Employee Benefit Plan Review – From the Courts – February 2016

February 1, 2016 | Insurance Coverage

Long-Term Disability Benefits May Be Reduced by Amount of Worker’s Compensation Lump Sum Disability Award

The plaintiff, an employee of The Lubrizol Corporation, sustained a disabling injury at work in July 2011. He filed for long-term disability benefits under The Lubrizol Corporation Long-Term Disability Plan in December 2011. His claim was approved in January 2012, and he began receiving $544.94 bi-weekly from the plan.

On October 1, 2013, the plaintiff filed an application with the Ohio Bureau of Worker’s Compensation (BWC) to determine the percentage of his permanent partial disability. The BWC found that the plaintiff was permanently partially disabled (PPD) and that he was entitled to a PPD award. On April 3, 2013, the BWC awarded him a lump sum of $4,698.

On April 30, 2014, Lubrizol sent the plaintiff a letter informing him that, “according to our [long-term disability plan], income from workers comp does reduce your LTD bi-weekly payment.” The letter further explained that his long-term disability payments would be reduced from $544.94 per pay period to $478.78 for 71 bi-weekly payments.

The plaintiff appealed to the Lubrizol Employee Benefits Administrative Committee, arguing that his PPD benefits award was not an “income benefit” that would reduce long-term disability benefits as outlined in the plan but, instead, was a damages award. As such, he contended, the plan should not deduct the award from his long-term disability benefits.

The committee rejected the plaintiff’s argument and affirmed the offset, concluding that the plaintiff’s PPD benefits were subject to the “reduction of benefit” provision in the plan. This provision stated that, generally, the amount of benefits payable to a participant under the plan was subject to being reduced by the earnings and benefits received by the participant from other sources including, but not limited to, disability benefits provided for under any law of a government such as “worker’s compensation” benefits, “including any lump sum awards.”

The plaintiff sued the plan in the U.S. District Court for the Northern District of Ohio. After the parties both moved for judgment on the administrative record, the court granted judgment in favor of the plan.

In its decision, the court found that the committee’s decision that the plaintiff’s PPD benefits had to be deducted from his long-term disability benefits was not arbitrary and capricious. In the court’s view, the plan “clearly” provided that it could reduce long-term disability benefits by the amount of any disability benefits provided for by worker’s compensation laws and, it noted, the plan did so without regard to whether the payments were for loss of income.

A PPD award “unambiguously” fit within this provision, the court ruled. [Izzarelli v. Lubrizol Corp. Long Term Disability Plan, 2015 U.S. Dist. Lexis 143759 (N.D. Ohio Oct. 22, 2015).]

Court Permits Plaintiffs’ “Right to Diversify” Investments Lawsuit to Proceed

The plaintiffs, long time employees of Community Bankshares, Inc., were invested in their employer’s employee stock option plan when, in January 2010, Bankshares’ primary asset – Community Bank & Trust – collapsed.

Because the plan was invested primarily in Bankshares’ stock, the plan essentially was rendered worthless, and the plaintiffs received little more than pennies on the dollar.

The plaintiffs sued Bankshares and its fiduciaries, contending that the defendants should have diversified their investments as the plaintiffs had requested. The plaintiffs relied on Section 8.3 of the plan, which used the imperative command “shall” three times when defining an eligible participant’s right to diversify a percentage of his or her investments in the plan.

First, the plan provided that “[e]ach Eligible Participant shall, during any Qualified Election period, be permitted to diversify the investment of a portion of his Employer Contribution Account in accordance with the provisions of this Section 8.3.”

Second, the plan said that an “Eligible Participant electing to diversify his Account shall direct the Plan Administrator to distribute (or transfer to an Individual Retirement Account or another qualified retirement plan) shares of Company Stock, rounded to the nearest whole share, equal to that portion of the Participant’s Employer Contribution Account that is covered by the election.”

Third, the plan directed that “[s]uch transfer or distribution shall be made no later than ninety (90) days after the last day of the Qualified Election Period during which such participant directed such investment.”

The defendants moved to dismiss the plaintiffs’ complaint, but the court denied their motion.

In its opinion, the court explained that Section 8.3 was “couched in mandatory terms” that were “unambiguous” and that left the plan administrator with “no option but to implement a proper election to diversify investments.” The court noted that the plaintiffs alleged that they had exercised the “right to diversify” their investments under Section 8.3, that their elections had complied with the strictures of Section 8.3, and that, therefore, the plan administrator had a contractual duty to “diversify a portion o[f] [their] account” within 90 days of their election but had refused to do so.

The court found that these allegations were sufficient to demonstrate, for purposes of defeating the defendants’ motion to dismiss, that the plan required an election period to permit participants to diversify a percentage of their investments, that the plaintiffs (as eligible participants in the plan) had properly made an election, and that the plan administrator had wrongly failed to diversify their investments in the manner they elected.

