Sandra Porter was employed by Elk Remodeling, Inc. (“Elk”) from March 2004 until April 2007, first as an Administrative Assistant and then as General Manager.  Porter had been receiving premium reimbursements from Elk for her individual health insurance policy since 2005.  Porter had been the only employee receiving this benefit.  In March 2007, Elk distributed health insurance applications to its employees, with the exception of Porter, in connection with a group healthcare plan it was planning on implementing.  Around this time, Porter overheard Elk’s principal, Timothy Shellnutt, make a reference to a “breeder” during a telephone conversation.  Porter believed this comment was in reference to her. 

In April 2007, Elk submitted an application for group healthcare coverage to CareFirst BlueCross BlueShield (“CareFirst”).  The coverage was for Shellnutt and his family, plus two full-time male employees.  Elk represented to CareFirst that it had three full-time employees and that Porter had been terminated.  A week later, Porter confronted Shellnutt about the group plan, secretly recording their conversation on a microcassette tape recorder.  During the conversation, Shellnutt told her that it would be much more expensive to insure Porter on the group plan initially, but that if she signed a waiver of enrollment she could be added to plan later on.  Shellnutt advised Porter that in the meantime she would still be reimbursed for her individual plan premiums.  Porter asked Shellnutt why it would cost more to add her to the group plan, to which Shellnutt replied that he thought it was because Porter was female, already had a child, and could get pregnant again, while the other employees on the plan were both single and childless.  After Porter refused to sign the waiver, Shellnutt stated that he would not get the group plan for anyone, and that he would no longer reimburse Porter for her premiums.  Porter’s employment with Elk was then terminated.

Porter filed suit against Elk alleging gender discrimination and retaliation claims under both Title VII and the VHRA, interference with attaining rights provided by an ERISA-defined plan in violation of ERISA, and wrongful discharge.  Porter ultimately dismissed the Title VII claims. 

In its pretrial motion for summary judgment, Elk argued that there was no employee benefit plan in place at the time of Porter’s termination, and thus it cannot be liable for interfering with Porter’s attainment of the plan.  ERISA defines “employee benefit plan” as “any plan, fund, or program . . . established or maintained by an employer . . . for the purpose of providing for its participants or their beneficiaries . . . medical, surgical, or hospital care or benefits.”  Citing Fourth Circuit precedent, the court held that an employer’s payment of premiums on behalf of its employees constitutes substantial evidence that a plan was “established.”  Here, the fact that Shellnutt submitted an application to CareFirst and began paying the premiums was sufficient to show that the plan had been established within the meaning of ERISA.  The court also found that Porter was a participant under the statute.  ERISA defines “participant” as “any employee or former employee of an employer . . . who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer.”  The court stated that since all full-time employees of Elk were eligible for the plan, and Porter was a full-time employee, she would have become eligible for the plan if she had not been terminated, and therefore was a “participant” within the meaning of the statute.

The court went on to analyze whether Elk was motivated at least in part by a “specific intent to interfere” with Porter’s attainment of rights under the plan.  Applying the McDonnell-Douglas burden shifting framework, the court determined that there was a genuine issue of fact with respect to pretext.  Based on the evidence of the conversation between Porter and Shellnutt regarding her enrollment in the group plan, the court held that there was a question of fact about whether Porter’s termination was due to her “bad attitude” as Elk had asserted, or because of her refusal to sign the waiver of enrollment.

With respect to Porter’s state law claims, Elk argued that the claims were preempted by ERISA.  The court evaluated whether the claims were subject to ERISA’s preemption provision, which preempts all state laws that “relate to” an ERISA plan.  The court’s inquiry focused on whether the VHRA or wrongful discharge claims sought “relief under state laws that provide alternative enforcement mechanisms for claims that are actually ERISA claims.”  A state claim is considered an “alternative enforcement mechanism” if it could be brought as an enforcement action under section 502, ERISA’s enforcement provision.

As to the VHRA claim, the court stated that the VHRA does not provide an alternative enforcement mechanism because there is no cause of action for gender discrimination under ERISA, and therefore the claim does not “relate to” an ERISA plan under the preemption provision.  The court then held that Porter had presented sufficient evidence from which a reasonable jury could conclude that she was terminated because of her gender, and denied Elk’s motion for summary judgment on the VHRA claim.  The court granted Elk’s motion as to the wrongful discharge claim, stating that the claim was based on the public policy limiting discrimination in the allotment, price, and benefits of insurance policies based on unfair criteria, and was thus preempted by ERISA as “relating to” an ERISA plan.

