Employer Violated ERISA by Interfering With Employee’s Use of Health Benefits

A former employee brought an employment discrimination case contending, among other things, that he was terminated in retaliation for his large medical expense claims and anticipated future use of his employer’s self-insured health plan. He argued that his employer violated ERISA § 510, which makes it unlawful to discharge, fine, suspend, expel, discipline, or discriminate against a participant for exercising a right to which he is entitled under an employee benefit plan, or to interfere with attainment of any right to which a participant may become entitled under the plan. The employer claimed that the employee’s position was simply eliminated, and that his job was intended to be temporary and had become unnecessary.

The court rejected the employer’s argument, holding instead that the employer retaliated against the employee for exercising his rights to ERISA-protected benefits. Explaining that under ERISA § 510 the employee must show that there was a causal connection between his termination and his use of the employee benefit plan, the court determined that the employer’s explanation was pretextual for numerous reasons. For instance, the employee was never told that his job was temporary, and less than two months after his termination, another employee was borrowed from within the company to perform his duties. Furthermore, the employee showed that the employer closely tracked invoices for the self-insured health plan and that, even though the information was de-identified, it would not be difficult for the employer to identify individual participants since there were so few employees. The employee also demonstrated that the employer was aware that he would again need costly medical care in the future. Noting that the employee was terminated shortly before a new benefit year started, the court concluded that taken together, the evidence showed retaliation for use of benefits and specific intent to prevent future use of benefits. The court awarded the employee equitable relief in the form of $67,500 in front pay (roughly the difference between the compensation he would have received in his former position and that he would receive with his new employer for a five-year period), plus reasonable attorney’s fees and costs.

EBIA Comment: Most ERISA § 510 claims against welfare plans are not successful. When a participant does prevail, as in this case (although the employer has appealed), the court is only permitted to award appropriate “equitable” relief (e.g., reinstatement) to remedy the violation. Money damages are not available to remedy an ERISA § 510 violation. Where reinstatement is not practical or feasible, an employee may be left without a remedy since some courts have rejected claims for lost benefits and back pay. For more information, see EBIA’s ERISA Compliance manual at Section XXXVI.K (“ERISA § 510 Claims for Interference With Protected Benefits”).

Contributing Editors: EBIA Staff