Renal Cancer In Remission Found To Be A Disability Under The ADA

November 30, 2010 | Appeals | Insurance Coverage

The plaintiff argued that his employer, Advanced Healthcare, had violated the Americans with Disabilities Act (ADA) when it allegedly terminated him on January 30, 2009. The plaintiff claimed he was a qualified individual with a disability under the ADA because his renal cell carcinoma (which was in remission at the time of the alleged termination) constituted a disability under the ADA, as amended, and that Advanced Healthcare had unlawfully failed to offer him a reasonable accommodation.

Advanced Healthcare moved for summary judgment, arguing that the plaintiff was not “disabled” as defined by the ADA because his cancer in remission did not substantially limit a major life activity. Moreover, it contended that the plaintiff’s claim had to fail because in any event Advanced Healthcare had offered him a reasonable accommodation.

The court denied Advanced Healthcare’s motion. With respect to whether the plaintiff was disabled under the amended ADA, the court explained that effective January 1, 2009, Congress amended the ADA to “[reinstate] a broad scope of protection.” Specifically, Congress found that the U.S. Supreme Court had improperly narrowed the protection intended to be afforded under the ADA, and the ADA amendments clarified that the operation of “major bodily functions,” including “functions of the immune system,” constituted major life activities under the ADA’s first definition of disability. Moreover, the amendments to the ADA “very clearly” provided that an impairment that was episodic or “in remission” was a disability if it would substantially limit a major life activity when active.

The court observed that Advanced Healthcare did not dispute that Stage III Renal Cancer, when active, constituted a disability. It therefore concluded that, under the ADA as amended, the plaintiff was disabled.  In other words, the court ruled, because the plaintiff had cancer in remission (and that cancer would have substantially limited a major life activity when it was active), the plaintiff did not need to show that he was substantially limited in a major life activity at the actual time of the alleged adverse employment action.

The court then examined whether Advanced Healthcare had failed to accommodate the plaintiff. The company had agreed to limit the plaintiff to work 40 hours a week without overtime (rather than the 65 and 70 hours per week with overtime required of the other service technicians), but had insisted that he begin to work from an office that was a two hour drive from the plaintiff’s home. The court found that the accommodation the plaintiff wanted – to be permitted to continue to work out of his home office, rather than traveling to and from the office two hours away – seemed “reasonable on its face.” The court added that Advanced Healthcare had not demonstrated that the requested accommodation would have created an undue hardship on it, and had “failed to provide any evidence that the requested accommodation would create an undue burden – how much would it cost? How would it affect other service technicians’ workload? Were there enough customers … to justify [the plaintiff] having a continuous home office there?” Therefore, the court concluded, there was a triable issue as to whether Advanced Healthcare had failed to provide a reasonable accommodation to the plaintiff. [Hoffman v. Carefirst of Fort Wayne, Inc., 2010 U.S. Dist. Lexis 90879 (N.D. Ind. Aug. 31, 2010).] 

Pre-Existing Condition Dooms New Employee’s Long Term Disability Claim

The plaintiff in this case was employed by Quicken Loans from November 14, 2005 until March 11, 2006. She became insured on December 1, 2005 under the Quicken Loans long term disability plan insured by Reliance Standard Life Insurance Company. On March 9, 2006, the plaintiff filed a claim for long term disability benefits under the plan.

The plan included a pre-existing condition limitation that applied to a claimant – such as the plaintiff – who had not been insured under the plan for 12 consecutive months. The provision stated that benefits would not be paid for a total disability caused by, contributed to by, or resulting from, a “Pre-existing condition.” A “Pre-existing condition” was defined by the plan as “any Sickness or Injury for which the Insured received medical treatment, consultation, care or services, including diagnostic procedures, or took prescribed drugs or medicine, during the three months immediately prior to the Insured’s effective date of insurance.”