 Source:  HR Magazine, April 2010:  If Adding Temps, Audit Your Benefits Plans

Gagliano v. Reliance Standard Life Ins. Co. (07-1901) (Nov. 18, 2008) (ERISA):  The Court found violations of ERISA in administration of a disability insurance review but remanded the case to the plan administrator for a full review.  The plan administrator issued a second determination letter denying benefits on a ground not raised in its first letter.  The Court found that the second letter was an “initial” denial as to that ground, requiring the issuance of an ERISA appeals notice to the claimant.  The plan administrator’s failure to give that notice was an ERISA violation.  Following prior decisions, the Court held that the appropriate remedy was to remand the matter to the plan administrator for a full and fair review of the issue, the only exception being when the plan administrator’s denial of the claim was an abuse of discretion as a matter of law.

Ziskie v. Mineta (06-2060) (Nov. 14, 2008) (hostile work environment, sexual harassment):  The Court reversed a grant of summary judgment in favor of the defendant-employer by the U.S. District Court for the Eastern District of Virginia because the District Court had refused to consider affidavits of co-workers filed by the plaintiff regarding conduct not witnessed by the plaintiff.  The Court found that the blanket exclusion of the affidavits was in error — rather, the fact that the plaintiff did not witness the specific incidents in the affidavits might go to the weight to be accorded the affidavits by the District Court.

The Court also discussed how the facts might be viewed on remand with respect to the elements of the plaintiff’s sexual harassment claim.  It used almost a full page to comment on the plaintiff’s four-day work weeks:  “For reasons unrelated to sex, this behavior was unlikely to endear Ziskie to her colleagues,” and her habit of taking notes in her diary of virtually everything that happened to her:  “Co-workers might also not take warmly to the fact that Ziskie was meticulously recording in her diary every conceivably offensive comment they made and every instance in which they did not help her as much as she thought was appropriate.  Her fellow workers might well resent her openly examining the log files to determine when they arrives at and left work.”  The Court went on to direct the District Court that “on remand Ziskie must demonstrate under the standards set forth in [the opinion] that a reasonable jury could see the hostility as a product of gender animus rather than the kind of personality conflict that pervades many a workplace.”

Lightner v. City of Wilmington (07-1442) (Nov. 3, 2008) (Title VII pretext issues):  The Court affirmed the dismissal of plaintiff’s Title VII race and gender discrimination claims for failure to show pretext.  The seminal paragraph of the Court’s opinion is as follows:

“Plaintiff’s claim founders on its own terms.  By the Plaintiff’s own repeated admission, the real reason for his suspension was to cover up department wrongdoing.  This is not race or gender discrimination and therefore is not actionable under Title VII. . . .  In offering this explanation as to the real reason for his employer’s action, the plaintiff has undone his case.”  The opinion does not look kindly on the plaintiff’s efforts to turn Title VII into a whistleblower statute.

Technology Partners, Inc. v. Hart (08-1651) (Nov. 4, 2008) (unpublished) (NC noncompete agreement):  The Court affirmed the denial of a preliminary injunction based on a noncompete agreement and trade secrets claim under North Carolina law and the Blackwelder preliminary injunction analysis.

The summary of the bill is as follows:

Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 – Amends the Employee Retirement Income Security Act of 1974 (ERISA), the Public Health Service Act, and the Internal Revenue Code to require a group health plan that provides both medical and surgical benefits and mental health or substance use disorder benefits to ensure that: (1) the financial requirements, such as deductibles and copayments, applicable to such mental health or substance use disorder benefits are no more restrictive than the predominant financial requirements applied to substantially all medical and surgical benefits covered by the plan; (2) there are no separate cost sharing requirements that are applicable only with respect to mental health or substance use disorder benefits; (3) the treatment limitations applicable to such mental health or substance use disorder benefits are no more restrictive than the predominant treatment limitations applied to substantially all medical and surgical benefits covered by the plan; and (4) there are no separate treatment limitations that are applicable only with respect to mental health or substance use disorder benefits.

Requires the criteria for medical necessity determinations and the reason for any denial of reimbursement or payment for services made under the plan with respect to mental health or substance use disorder benefits to be made available by the plan administrator.

Requires the plan to provide out-of network coverage for mental health or substance use disorder benefits if the plan provides coverage for medical or surgical benefits provided by out-of network providers.

Exempts from the requirements of this Act a group health plan if the application of this Act results in an increase for the plan year of the actual total costs of coverage with respect to medical and surgical benefits and mental health and substance use disorder benefits by an amount that exceeds 2% for the first plan year and 1% for each subsequent plan year. Requires determinations as to increases in actual costs under a plan to be made and certified by a qualified and licensed actuary.

Requires determinations for such an exemption to be made after such plan has complied with this Act for the first six months of the plan year.

