Affirmеd by published opinion. Judge KEENAN wrote the opinion, in which Judge NIEMEYER and Judge King joined.
OPINION
In this case, a trustee of a bankruptcy estate filed objections in the bankruptcy court to the requested priority treatment of a portion of severance compensation claims filed by the debtor’s former employees (the claimаnts). The bankruptcy court overruled the trustee’s objections and, under 28 U.S.C. § ■ 158(d)(2)(A)®, certified an appeal to this Court.
On appeal, the trustee contends that the claimants “earned” their severance compensation over the entire course of their employment. The trustee asserts that, therefore, under 11 U.S.C. § 507(a)(4), only a pro-rated portion of the claims was “earned” within 180 days preceding the bankruptcy petition and was entitled to priority treatment. We disagree with the trustee’s position, and conclude that the claimants “earned” their severance compensation on the date they became participants in the debtor’s severance plan immediately after their termination from employment. Accordingly, we affirm the bankruptcy court’s order.
I.
In April 2004, LandAmerica Financial Group, Inc. (LandAmerica) established a “Severance Benefits Plan” (the plan), which stated a purpose “to assist eligible Employees upon terminаtion” of employment. The plan provided “severance benefits to eligible Employees who become Participants” in the plan. An employee qualified as a participant in the plan when the employee 1) was terminated without cause, 2) signed a severance agreement and release, and 3) certain other exempting circumstances were not present. Those circumstances included that the employee was not rehired within 30 days of termination, the employee was not offered an “equal” position with LandAmerica within a 50-mile radius, and the termination action was not due to the employee’s dеath or resignation.
Once employees became participants in the plan, they were entitled to receive compensation equal to their weekly salary
The plan also provided that a participant would receive this severance compensation either in a single sum or in monthly installments over a defined period of time. Lan-dAmerica’s boаrd of directors (the board) retained the unilateral right to “modify, alter, or amend the Plan, in whole or in part,” or to eliminate the plan entirely. In 2008, the board slightly amended the plan by decreasing the number of weeks of salary that an eligible participant could receive based on the employee’s years of service. 1
Between August 2008 and November 2008, within the last 180 days before Lan-dAmerica filed its bankruptcy petition, LandAmerica terminated the employment of the claimants, Diego Alarcon and 124 other employees. Based on their termination and the fact that the other conditions of the plan were satisfied, the claimants became participants in the plan. However, LandAmerica did not pay the claimants any amount of the severance compensation due.
After LandAmerica filed its bankruptcy petition on November 26, 2008, the claimants filed proofs of claims against the bankruptcy estate for the severance compensation they were due under the terms of the plan, as amended in 2008. The claimants asserted that their severance claims were entitled to priority treatment up to the statutory maximum amount provided in 11 U.S.C. § 507(a)(4).
Bruce H. Matson, Trustee of the Lan-dAmerica Financial Group, Inc. Liquidation Trust (the trustee), did not object to the аmounts of the severance claims. However, he contended that the claimants “earned” severance compensation over the entire course of their employment and that, therefore, only the portion of those claims “earned” within the 180-day period before LandAmerica filed for bankruptсy (the pre-petition period) was entitled to priority treatment under 11 U.S.C. § 507(a)(4). To calculate the amount of severance compensation “earned” during the pre-petition period, the trustee proposed a formula that computed an employee’s daily rate of severance comрensation. The trustee provided an example of the application of his proposed formula to one of the claims at issue during a hearing held by the bankruptcy court.
In that example, the employee worked for LandAmerica for a total of 437 weeks, a period exceeding eight years, and wаs entitled under the plan to receive $8,500 in severance compensation. Before being terminated from employment, the employee worked 22 weeks during the pre-petition period. Because the period of 22 weeks represented 5.03% of the employee’s 437 total weeks of employment, the trustee contended that the employee “earned” 5.03% of $8,500 during the pre-petition period, or $429.31. Thus, the trus
II.
A.
The question raised in this appeal presents an issue of law, requiring this Court to apply a de novo standard of review.
In re Bateman,
B.
Section 507 of the Bankruptcy Code sets forth the categories of expenses and claims that are entitled to priority treatment in the distribution of a debtor’s estate. 11 U.S.C. § 507. In the enumerated list provided in the statute, a fourth priority is given to “allowed unsecured claims, but only to the extent of $10,950 for each individual ... earned within 180 days before the date of the filing of the petition ... for (A) wages, salaries, or commissions, including vacation, severance, and sick leave pay earned by an individual.” 2 11 U.S.C. § 507(a)(4) (emphasis added). Therefore, we must determine the method by which an individual “earns” “severance pay,” within the meaning of this statute, to decide whether the claimants “earned” their full severance pay or only a pro-rated portion оf that pay during the pre-petition period.
Under established principles of statutory interpretation, we consider the disputed statutory terms in the context in which they are employed.
