alleged a prima facie case under ERISA. The court has yet to determine whether in fact Tenneco wrongfully failed to consider the plaintiff to be a significant policy-maker. I will keep an eye on the case for any rulings that might affect Section 16 compliance.
-Alan Dye, Section16.net August 10, 2021