The plaintiff’s claim for long term disability benefits alleged inability to work due to “Panic Attacks, Depression.” The plaintiff disclosed on her claim form that she was first treated for these symptoms in March 1999, and that the symptoms had been recurring “for several years.” Relying on her medical records and an independent review of her claim file by a board certified psychiatrist and neurologist, Reliance concluded that the plaintiff had been treated for these conditions during the three months immediately prior to the effective date of her insurance and denied her claim. The plaintiff brought suit, and the district court granted Reliance’s motion for summary judgment, finding that Reliance had a reasoned explanation for the denial of the plaintiff’s claim and was not arbitrary and capricious in its denial of long term disability benefits to her. The plaintiff appealed to the U.S. Court of Appeals for the Sixth Circuit, arguing that her disability was the result of “bipolar disorder,” which was “medically recognized as a separate and distinct condition from depression,” for which she was treated during the three months immediately preceding the effective date of her insurance. The circuit court rejected that argument.

The Sixth Circuit explained that the plaintiff had provided Reliance with her statement in support of her disability claim, and that under the section requesting information about the condition causing the disability, she had indicated that her first symptoms were “Panic Attacks, Depression,” and that her symptoms had been “re-acurring [sic] for several years.” She added on the statement that she was unable to work because of “crying spells, can’t concentrate and panic attacks,” and that she had first been treated for these symptoms on March 10, 1999. During the three month period prior to December 1, 2005, the plaintiff was seen by a physician for complaints of depression and anxiety. The physician prescribed Zoloft and the plaintiff filled that prescription on November 5, 2005.

After the plaintiff last worked, a physician who treated her completed a claim form in which he identified plaintiff’s primary diagnosis as “major depression – recurrent.” Based upon his review of the medical records, Reliance’s physician consultant concluded that “The claimant has been giving conflicting reports about her symptomatology, but the core symptoms appear to be anxiety and depression. Anxiety and depression are common symptoms of either Unipolar or Bipolar Depression. The treatment providers who have examined the claimant prior to the date of loss appear to have utilized a diagnosis of Unipolar Depression as her condition and this resulted in a diagnosis of Major Depressive Disorder.”

The Sixth Circuit stated that it agreed with the district court that Reliance’s decision – that the plaintiff suffered from a disability “caused by, contributed to by, or resulting from” a preexisting condition and denying her long term disability claim – was not arbitrary and capricious. It declared that the evidence in the administrative record was substantial that the plaintiff’s disability was “caused by, contributed to by, or result[ed] from” a preexisting condition, regardless of whether it was called depression or bipolar disorder. Plaintiff was seen by her doctor for depression and anxiety, was prescribed antidepressant medication and she herself described her inability to work as “due to depression,” the circuit court pointed out.

The circuit court added that the pre-existing condition limitation in the policy was triggered when the insured person received “medical treatment, consultation, care or services, including diagnostic procedures, or took prescribed drugs or medicine” as a result of any “[s]ickness or [i]njury” during the three months prior to the effective date of the insurance. Given that the plaintiff admitted she had been treated for depression, and received prescription drugs for the condition, within three months of December 1, 2005, the effective date of the insurance, the circuit court affirmed the district court’s ruling upholding Reliance’s decision. [Williams v. Reliance Standard Life Ins. Co., 2010 U.S. App. Lexis 18467 (6th Cir. Aug. 31, 2010).]

Circuit Court Upholds Termination Of Long Term Disability Benefits For Failure To Take A Second Independent Medical Examination

The plan administrator in this case terminated the plaintiff’s long term disability benefits based on the report of an independent medical examination (IME) in which the physician opined that the plaintiff could return to light duty work. The plaintiff appealed and submitted additional medical evidence from a treating physician who strongly disagreed with the IME physician’s conclusions. While the appeal was under consideration, the plan administrator requested that the plaintiff undergo a second IME by the same physician who conducted the first one so that he could respond to the new medical evidence. The plaintiff refused, contending that the request was unreasonable, and the plan administrator maintained its position with respect to the termination of plaintiff’s benefits.

The plaintiff brought suit against the plan, but the district court ruled against her. She then appealed that decision to the U.S. Court of Appeals for the Ninth Circuit. The Ninth Circuit affirmed the district court’s ruling.

As the circuit court explained, the provisions of the plan specifically conditioned the payment of benefits on the plan administrator’s right to require the employee to submit periodically to an IME. The plan also expressly provided that benefits could be terminated for refusal to attend a scheduled IME. Nevertheless, it pointed out, the plaintiff “persisted in her refusal even after she was warned that her benefits could be terminated on that basis alone.”