The court concluded by finding that the plaintiffs had plausibly alleged that no reasonable basis existed for the plan administrator’s refusal to honor their diversification requests – specifically rejecting the defense that diversifying the plaintiffs’ investments would have harmed other participants in the plan – and that the plaintiffs’ allegations were sufficient to allow their action to proceed. [Bryant v. Community Bankshares, Inc., 2015 U.S. Dist. Lexis 142318 (M.D. Ala. Oct. 14, 2015).]

Failure to Provide Sign Language Interpreter for Legally Deaf Employee May Violate ADA – If Adverse Employment Action Results

In April 2007, H&M Hennes & Mauritz LP hired the plaintiff as a part-time sales associate at H&M’s Bayshore Mall retail store in Glendale, Wisconsin. At the time H&M hired the plaintiff, who is legally deaf, he explained that he communicated by lip-reading and speaking. He said that, by reading lips, he could understand 50 to 75 percent of what someone was saying, although a variety of factors (including a clear view of the speaker’s lips, the speed at which the speaker was speaking, and whether there were multiple speakers) could impact his comprehension.

In addition to 10 minute meetings at the beginning and end of each day, which involved four to eight staff members, H&M conducted longer all-staff meetings on a quarterly basis. These quarterly meetings included revisiting store policies, discussing areas of day-to-day business that needed more focus, and referring to upcoming promotions.

The plaintiff contended that he had difficulty understanding speakers during these quarterly meetings because he could not see the speakers clearly, especially if the speakers were walking around the store and talking at the same time. He said that he provided multiple managers with contact information for sign language interpreters to help him better communicate during the group meetings but that H&M did not provide him with a sign language interpreter. Rather, he said, he periodically was provided with written notes from the meetings.

The plaintiff sued H&M, contending that H&M had failed to reasonably accommodate his disability under the Americans with Disabilities Act (ADA) by failing to provide him with a sign language interpreter for quarterly store meetings.

H&M moved for summary judgment and the court granted its motion. In its decision, the court explained that the ADA requires that employers make “reasonable accommodations to the known physical or mental limitations of an otherwise qualified individual with a disability who is an … employee, unless [the employer] can demonstrate that the accommodation would impose an undue hardship on the operation of the business of [the employer].”

It then found that the plaintiff was a qualified individual with a disability, that H&M knew of his disability, and that the plaintiff specifically had told the store managers that the reason he provided them with contact information of interpreters was so that an interpreter could be provided for the quarterly meetings.

In the court’s view, a reasonable finder of fact could find that providing the plaintiff with an interpreter for the quarterly meetings would have been a reasonable accommodation under the ADA.

The court added, however, that, to prevail on his failure-to-accommodate claim, the plaintiff had to prove that a policy was presented at a quarterly meeting; that he did not understand the policy; that his failure to understand was attributable to the absence of an interpreter at the quarterly meeting; and, finally, that he was disciplined for violating the policy presented. The court found, however, that there was “no evidence that the absence of an interpreter at the quarterly meetings” had resulted in the plaintiff suffering an adverse employment action or any other injury. Accordingly, it concluded that his ADA claim based on the absence of a sign language interpreter for him at the quarterly meetings had to be dismissed. [Ott v. H & M Hennes & Mauritz, LP, 2015 U.S. Dist. Lexis 143832 (E.D. Wisc. Oct. 22, 2015).]

Indian Tribe’s ERISA Plan May Be Sued in Federal Court

The Sac & Fox Casino is a non-corporate operating arm of the Sac and Fox Nation of Missouri in Kansas and Nebraska, a federally-recognized Indian tribe. From December 1, 2010 to November 30, 2011, the casino maintained a self-funded plan of employee health care benefits available to all full time employees of the casino. The money to fund the plan was allocated from the casino’s general operating expenses and was managed by the tribe’s council members.

The plaintiff in this case was not a member of the Sac & Fox Indian Tribe but she worked at the casino from 1997 to February 2012 as a deli clerk in the food service department and as a security officer inside the casino.

The plaintiff sued the plan in the U.S. District Court for the District of Kansas, alleging that she had been denied benefits under the plan to which she was entitled.

The plan moved to dismiss the plaintiff’s complaint, asserting that the district court did not have jurisdiction over the plaintiff’s case because it had tribal sovereign immunity and only could be sued in its own tribal court.

The court denied the plan’s motion.

In its decision, the court first explained that Indian tribes possess the common law immunity from suit traditionally enjoyed by sovereign powers. Thus, the court continued, an Indian tribe was not subject to suit in federal or state court unless Congress abrogated the tribe’s sovereign immunity or the tribe waived it voluntarily.

