Employee Benefit Plan Review – From the Courts
May 9, 2017 | |Employee Who Left Job Due to Terminal Illness Was Entitled to Severance Pay, Ninth Circuit Rules
The wife of the plaintiff in this case was employed by the American Society for Technion-Israel Institute of Technology (ATS) until her terminal illness forced her to leave her job. The plaintiff contended that his wife was entitled to severance pay under the provision of ATS’s employee benefit plan that provided that an employee “whose employment terminates for any reason other than malfeasance, retirement or voluntary resignation shall be entitled to . . . severance pay.”
ATS disagreed. The plaintiff sued ATS, asserting a claim under the Employee Retirement Income Security Act of 1974 (ERISA).
The U.S. District Court for the Southern District of California ruled that the plaintiff’s wife’s departure from ATS had been a “voluntary resignation,” and the plaintiff appealed to the U.S. Court of Appeals for the Ninth Circuit. He contended that the term “voluntary resignation,” which was not defined in the plan, did not encompass an employee who left his or her job due to a disabling illness that rendered the employee incapable of performing the employee’s job duties.
The Ninth Circuit reversed the district court’s decision, ruling that the district court had erred in holding that unless there had been an affirmative act by the employer, the employment termination was voluntary.
The circuit court explained that terms in an ERISA plan “should be interpreted in an ordinary and popular sense as would a person of average intelligence and experience.” The circuit court then stated that a person of “average intelligence and experience” would understand the term “voluntary” to mean “proceeding from the will or from one’s own choice or consent.”
In this case, the Ninth Circuit concluded, being forced to leave a job due to a disabling illness did not “proceed from the will or from one’s own choice or consent.” It then ordered the district court to enter summary judgment in favor of the plaintiff. [Hoffman v. American Society for Techion-Israel Institute of Technology, Inc., 2017 U.S. App. Lexis 2837 (9th Cir. Feb. 17, 2017).]
Hospital, as a Fiduciary on Behalf of the Plan, Could Sue Plan Administrator for Breach of Fiduciary Duties Under ERISA, Iowa District Court Decides
Keokuk Area Hospital, Inc., a non-profit Iowa hospital, asserted in the lawsuit it filed against Two Rivers Insurance Company that, in 2010, Two Rivers advised the hospital to change its health care benefit plan to a benefit plan offered through Two Rivers. The hospital said that it agreed to do so and that it hired Two Rivers as a sponsor and administrator of its Keokuk Health Systems Health, Dental, Life and Disability Plan. According to the hospital, it paid Two Rivers $50,000 per month for its services.
The hospital alleged that Two Rivers, as administrator of the plan, failed to make an actuarially-determined analysis of an appropriate reserve fund needed to start the plan. Instead, according to the hospital, the plan contained a self-funded arrangement with no funding available to pay future estimated claims for benefits.
The hospital also asserted that Two Rivers failed to negotiate appropriate provider contracts, and failed to secure individualized discounts from local medical providers. Instead, according to the hospital, Two Rivers relied on a national discount provider that did not separately seek rate reductions for the medical providers that the hospital’s employees typically used. The hospital said that this forced it to pay substantially more for its employees’ medical benefits than was customary in the industry – that is, in excess of 90 percent of the costs to some outside providers when industry custom was 50 percent to 60 percent on average.
In addition, according to the hospital, Two Rivers created a system that comingled participant contributions with the hospital’s accounts and that did not contain the necessary financial and accounting controls. The hospital also contended that Two Rivers had not provided legally required disclosures to plan participants and had not filed appropriate documents with the Internal Revenue Service.
These actions, the hospital said, resulted in an investigation by the U.S. Department of Labor and significant financial damage to the hospital. According to the hospital, the plan ran a $420,540 deficit by the end of 2010 and a $1,336,019 deficit by the end of 2012; unpaid health claims reached $1.8 million by February 2013.
The hospital said that it hired “an independent health care turnaround firm” to address the financial damage and to perform an independent investigation. According to the hospital, the investigation determined that the plan was unsustainable and created financial harm to the hospital and its finances. The hospital also said that it hired an independent auditor to determine the scope of the financial damage, and that the audit revealed that the plan was unsuccessful, Two Rivers lacked the general and business knowledge necessary to sponsor a self-funded group health plan, and Two Rivers had failed to produce stop loss reinsurance policies despite requests to do so.
In its lawsuit against Two Rivers, the hospital alleged claims for common law negligence and breach of fiduciary duty under the Employee Retirement Income Security Act of 1974 (ERISA) and sought a jury trial to recover compensatory damages and punitive damages. Two Rivers moved to dismiss.