The Ninth Circuit found that, contrary to the plaintiff’s arguments, it was reasonable for the plan administrator to request a second IME in order to allow the physician who had performed the first IME to consider whether his opinion had changed in light of the contrary evidence from the plaintiff’s treating physician. Accordingly, it ruled that the plan administrator’s termination of the plaintiff’s benefits for her failure to attend the IME was not an abuse of discretion. [Burke v. Pitney Bowes Inc. Long Term Disability Plan, 2010 U.S. App. Lexis 17433 (9th Cir. Aug. 18, 2010).]

Though Insurer Claimed It Had No Obligation To Pay Policy Proceeds Where Husband Who Killed Wife Was Beneficiary Of Accidental Death Policy, Proceeds Found Payable To Wife’s Estate

Floyd Knighton shot and killed his wife, Debra Knighton, for whom he had purchased accidental death insurance from Minnesota Life Insurance Company through his employer, J.B. Hunt Transport Services, Inc. The administrator of Debra’s estate, First National Bank & Trust Co., sought the policy proceeds but Minnesota Life refused, contending it had no obligation to pay because Floyd was the beneficiary, he had the only interest in the policy, and he had forfeited his right to any proceeds pursuant to the public policy that prohibits a beneficiary who caused the death of an insured from receiving death benefits under the policy. First National filed suit, and the district court found that Debra had an interest in the policy and required Minnesota Life to pay the proceeds of the policy to First National.

Minnesota Life appealed to the U.S. Court of Appeals for the Eighth Circuit, arguing that the district court erred in finding that First National, as administrator of Debra’s estate, had an interest in the policy. First, Minnesota Life contended that pursuant to the plain and unambiguous language of the policy, it was relieved of all liability for payment of death benefits under the policy because no one other than Floyd possessed any interest in the policy and the policy named no contingent beneficiary to whom the funds were payable. Minnesota Life also maintained that the policy’s unambiguous language did not authorize payment to the insured’s estate upon disqualification or invalidation of Floyd, the certificate holder.

In its decision, the circuit court first acknowledged that Floyd had forfeited any entitlement to proceeds under the policy by causing his wife’s death. It then found that Floyd was not the sole possessor of a policy interest. According to the Eighth Circuit, the record indicated that Debra contributed directly to the policy premium payments “through her wages and indirectly through her assistance to Floyd as a wife and homemaker.” Consequently, it decided, “Debra acquired an interest in the [p]olicy via her contributions as a breadwinner and homemaker.”

Because Debra had an interest in the policy, payment to her estate was authorized due to Floyd’s disqualification, the circuit court concluded. [First National Bank & Trust Co. of Mountain Home v. Stonebridge Life Ins. Co., 2010 U.S. App. Lexis 18102 (8th Cir. Aug. 30, 2010).]

Employee Entitled To Displacement Program Benefits Where Employee Was Fired Almost Immediately After Sale of Subsidiary

The plaintiff in this case was employed by a subsidiary of Mellon Financial Corporation (MFC) known as “Buck Consultants.” He was eligible for, and participated in, MFC’s Displacement Program. That program provided benefits to an employee of MFC or its subsidiaries whose employment ceased “due to technological change or another business reason not related to individual performance.” These benefits included severance pay and continued eligibility to participate in and receive benefits under other MFC benefit plans, including pension plans.

The program stated that it was “intended to help displaced employees ‘bridge the gap’ between periods of employment or retirement income.” An employee therefore was ineligible for displacement benefits if his or her employment with an MFC subsidiary was terminated due to MFC’s sale of that subsidiary to a company that provided comparable employment. This so-called “sale of business” exception applied when the employee’s employment with an MFC subsidiary was affected by MFC’s sale of a business to another employer where the terms of the sale, contract or transfer provided for employment of the employee by another employer and MFC determined (in its sole discretion) that the position to be provided to the affected employee:

  • did not involve a significant change in responsibilities from those assigned to the employee immediately prior to the sale or transfer;
  • unless otherwise provided in the terms of the sale, contract or transfer, was at a location within a 30 mile radius of the employee’s location immediately prior to the sale or transfer; and
  • initially provided base salary and incentive compensation opportunities which, in the aggregate, were reasonably similar to those provided by the Participating MFC Company immediately prior to the sale or transfer.