Sets forth requirements for notifications of exemptions under this Act, including notification of the Secretary of Health and Human Services, the appropriate state agencies, and participants and beneficiaries in the plan.

Authorizes the Secretary and the appropriate state agency to audit the books and records of a group health plan relating to an exemption.

Directs the Secretary to: (1) report to the appropriate congressional committees on compliance of group health plans with the requirements of this Act; and (2) publish guidance and information concerning the requirements of this Act and provide assistance concerning such requirements and the continued operation of applicable state law.

Requires the Comptroller General to report to Congress on the specific rates, patterns, and trends in coverage and exclusion of specific mental health and substance use disorder diagnoses by health plans and health insurance.

More information on the bill can be found here.  The enrolled text of the bill can be found here.  The final version of the Public Law does not appear to be available yet.

In Woods v. Prudential Insurance Company of America, No. 07-1580 (June 11, 2008), Plaintiff-Appellant Patricia Woods was employed by Wendy’s International as a co-manager.  After Woods was injured in a car accident, she filed for a claim under a long-term disability plan (the “Plan”) that she was insured under during her employment.  Prudential Insurance Company, who administered the Plan, approved and paid Woods’ claim for benefits for a twelve-month period until January 2005.  It then reevaluated Woods’ claim and denied any further benefits to Woods.  Woods brought action under ERISA.  On appeal, Woods challenged the trial court’s conclusion that the Plan vests discretionary authority in Prudential, and review of Prudential’s determination under an abuse-of-discretion standard.

The Court, citing Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), held that an ERISA plan can confer discretion on an administrator in two ways:  (1) by language that “expressly creates discretionary authority,” and (2) by term which “create discretion by implication.”  Firestone, which was based on common law trust principles, drew a distinction between trustees who had no discretion but who had authority to manage a trust and trustees who had been granted discretion in addition to their authority.  Thus, regardless of whether discretion created expressly or by implication, the plan must manifest a clear intent to confer such discretion.

In reviewing the Plan in question, the court found that although the plan vested authority in Prudential it did not create any discretionary authority.  Discretionary authority is not conferred by the mere fact that a plan requires a determination of eligibility by an administrator.  Almost all ERISA plans designate an administrator who must determine if a participant is eligible for benefits.  Yet the authority to make determinations does not create the requisite discretion unless the plan expressly provides.  ERISA plans are to be construed in accordance with the reasonable expectations of the insured, and beneficiaries should be able to learn their rights and obligations at any time through the written plan documents.  Nothing in the Plan’s phrases “when Prudential determines” or “determined by Prudential” even implies the conferral of discretions, as opposed to mere authority.  Accordingly, the trial court’s judgment was vacated and remanded for further proceedings to review Prudential’s denial of Woods’ claims de novo.

Ritesh Ahuja, the former employee, participated in Ericsson’s Standard Plan and its Enhanced Plan, which entitled participants to severance pay in the amount of six months of their base salary in the event of a covered employment loss.  The challenged denial of benefits was based upon Clause No. 8b in the Ericsson Enhanced Plan that stated, in summary, that a participant is not eligible for Enhanced Severance Benefits upon the “reorganization” of Ericsson. 

In early 2005, Ericsson closed the Rockville, Maryland, office where Ahuja worked and consolidated its operations in Raleigh, North Carolina.  Ahuja was offered to continue his employment in Raleigh, but he declined and his employment with Ericsson was accordingly terminated soon thereafter.  Ahuja was denied his claim for benefits by both the plan administrator and the Plan Administrative Committee.  The district court granted Ericsson’s motion for summary judgment finding that the Committee had acted within its discretion in denying Ahuja’s claim pursuant to Clause No. 8b.

The Fourth Circuit disagreed, finding that the plain meaning of Clause No. 8b did not include the internal reorganization that led to Plaintiff’s separation.  8b referred to reorganization “with another entity,” and although that phrase was not immediately preceding the term reorganization, it indeed modified the term reorganization.  The meaning of a term, the Court noted, must be read in context and not in isolation.  Based on the terms surrounding “reorganized,” in context, the reorganization referred to in Clause No. 8b was a reorganization with another entity.  Further, the title of the clause was “Sale or Merger of Ericsson.”  Accordingly, the Court found that Clause 8b did not embrace an internal reorganization and remanded the case for entry of an order awarding Ahuja benefits under the Enhanced Plan.  Because Ahuja had not filed a claim with the Plan Administrator for benefits under the Standard Plan, the Fourth Circuit affirmed the dismissal of that claim for failure to exhaust administrative remedies.