The U.S. District Court for the Southern District of Iowa, in its decision on Two Rivers’ motion, first found that ERISA preempted the hospital’s negligence claim against Two Rivers. The district court decided that the hospital’s negligence claim was a claim “of misconduct against the administrator of an employer’s health plan [that fell] comfortably within ERISA’s broad preemption provision.”
The district court then ruled, however, that the hospital’s breach of fiduciary duty claim under ERISA against Two Rivers could go forward and that it was entitled to a jury trial. The district court explained that ERISA expressly permitted one fiduciary to sue another for breaching fiduciary duties and that the hospital had a right to a jury trial under ERISA Section 502(a)(2). The district court concluded that the hospital could not seek compensatory or punitive damages for itself from Two Rivers, but that it was limited to recovering compensatory damages – and not punitive damages – for the plan itself. [Keokuk Area Hospital, Inc. v. Two Rivers Ins. Co., 2017 U.S. Dist. Lexis 2449 (S.D. Iowa Jan. 7, 2017).]
Texas District Court Rejects ERISA Claim for Discrimination Based on Gender Identity
In 2011, the plaintiff in this case, an employee of L-3 Communications Integrated Systems, LP, and a participant in the company’s short-term disability benefits plan (the “STD plan”), began the process of gender transition from male to female. She legally changed her name and she changed her gender designation from male to female on all government-issued documents.
In 2015, after consulting a healthcare professional who determined that breast implants were medically necessary to treat her Gender Dysphoria, she scheduled breast implant surgery. The plaintiff sought benefits under the STD plan to cover her post-surgery recovery but, she asserted, benefits under the STD plan were denied on the basis that surgery to treat Gender Dysphoria did not qualify as treatment of an illness.
The plaintiff sued Aetna Life Insurance Company, the claim fiduciary and administrator of the STD plan. Among other things, the plaintiff argued that Aetna’s denial of benefits under the STD plan was an act of discrimination based on gender identity, in violation of ERISA, and that ERISA should be read to prohibit “discrimination based on Gender Identity.”
Aetna moved to dismiss the plaintiff’s discrimination claim.
The court granted Aetna’s motion. In its decision, the court explained that such a claim was “not currently recognized.” It added that it was “for the Congress, not this court” to decide whether to create in ERISA a protection that the statute did not already provide. [Baker v. Aetna Life Ins. Co., 2017 U.S. Dist. Lexis 5665 (N.D. Tex. Jan. 13, 2017).]
Seventh Circuit Upholds Former Employee’s Damages Award in FMLA Lawsuit
The plaintiff in this case worked in the order-processing department of Miller Compressing Company. In July 2011, Miller granted the plaintiff’s request for intermittent leave under the Family and Medical Leave Act (FMLA) through July 2012 to take her autistic two-year-old son to medical appointments and therapy.
In February 2012, the plaintiff’s son was expelled from day care, which he had been attending for two days a week, because of his aggressive behavior, a product of his autism. The plaintiff asked Miller’s human resources department to grant her FMLA leave to enable her to work from home two days a week, which would give her enough free time to take care of the child. (The plaintiff’s mother was able to watch the toddler the remaining three workdays.)
Although the FMLA does not cover working at home, the human resources department at Miller agreed to a hybrid arrangement that would require the plaintiff to inform Miller of the number of hours she worked each day at home, a computation that would be made by subtracting from the normal eight-hour workday the hours in which she was taking care of her son – hours of FMLA leave time for which Miller would not be required to compensate her.
In the summer of 2012, Miller, experiencing serious financial problems, decided that none of its employees would be allowed to work at home during the week. The company decided that all of its employees would be required to work a full five-day 40-hour week on the company’s premises. One Friday in July, the company told the plaintiff that she had to show up on the coming Monday and work eight hours a day (8 a.m. to 4 p.m.) five days that week, as well as in all subsequent weeks, in the office.
When she was told this, the plaintiff started to cry and said she “knew that it was going to be nearly impossible for [her] to find day care over the weekend by Monday.”
The human resources officer to whom the plaintiff explained all of this told her falsely that the FMLA covered leave from work only for doctors’ appointments and therapy. That was on Friday; the plaintiff returned to the office on Monday morning and explained that she had been unable to find day care for her son over the weekend. The human resources officer told her that the first day she did not work in the office, full time, she would be considered a “voluntary quit.”