Effective 11:59:59 p.m. on May 25, 2005, MFC sold Buck to Affiliated Computer Systems, Inc. (ACS). The contract of sale provided that ACS would continue the employment of approximately 3,700 Buck employees, including the plaintiff in this case, and that this employment would “initially” (i) not involve a significant change in responsibilities from those assigned to the particular employee immediately prior to the transfer of such employment, (ii) offer employment at a location within a 30 mile radius from the principal work location of such employee immediately prior to the transfer of such employment, and (iii) provide base salary and incentive compensation opportunities that, in the aggregate, were reasonably similar to those provided to such employee immediately prior to the transfer.

The next morning, May 26, 2005, ACS informed the plaintiff and 99 other former Buck employees that it was terminating their employment effective June 2, 2005.

The plaintiff filed a claim for benefits under MFC’s Displacement Program, but his claim was denied by the program manager, who concluded that the sale of business exception applied. She explained that the exception did not take into account the details of the job actually provided, but instead turned on the details of the job to be provided, as set forth in the contract of sale. She stated:

the determination of whether the Sale of Business Exception has been satisfied in a particular instance must be made immediately prior to the Closing; sometimes referred to as a “snap shot” evaluation. That is, [the] Sale of Business Exception is satisfied if, immediately prior to the Closing, the Buyer has agreed to continue employment on the terms specified by the Exception.

The program manager concluded that the sale of business exception applied because the plaintiff’s “job duties, pay and location were unchanged immediately following the Closing.”

The plaintiff appealed the program manager’s decision to the program administrator, who affirmed the initial denial. The program administrator stated that the details of the employment ACS actually provided to the plaintiff were “not relevant for purposes of Displacement Program benefits.” She explained that the program manager had thus correctly applied the sale of business exception on a “snap shot” basis, evaluating only “the Buyer’s representations in the sale agreement,” and not taking into consideration the realities of that employment thereafter. Because the plaintiff’s position at ACS “was for the same responsibilities, was at the same base salary and incentive compensation level and within thirty (30) miles of the same location as his position at [MFC] immediately prior to the Closing Date of the sale,” the program administrator agreed that the exception applied, and that the plaintiff was ineligible for displacement benefits.

The plaintiff brought suit in federal court, asserting claims for benefits and for unlawful discrimination under ERISA, as well as several related state law claims. During discovery, it came to light that prior to the sale, certain Buck managers had helped plan his termination by ACS immediately after the sale. These managers provided ACS with the names of 100 employees, including the plaintiff, whom they believed could be terminated immediately after the closing without causing harm to the business. Thus, these managers knew, prior to the sale’s closing, that the plaintiff would never be a bona fide employee of ACS.

Upon completing discovery, the plaintiff moved for partial summary judgment on his claim for benefits, and the defendants cross-moved for summary judgment on all claims. The district court granted the plaintiff’s motion and denied the defendants’ motion.

In addressing the merits of the plaintiff’s claim for benefits, the district court relied on the evidence that had been revealed during discovery that prior to the sale’s closing, Buck had helped plan the plaintiff’s termination. The district court accordingly reasoned that, even under the “snap shot” approach used by the program administrator, the plaintiff had not received a bona fide offer of employment. Because “pre-planned immediate termination is not a job offer that satisfies the requirements of the [sale of business exception],” the district court held that MFC had abused its discretion in denying the plaintiff’s claim. The defendants appealed to the U.S. Court of Appeals for the Third Circuit.

The Third Circuit agreed with the district court that MFC’s decision was an abuse of discretion. It explained that the displacement program was designed to help “displaced employees ‘bridge the gap’ between periods of employment or retirement income.” When MFC sold a subsidiary, but ensured that the subsidiary’s employees would be provided comparable employment by the buyer, there was no gap to bridge. Consequently, the program did not pay those employees benefits. Consistent with this underlying purpose, the circuit court stated, the sale of business exception had two primary requirements: (1) the contract of sale had to “provide for employment of the employee by another employer,” and (2) MFC had to determine that the position “to be provided to the affected employee” was comparable to the position the employee held before the sale, and in particular, that it “[i]nitially provides base salary and incentive compensation opportunities which, in the aggregate, are reasonably similar to” those that were provided by the MFC subsidiary.