Here, the court observed, the Employee Retirement Income Security Act of 1974 (ERISA) was clear that it applied to any employee benefit plan involved in any commercial enterprise, except those specifically exempted by ERISA. Under one exemption, the court continued, a plan established and maintained by an Indian tribe was exempt from the requirements of ERISA if all of the plan participants were employees primarily engaged in essential governmental functions rather than in commercial activities.

The court then noted that the plaintiff in this case was a deli clerk and a security guard at the casino and decided that the casino was “unquestionably a commercial enterprise” and not an “essential government function” and that the plan, therefore, was subject to ERISA.

In addition, because the plan specifically stated that participants had the option to file suit in federal court to recover benefits owed under the plan and that participants were entitled to “certain rights and protections” under ERISA, the court concluded that the tribe had waived its tribal sovereign immunity and that it had jurisdiction over the plaintiff’s action. [Coppe v. The SAC & Fox Casino Healthcare Plan, 2015 U.S. Dist. Lexis 150319 (D. Kan. Nov. 5, 2015).]

Period to Sue Plan Administrator Cannot Be Unreasonably Short, Court Warns

In this case, the plaintiff was employed as an office administrator to the vice president of accounting and financing with the Boeing Company up until February 25, 2009. At that time, the plaintiff, who suffered from Hepatitis C, chronic joint pain, chronic fatigue, and other medical impairments, became unable to work because of her medical conditions.

The plaintiff applied for long-term disability benefits under the terms of a group long-term disability insurance plan underwritten and administered by Aetna Life Insurance Company for the benefit of Boeing employees.

Aetna awarded the plaintiff long-term disability benefits beginning on August 29, 2009.

Approximately one year later, on August 25, 2010, Aetna informed the plaintiff that her long-term disability benefits would be limited to 24 months because her claim was “primarily due to mental illness,” and that her benefits would be terminated as of August 25, 2011.

The plaintiff appealed this decision in accordance with Aetna’s internal review procedures, arguing that her disability stemmed from her Hepatitis C, and that her mental-health issues were only a side effect of the numerous prescription medications she was taking to treat her Hepatitis C. Although Aetna claimed that it had denied the plaintiff’s appeal by a letter dated January 19, 2012, the plaintiff alleged that she had not learned of Aetna’s decision until she had received a letter from Aetna dated January 14, 2014.

On June 18, 2013, the plaintiff sued Aetna in an Illinois state court; the court referred the case to an arbitration panel, which determined in December 2014 that it did not have jurisdiction over the plaintiff’s claims under the Employee Retirement Income Security Act of 1974 (ERISA).

On January 7, 2015, the plaintiff sued Aetna in a federal district court in Illinois to recover long-term disability benefits allegedly due under the terms of the plan.

Aetna moved to dismiss the plaintiff’s lawsuit as untimely based on the contractual limitations period set forth in the plan, arguing that the plaintiff’s time to file had lapsed on November 26, 2012. The plaintiff calculated the limitations period differently, alleging that her time to sue had ended on November 24, 2013 and that her state court action had tolled the limitations period so that her federal court action was timely.

The court denied Aetna’s motion to dismiss, in large part because the parties attached different insurance policies to their motion papers and the court could not determine the policy that governed. The court, however, pointed out that under either policy, the plaintiff’s limitations period was measured based on the deadline for filing a claim for benefits, which itself was measured based on the date on which the plaintiff had incurred her disability. Notably, the court said, the limitations period was not tied to any events relating to the plaintiff’s loss of benefits.

The court then observed that, according to Aetna’s calculations, the plaintiff’s three-year contractual limitations period had ended on November 26, 2012. It then noted that Aetna claimed that it had notified the plaintiff that it had completed its internal review process of her appeal on January 19, 2012, meaning that the plaintiff had approximately 10 months remaining in her limitations period to file an action against Aetna. The court pointed out that this was two months shorter than the 12-month period that the U.S. Supreme Court had deemed “reasonable” in its 2013 decision in Heimeshoff v. Hartford Life & Acc. Ins. Co.

The court also explained that the plaintiff implied that she had not received notice of the completion of her appeal until January 14, 2014. If Aetna’s internal review had ended on January 14, 2014, the court said, that would mean that the plaintiff’s cause of action had accrued more than a year after her limitations period had expired on November 26, 2012. The court said that this would “certainly” be more than an “unreasonably short” period of time to file a civil suit, adding that, in fact, it would be a “nonexistent period of time.”