Because the plaintiff had to return home to take care of her child, not having been able to obtain day care for him over the weekend, she left the office, never to return to work for Miller. On that same Monday, shortly after the plaintiff had gone home to take care of her autistic child, the human resources officer ordered the plaintiff’s termination processed “today” (that is, Monday) and that it reflect that her last day of work had been the previous Friday.
The plaintiff sued Miller. A three-day jury trial in the U.S. District Court for the Eastern District of Wisconsin ended with a verdict in favor of the plaintiff on three of her claims against Miller: retaliation in violation of the FMLA, violation of a Wisconsin wage law, and breach of contract.
Miller appealed to the U.S. Court of Appeals for the Seventh Circuit.
The circuit court rejected Miller’s appeal. In its decision, the Seventh Circuit explained that the FMLA entitled the plaintiff to take leave that was necessary to take care of a very difficult (at times violent) sick child. The circuit court found that the plaintiff had proved, and the jury had determined, that Miller had retaliated against her for asserting her FMLA right to take the leave that was necessary to enable her to take care of her sick child for several hours two days a week.
According to the circuit court, “[a]s she was a valued and experienced employee who had worked for the company at home two days a week since February without the company’s complaining, the company had no compelling reason to fire her.” The circuit court declared that the “best inference, or at least an inference that a reasonable jury could draw,” was that the plaintiff’s superiors were angry with her for requesting to be allowed to stay home (albeit working part of the day) two days a week, although she had been doing that since February to Miller’s satisfaction.
“Hence,” the circuit court said, “the phony line that FMLA can’t be used to authorize leave to take care of a very sick child even when obtaining day care for the child is difficult or even impossible because of the child’s particular ailment – autism that in this case manifested itself at times in violent behavior.” The Seventh Circuit stated that the FMLA was “explicit” that an eligible employee (such as the plaintiff) was “entitled to take up to 12 work-weeks of unpaid leave per year in order to care for a family member with a serious health condition, including a child with such a condition.”
In conclusion, the circuit court upheld the district court’s decision to award the plaintiff twice her actual damages, based on her loss of wages, under the FMLA, plus additional damages for breach of her employment contract amounting to her wages for three weeks. [Wink v. Miller Compressing Co., 845 F.3d 821 (7th Cir. 2017).]
ESOP Could Not Recover from Insurer for Loss of Stock Portfolio’s Value Allegedly Stemming from Former Employee’s Fraud
In this case, the HC4, Inc. Employee Stock Ownership Plan (ESOP) sued Travelers Casualty and Surety Company of America, which had issued a compliance bond and an insurance policy to HC4, for losses allegedly caused by the fraudulent acts of a former officer of HC4, Inc. Both the compliance bond and the policy contained provisions that insured the ESOP and HC4 against “direct” losses of “property” caused by “dishonest or fraudulent acts” or “theft or forgery” of an “employee.”
The ESOP asserted that the former officer had:
- made HC4 responsible for pre-existing tax liabilities;
- paid non-employees (that is, “ghost” employees);
- paid personal debts with HC4’s credit card;
- obtained funding or proceeds for her own companies using HC4’s name;
- stolen HC4’s property;
- failed to pay for labor and materials to subcontractors; and
- reimbursed herself for fraudulent expenses using HC4’s funds.
The ESOP contended that, as a result of these actions, the value of shares in HC4 had plummeted from $40 per share to $0 per share, costing the ESOP $700,000.
Travelers contended, among other things, that the ESOP’s claim to recover for the decline in HC4’s stock price under the insurance policies it had issued was barred by the plain language and policy exclusions of the bond and policy. Travelers moved for summary judgment.
The U.S. District Court for the Southern District of Texas granted the insurer’s motion.
In its decision, the district court first ruled that the alleged loss in value of the ESOP’s stock holdings in HC4 resulting from the former officer’s allegedly fraudulent acts was not a covered loss under the policy or bond issued by Travelers. According to the district court, the policy and bond provided coverage only for losses that were the “immediate” effect of employee dishonesty. The direct result of the former officer’s alleged embezzlement was a financial loss to HC4, and the indirect result was a resulting loss in the company’s stock value, which ultimately affected the ESOP because it held a large amount of HC4 stock, the district court explained. The district court concluded, therefore, that the ESOP had not suffered a “direct loss” and, therefore, could not recover under the policy or bond.
Next, the district court ruled that because the ESOP’s losses were not covered by either the policy or the bond, the ESOP could not assert a claim against Travelers for breach of contract (that is, for breach of the policy and for breach of the bond). By the same token, because Travelers owed no benefits to the ESOP under the policy or bond, the ESOP could not bring a claim against Travelers under the Texas Prompt Payment of Claims Act, the district court ruled.