United States v. Groce,
The interpretation of the word “earned,” as it appears in 11 U.S.C. § 507(a)(4), presents an issue of first impression in this Court. While the statute does not define the word “earned,” we observe that to “earn” generally means to “receive as equitable return for work done or services rеndered,” or “to come to be duly worthy of or entitled.”
Webster’s Third New International Dictionary
714 (2002). The first of these definitions plainly encompasses the common understanding of the manner in which employees “earn” wages, salaries, and commissions, the three general types of compensation listed in 11 U.S.C. § 507(a)(4)(A). Employees typically receive such compensation in exchange for their employment performance.
See, e.g., In re Public Ledger,
The word “earned,” as used in 11 U.S.C. § 507(a)(4)(A), applies not only to wages,
In contrast to wages, salaries, and commissions, the triggering events allowing employees to receive “severance pay” lie within the employer’s control and its decision both to provide severance compensation and to terminate the employment relationship. Thus, employees do not “earn” “severance pay” in exchange for services rendered as they do when they “earn” wages, salaries, and commissions. Rather, employees reсeive “severance pay” as compensation for the injury and losses resulting from the employer’s decision to terminate the employment relationship. This ordinary understanding of the term “severance pay” is consistent with the stated purpose of the plan in the present case, namely, to assist employees upon termination.
In view of the meaning and the purpose of severance compensation, we conclude that the second definition of “earn” described above, to become entitled, represents the ordinary meaning of the manner in which employees “earn” “severance pay,” within the intеndment of Congress in 11 U.S.C. § 507(a)(4)(A). We therefore hold that an employee “earns” the full amount of “severance pay” on the date the employee becomes entitled to receive such compensation, subject to satisfaction of the contingencies provided in the applicable severanсe compensation plan. 3 See id. at 651 (explaining that severance pay is not earned from day to day and does not accrue over time).
In the present case, when the claimants became participants in the plan upon their termination from employment and their signing a severance agreemеnt and release, the claimants earned severance compensation. While the amounts of the severance compensation to which the claimants were entitled under the plan were based on their length of service to LandAmerica, this method of calculation did not, as the trustee contends, dictate that those employees earned severance compensation over the entire course of their employment. The trustee’s position in this regard conflicts both with the pur
Our conclusion is supported by thе fact that the board implemented the plan and retained the right to amend the plan or to eliminate it entirely. If we were to hold that employees earned severance compensation over the entire course of their employment, an employee who began working for Land-America before the plan was established in 2004 necessarily would have earned severance compensation before Land-America had even adopted a severance benefits plan. Moreover, if the board had eliminated the plan before an employee was terminated, then, under the trustee’s position, that employee would have earned severance compensation for a period of time but would never receive that compensation.
Finally, our conclusion is not altered by decisions of our sister circuits addressing the priority treatment of severance compensation in the contеxt of administrative expense claims permitted under 11 U.S.C. § 503(b)(1)(A). Many of those courts have held that severance compensation based on length of employment has priority as an administrative expense of the bankruptcy estate only to the extent that the compensation is based on services provided tо the bankruptcy estate after the debtor files for bankruptcy.
See In re Roth Am., Inc.,
As the bankruptcy court explained in its memorandum opinion in this case, however, 11 U.S.C. § 503(b)(1)(A), the current codification of the statute at issue in those other cases, and 11 U.S.C. § 507(a)(4), the statute at issue in this case, are materially different. Section 503(b)(1)(A) does not use the word “еarned” or specifically include “severance pay” as a form of wages, salaries, and commissions. Instead, § 503(b)(1)(A) requires a calculation of the value of “services rendered” in a period of time after a debtor files its bankruptcy petition.
See In re Pittston Stevedoring Corp.,
III.
Accordingly, we affirm the bankruptcy court’s holding that the severance claims at issue are entitled to priority treatment under 11 U.S.C. § 507(a)(4) in amounts no greater than thе maximum amount provided by statute.
AFFIRMED
Notes
. The amendments to the plan in 2008 also required that an employee must work at least one year before being eligible to receive any severance pay. The plan as it existed before these amendments permitted an employee who had worked at least six months to receive severance pay. The substance of these amendments, however, does not affect the issue presented in this appeal.
. Effective April 1, 2010, and applicable to cases commenced on or after that date, the statutory maximum in 11 U.S.C. § 507(a)(4) was increased to $11,725. 75 Fed.Reg. 8747-48 (Feb. 25, 2010).
. We find no merit in the trusteе’s argument in favor of pro-ration based on the statute’s legislative history when Congress lengthened the pre-petition period from 90 days to 180 days. During that legislative process, the House of Representatives’ Report explained that the effect of this change was that a "greater portion” of unpaid vacаtion, severance, and sick leave pay would be entitled to priority payment. H.R.Rep. No. 109-31, pt. 1 at 1401 (2005); 2005 U.S.C.C.A.N. 88, at 211. The use of the phrase “greater portion,” however, did not clearly express a legislative intent that employees "earn” "severance pay” over the entire course of their employment.
See Holland v. Big River Minerals Corp.,