The circuit court said that the crux of this language was the word “initially,” as used to define when employment was sufficient to satisfy the sale of business exception. In the circuit court’s view, “initially” was a word that, at minimum, connoted some temporal requirement. Therefore, consistent with this language, employment satisfied the sale of business exception only if it continued for some amount of time. Furthermore, that amount of time must be reasonable in light of the stated purpose of the displacement program. The sale of business exception, the appellate court reiterated, existed “because employees provided comparable employment by a buyer have no gap in employment that they need to bridge.” In the circuit court’s opinion, this was “plainly not true” when the employment provided was “de minimis.”

The Third Circuit observed that the administrator had concluded that ACS’s “entirely undefined commitment” was sufficient to make applicable the sale of business exception. In so doing, it found, the administrator “nullified the exception’s temporal requirement, and thereby rendered the term ‘initially,’ as used in the plan language, meaningless.” Under the administrator’s approach, so long as a contract of sale included a promise to continue an employee’s employment, that employee was ineligible for displacement program benefits. The employee could thus be terminated one week, one day, or one hour (or even one minute) after completion of the sale and would not be eligible for displacement program benefits. Crediting such “empty promises” was “entirely unreasonable” in light of the purpose of the displacement program, the Third Circuit ruled.

The Third Circuit decided that the use of a “snap shot” approach did not relieve the administrator of her duty to ascertain whether the temporal requirement of the sale of business exception was satisfied. Thus, it decided, the administrator’s review of the “buyer’s representations” in the contract of sale “must be more than a rubber stamp of hollow words, and must take into account the reality of what the buyer has actually committed to do.” For a buyer’s representations to satisfy the sale of business exception, the buyer must commit to continue the employment of transferred employees for some period of time that was reasonable in light of the plan’s purpose (or, in the alternative, to provide all displacement program benefits, if employment was not provided for a reasonable length of time).

The circuit court ruled that, given the purpose of the program, “initially” had to mean more than “immediately after” or “immediately following.” Comparable employment “immediately following” displacement would tell the administrator nothing about whether that employee needed the “bridge” the displacement program was supposed to provide. If an employee was ineligible for benefits simply because he or she was momentarily employed after a sale, the displacement program offered employees “a bridge to nowhere.” This was “flatly inconsistent with the stated purpose of the plan,” the Third Circuit concluded. [Howley v. Mellon Financial Corp., 2010 U.S. App. Lexis 18147 (3rd Cir. Aug. 31, 2010).]

NutriSystem Compensation Plan Qualified As Commission Exempt From FLSA, Circuit Court Finds

The Fair Labor Standards Act (FLSA) requires that employers pay their employees one and one-half times their regular rate of pay for any hours worked in excess of 40 hours per week. The FLSA contains an exception (Section 7(i)) to the overtime requirements for employees working in retail or service establishments where more than half of an employee’s compensation for a representative period (not less than one month) represents “commissions on goods or services.”

This exception was at issue in a case brought against NutriSystem, Inc., a provider of weight loss and weight management products.  The company’s customers typically place their orders via telephone or the internet. Phone calls are fielded at a NutriSystem call center in Horsham, Pennsylvania, which employs approximately 230 sales associates. Under a NutriSystem sales policy, sales associates are prohibited from remaining idle for more than five minutes while awaiting an inbound call. Before the five minute mark is reached, an associate must originate an outbound sales call.

NutriSystem sales associates have six different work shifts: 7:00 a.m. to 3:30 p.m., 9:00 a.m. to 5:30 p.m., 11:00 a.m. to 7:30 p.m., 1:30 p.m. to 10:00 p.m., 3:30 p.m. to 12:00 a.m., and 11:00 p.m. to 7:30 a.m. (the overnight shift). Sales associates, except those working the overnight shift, have been permitted to work extra hours during a week if in the preceding week they exceeded the average “sales dollars per call,” a figure the company calculates based on the revenue the sales associates generate and the calls they make each week.