Contributed by Michael K. Wilson

Beckner filed suit under ERISA against American Benefits Corporation (ABC), Employer-Teamsters Local Nos 175 and 505 Pension Trust Fund (the Fund), and against the Trustees, contending that he was improperly denied the Plan’s monthly benefit of $2,500 or in the alternative $2,000.  Beckner conceded that he never worked as a Kroger employee, but asserted that the Plan does not provide that the Kroger 30-And-Out Benefit was only for Kroger employees.  Beckner met all the other qualifications for the benefits except that he was not an employee of Kroger. 

In 2004, ABC denied Beckner’s request for $2,500 because he was not a Kroger employee and denied his $2,000 claim because he did not meet the Plan’s $33.43 multiplier rate.  Beckner’s appeal of the decision was heard and the Trustees upheld the decision for the same reasons.  The district court also sided with the Fund’s decision to deny his claims. 

In its review of the district court decision, the Fourth Circuit found that the court properly limited its consideration to whether the Trustees abused their discretion in denying benefits.  The Fourth Circuit also found that the district court properly granted summary judgment to the Fund as to the eligibility for the Kroger 30-And-Out Benefit.  The Trustees found that one must be an employee in order to be entitled to the benefit by looking at the historic interpretation of the Plan and the common understanding of the language of the Plan.  The plan does not expressly state that it is only for Kroger employees, however, it specifically refers to “Kroger employees,” Kroger, employment and retirement several times.  The Fourth Circuit found this interpretation to be reasonable.  Therefore, not surprisingly, the Fourth Circuit found that it was within the discretion of the Trustees and the Fund to interpret the Kroger 30-And-Out Plan to allow benefits only to individuals who at some time where employees of Kroger.

Contributed by Michael K. Wilson

In Preston v. Ferrer (copy on SCOTUS Blog here), the Court held that the Federal Arbitration Act (“FAA”) preempts a California statute requiring exhaustion of administrative remedies.  The case is getting some press because Judge Alex, a daytime television judge, was a party.

The Supreme Court held that when parties agree to arbitrate all questions arising under a contract, state laws lodging primary jurisdiction in another forum, whether judicial or administrative, are superseded by the FAA.  Judge Alex’s attorney filed a demand for arbitration seeking his fees from work performed as the Judge’s agent.  Judge Alex countered by filing a claim with the California Labor Commission under the California Talent Agencies Act claiming that his attorney lacked the proper license and that the contract was therefore void.  The matter went into litigation and the California courts refused to send the entire matter to arbitration.  The Supreme Court reversed, concluding that the parties had agreed to arbitrate all matters relating to the contract.

In LaRue v. DeWolff, Boberg & Associates, Inc. (copy on SCOTUS Blog here), the Court held that a private participant in an ERISA plan can bring an action for breach of fiduciary duty.  Workplace Prof Blog has some details here.  Keep an eye on the Boston ERISA Law Blog for more commentary on this decision.  Once the dust settles on this case, we may start seeing more of these claims.  If the stock market undergoes a significant “correction,” many 401(k) plan participants may seek relief against the plan administrator if it failed to follow their investment instructions, which is what happened in LaRue.

The EEOC explained the need for the rule as follows:  “The rule was needed because in 2000, in Erie County Retirees Association v. County of Erie, 220 F.3d 193 (3d Cir. 2000), a federal court ruled that if an employer provides retiree health benefits, the ADEA requires that the health insurance benefits received by Medicare-eligible retirees be the same, or cost the same, as the health insurance benefits received by younger retirees.”  The new regulations can be found here, along with a Q&A page.  Read the New York Times article on the regulations here.

The court also certified a national class with respect to the plaintiffs’ claims for a determination of participant status and entitlement to benefits under ERISA.  According to the Court, FedEx Ground employs approximately 12,000 pickup and delivery drivers.

Here is the court’s opinion:  In re FedEx Ground Package System, Inc. Employment Practices Litigation, No. 3:05-cv-00390-RLM-CAN (N.D.Ind. Oct. 15, 2007).

The case also contains a lengthy Daubert analysis with respect to FedEx’s motions.  The Daubert challenge was overruled, but the court decided to disregard the experts’ testimony.

 This case highlights the serious consequences for misclassifying workers as “independent contractors.”  FedEx also recently lost an appeal before the California Court of Appeals (Estrada v. FedEx Ground Package System, Inc., B189031 (Cal. Ct. App. June 13 2007) involving the issue of whether their single work zone drivers were employees or independent contractors under California law with respect to their right to entitlement to reimbursement for work-related expenses.  FedEx’s decision not to renew the contracts of all of the single work zone drivers in California after that decision has sparked additional litigation.