Finally, because the ESOP had no claim against Travelers under the policy or the bond, the district court also rejected the ESOP’s claims that Travelers had violated Texas insurance law or the common law duty of good faith and fair dealing. [HC4, Inc. Employee Stock Ownership Plan v. Travelers Casualty and Surety Co. of America, 2017 U.S. Dist. Lexis 19605 (S.D. Tex. Feb. 13, 2017).]
Second Circuit Rejects Veterinarian’s Equal Pay Act Claims
The plaintiff in this case, a veterinarian, was the director of the President’s Council and Rehabilitation Center at the Animal Medical Center (AMC) in Manhattan. The plaintiff sued the AMC under the federal Equal Pay Act. She claimed that AMC had violated that law because it paid her male colleagues who were all department heads with similar credentials and significant responsibilities, and who performed substantially equal work to her, more than it paid her.
The U.S. District Court for the Southern District of New York granted summary judgment in favor of AMC, concluding that the plaintiff had not established discrimination under the Equal Pay Act because she had not demonstrated that she performed work substantially equal to that of her better-paid male colleagues.
The plaintiff appealed to the U.S. Court of Appeals for the Second Circuit, which affirmed the district court’s ruling.
In its decision, the circuit court explained that, to prove a violation of the Equal Pay Act, a plaintiff must demonstrate that: (1) the employer paid different wages to employees of the opposite sex; (2) the employees performed equal work on jobs requiring equal skill, effort and responsibility; and (3) the jobs were performed under similar working conditions. Critical to an Equal Pay Act claim, the circuit court added, was the equal work inquiry, which required evidence that the jobs compared were “substantially equal.”
To satisfy this standard, a plaintiff must establish that the jobs compared entailed common duties or content, and did not simply overlap in titles or classifications, the circuit court noted. It said that a successful EPA claim depended on the comparison of actual job content, and that “broad generalizations drawn from job titles, classifications, or divisions,” and conclusory assertions of sex discrimination were not sufficient.
The Second Circuit then found that despite the fact that her position as the director of the President’s Council and Rehabilitation Center “shared some common characteristics, such as administrative responsibilities, with the positions of her male co-workers,” the plaintiff overlooked “the material differences in the congruity of job content.”
The circuit court explained that the plaintiff’s responsibilities as the director of the President’s Council entailed “primarily public-relations-type duties as well as primary care.” It said that she performed “basic treatments” that were “parallel to those performed by a general practitioner,” and that she would refer pets to specialists if necessary.
Similarly, the Second Circuit continued, the “overwhelming majority” of the plaintiff’s work at the Rehabilitation Center “could be performed by technicians and aides.”
By contrast, according to the circuit court, the plaintiff’s better-paid male colleagues practiced in specialized areas of veterinarian medicine and performed complex procedures. Unlike those colleagues, the plaintiff was not responsible for supervising interns or other veterinarians, and she “contributed little if any scholarly research,” the circuit court added.
Moreover, it said, the plaintiff carried a low patient load, seeing only one to three pets a day. The circuit court said that although the plaintiff did perform some rehabilitation treatments at the Rehabilitation Center, she could go months without treating pets – but that some of her better-paid male colleagues treated up to 15 a day.
The circuit court concluded that the plaintiff’s efforts to draw comparisons between her positions and those of her male co-workers “missed the mark.” The fact that the plaintiff and those colleagues were department heads whose positions shared some common responsibilities was “insufficient to demonstrate substantially equal work in light of the drastic differences in job content – that is, the differences in specialties, patient loads, supervision, teaching, and research contributions,” the circuit court stated. It declared that it would not embrace the principle that the work of all veterinarians was equivalent, “thereby ignoring distinctions among the different specialties in veterinarian medicine.”
The circuit court rejected the plaintiff’s contention that it should consider “across-the-board discriminatory pay” among veterinarians at AMC. Whether other female veterinarians were paid less than male veterinarians, without any explanation of what each veterinarian did, could not suffice to establish that, because of sex alone, the plaintiff indeed had been paid less than males who performed substantially equal work, the circuit court said.
According to the Second Circuit, because the plaintiff had not demonstrated that her claims amounted to more than “mere generalizations drawn from job titles and divisions,” the district court had properly granted summary judgment in favor of AMC. [Chiaramonte v. Animal Medical Center, 2017 U.S. App. Lexis 1371 (2d Cir. Jan. 26, 2017).]
Reprinted with permission from the May 2017 issue of the Employee Benefit Plan Review – From the Courts. All rights reserved.