NutriSystem’s compensation plan provided that sales associates would receive the greater of either their hourly pay or their flat rate payments per sale for each pay period. The hourly rate is $10 per hour for the first 40 hours per week, and $15 per hour for overtime. The flat rates per sale are $18 for each 28 day program sold via an incoming call during daytime hours, $25 for each 28 day program sold on an incoming call during evening or weekend hours, and $40 for each 28 day program sold on an outbound call or during the overnight shift. These flat rates do not vary based on the cost of the meal plan to the consumer.

The majority of the sales associates are compensated based on these flat rates, not their hourly earnings. Under the compensation plan, sales associates do not receive overtime compensation when they are paid the flat rates for the sales made. There is no change to the flat rates when a sales associate works more than 40 hours in one week.

A lawsuit by a former sales associate argued that NutriSystem had violated the FLSA by not paying overtime to sales associates who were paid the flat rates. The district court ruled in favor of NutriSystem, and the plaintiff appealed. The dispute centered on whether NutriSystem’s method of compensating its sales associates represented “commissions on goods or services” and whether the compensation paid resulted from the application of a bona fide commission rate.

A number of factors persuaded the U.S. Court of Appeals for the Third Circuit that NutriSystem’s compensation plan established a “bona fide commission rate” and therefore was a “commission” under the FLSA.

First, the circuit court found that the payments made to NutriSystem’s sales associates were sufficiently proportional to the cost to the consumer to qualify as commission under Section 7(i). Second, the circuit court continued, it was persuasive that NutriSystem’s plan based compensation on sales. Under the plan, a flat rate fee was not paid unless a sales associate completed a sale. NutriSystem’s flat rate payment was tied to both the time the sale was made and whether it was based on an incoming or outgoing call, rather than being a percentage of the cost to the consumer. The amount of the payment was based on the value NutriSystem was receiving from the sales associates’ work. Under this plan, NutriSystem created an incentive for sales associates to be actively making outgoing calls and to work less desirable hours, thus allowing NutriSystem to operate at peak efficiency around the clock. The sales associates’ compensation also was “decoupled from actual time worked,” a characteristic that was a hallmark of “how commissions work.

Third, the circuit court said, from a policy standpoint it was reasonable to permit NutriSystem to offer different commissions depending on the time of the sale and whether the sale was the result of an incoming or outgoing call. This encouraged sales staff to take undesirable shifts and to work harder to close a sale on outgoing calls. Additionally, NutriSystem offered various sales and promotions, including an auto-ship program. Had NutriSystem based commission purely as a percentage of the cost of the goods to consumers, it would have created a disincentive for a sales associate to encourage consumers to take advantage of the discounts that resulted from the auto-ship method. For example, had NutriSystem declared a seven percent commission on all products sold, a sales associate would earn a $26.01 commission on a men’s plan under the regular shipping method but only a $22.04 commission under the auto-ship method. NutriSystem offered the auto-ship method at a discount because the company believed that this shipping method would generate the company greater revenue. NutriSystem’s plan eliminated this disincentive by providing associates with a flat rate commission not directly tied to the end cost to consumers, the Third Circuit pointed out.

Finally, NutriSystem’s plan did not offend the purposes of the FLSA’s overtime provisions, according to the circuit court. It noted that the employees’ income in the years they worked at NutriSystem ranged from approximately $40,000 to over $80,000, and thus they were not the lower-income type employees contemplated to be protected by the overtime provisions. The court also noted that NutriSystem employees had to achieve certain sales goals to work hours beyond their scheduled eight hour shifts, and that forcing NutriSystem to pay overtime was unlikely to induce the hiring of additional sales associates because the only sales associates working an excess of 40 hours per week were the top sales associates. Third, the health risks or accidents that could occur due to fatigue from long hours generally were not present for call center employees as compared to manual laborers, and thus the overtime premium was not needed to compensate for an increase in danger from working when tired. The circuit court therefore affirmed the district court’s decision in favor of NutriSystem. [Parker v. NutriSystem, Inc., 2010 U.S. App. Lexis 18691 (3rd Cir. Sept. 7, 2010).]

Reprinted with permission from the December 2010 issue of the Employee Benefit Plan Review – From the Courts.  All rights reserved.

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