The court advised the parties to determine the policy that applied to the plaintiff’s claims and the date upon which the plaintiff’s cause of action arose and to consider the Supreme Court’s reasonableness requirement as articulated in Heimeshoff before raising any additional contractual-limitations arguments. Its clear message was that it would not enforce a limitations period that was unreasonably short. [Jamison v. Aetna Life Ins. Co., 2015 U.S. Dist. Lexis 147981 (N.D. Ill. Nov. 2, 2015).]

17 Facts that Led a Trial Court to Find an Employee Subject to the Executive Exemption Under the FLSA

A recent decision by the U.S. District Court for the Eastern District of Michigan, following a trial, highlights the facts that a court can consider in a case involving an allegedly exempt employee under the federal Fair Labor Standards Act (FLSA).

The plaintiff in this case, a first assistant store manager for Belle Tire Distributors, Inc., sued Belle Tire under the FLSA, alleging that he had not been paid for overtime in violation of the FLSA.

In response, Belle Tire asserted that the plaintiff was an exempt employee who was not entitled to overtime under the FLSA. Belle Tire relied on the FLSA’s executive exemption, which exempts employees:

  • who are compensated on a salary basis at a rate of not less than $455 per week;
  • whose primary duty is management of the enterprise in which the employee is employed;
  • who customarily and regularly directs the work of two or more other employees; and
  • who has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees are given particular weight.

After a trial, the court made the following findings of fact:

  1. The defendant operated 86 retail stores; 65 percent had a single first assistant store manager, while 35 percent had more than one first assistant store manager.
  2. The plaintiff began working for Belle Tire in June 2006, as a tire technician. Six months after being hired, the plaintiff transferred to sales. Both jobs called for hourly pay. In February 2009, the plaintiff was promoted to first assistant store manager, a salaried position.
  3. The plaintiff, in addition to a regular annual salary, received a bonus at year’s end. Store managers and first assistant store managers received a bonus based on store performance.
  4. In the aggregate during a workday, the plaintiff worked both as a manager and as a sales person.  His sales work was less than 50 percent of his workday.
  5. The plaintiff monitored the work performance in the shop, and regularly directed the tire technicians.
  6. When bringing tire technicians together to address specific problems, the plaintiff was correcting behavior and training the tire technicians.
  7. The plaintiff exercised supervisory responsibility over the tire technicians in the shop of the store in which he worked. The plaintiff had the responsibility of placing work orders generated by the sales persons in the store on a board in the sequence in which they were written up. The work order described to the tire technician the work to be done on an automobile brought to the store by a customer. The work particularly related to tires, both new and to be repaired, oil changes, brake adjustments, and the like.
  8. The order board effectively directed the traffic in the shop. The plaintiff monitored the tire technicians’ work. The plaintiff reassigned work when necessary and resolved disputes among the tire technicians.
  9. The plaintiff had the responsibility for ensuring there was an adequate number of tire technicians to do the work every day. This included sending the tire technicians home when work slackened off. The plaintiff advised tire technicians when they ran into problems. On occasion, the plaintiff had to resolve disputes among the tire technicians.
  10. The plaintiff’s responsibility for the work of the tire technicians required supervisory skill and judgment.
  11. The plaintiff regularly participated in the hiring process in a store. On occasion, the plaintiff interviewed job applicants and made recommendations as to the applicant to hire. The store manager gave consideration to the plaintiff’s recommendations.
  12. The plaintiff regularly trained sales staff on computer systems, point of sale systems, national account systems, and writing work orders.
  13. The plaintiff’s level of sales activity was substantially less than his management responsibilities. The plaintiff was regularly in charge of a store when a store manager was not on the premises. As to the days when a store manager was in the store, the plaintiff and the store manager worked opposite ends of the workday. The plaintiff had the responsibility for opening the store, while the store manager had the responsibility for closing the store.
  14. When more than one assistant store manager was present without a store manager present, the assistant store managers shared responsibilities.
  15. The plaintiff worked 18 percent of his hours without a store manager present, and without another first assistant store manager present. The plaintiff worked nine percent of his hours without a store manager present and with another first assistant store manager present. This totaled 27 percent of all work hours without a store manager present.
  16. First assistant store managers met separately on several occasions for training purposes.
  17. The responsibilities of a store manager, including hiring, training, employee maintenance, and inventory management as described in the job description for store manager were incorporated into the job description for first assistant store manager.

Given these findings of fact, the court concluded that Belle Tire had demonstrated that the plaintiff was exempt pursuant to the FLSA’s executive exemption and that it was not required to pay him overtime. [Little v. Belle Tire Distributors, Inc., 2015 U.S. Dist. Lexis 142227 (E.D. Mich. Oct. 20, 2015).]

Reprinted with permission from the February 2016 issue of the Employee Benefit Plan Review – From the Courts.  All rights reserved.

Share this article:





Related Publications


Get legal updates and news delivered to your inbox