Sloppy HR adds to employers' benfit costs Employers often describe the benefits they offer in writing in employee handbooks or via letter. Sloppy drafting, however, can result in an employer being held liable for benefits that it would ordinarily not be legally required to provide. Closely related to this scenario is a situation where an employer or plan administrator denies benefits in writing but inadequately describes why it is denying benefits. Under either situation, better human resource practices (specifically, better drafting) can save your firm time, money and aggravation. Example 1: Getting Stuck Providing Benefits that Are Not Legally Required The Family Medical Leave Act (FMLA) grants employees of covered employers up to 12 weeks of unpaid leave per year to care for a newborn or adopted or foster child, to care for a seriously ill parent, child or spouse of the employee, or to attend to the employee’s own serious health condition. The FMLA does not apply, however, to small employers. Employers with fewer than 50 employees in a 75-mile radius are not required to provide FMLA benefits. Further, even if an employer is covered by the FMLA, an employee must establish his or her eligibility for FMLA benefits by working for a total of 12 months and by having worked at least 1,250 hours over the previous twelve months. Employers who ignore these threshold requirements in their written communications risk being liable for FMLA benefits even if they ordinarily would not be required to provide them. This happened to an Indiana pharmaceutical company named Gilead Sciences, Incorporated, an Indiana pharmaceutical company. Steven Peters, who worked for Gilead in marketing its products to physicians in the Midwest, suffered a work-related injury and had corrective surgery. During his surgery and his recuperation, Peters took what he thought was FMLA leave. Later he took additional leave, but he was ultimately replaced and offered a different position. Peters rejected the new position and sued Gilead under the FMLA. Gilead’s attorneys sought to dismiss Peters’ case by arguing that Gilead was not covered by the FMLA because it did not employ more than 50 people. The Seventh Circuit Court of Appeals refused to dismiss the case, noting that Gilead’s written communications (particularly its employee handbook and its letters to Peters) never said that FMLA benefits were unavailable because Gilead was a small employer with fewer than 50 people. The recent Gilead decision is a cogent reminder that employers’ written communications to employees regarding benefits must be accurate or an employer faces the consequence of honoring any error it makes. In order to avoid the results in Gilead, employers should remind employees that employee handbooks are not contracts and that any company writings are superseded by applicable law. Example 2: Denying Benefits Without a Clear Explanation Can Land You in Court Another recent decision from a federal court in Wisconsin serves as an apt reminder that even when an employer contracts its benefits claim procedures to a third party, it is responsible for the accuracy and clarity of the administrator’s communications. In the case of Julia O’Connell v. Northland Lutheran Retirement Community, Inc. (NLRC), she incurred more than $22,000 in health care costs at the Mayo Clinic and St. Mary’s Hospital in Rochester, Minn. after she was injured in an automobile accident. Her employer provided health insurance for its employees under a self-funded employee welfare benefit plan governed by the Employee Retirement Income Security Act of 1974 (ERISA). In turn, NLRC hired a third-party administrator to handle its claims for health care benefits. This third party administrator denied O’Connell’s claim for payment of the more than $22,000 in health care costs. O’Connell then sued NLRC, the health plan, and the third party administrator under ERISA. NLRC tried to dismiss O’Connell’s lawsuit on the theory that she had failed to exhaust her administrative remedies. However, the federal court in Wisconsin denied NLRC’s motion on the grounds that NLRC had not complied with ERISA regulations. Specifically, the court noted that an employer’s communications to an employee must be accomplished in a manner calculated to be understood by the employee. In O’Connell’s case, all she ever received were confusing and indeterminate explanations of benefits (“EOBs”). The lesson in the NLRC case is that employers who provide self-funded health insurance plans must take ownership of any written communications sent to employees. A health plan administrators must tell an employee why it is denying a claim in plain English. If further information is required, the letter to the employee should spell out exactly what additional information is required. Otherwise, a benefits decision that should have been made in-house will ultimately be made by a federal judge. The information in this article is intended for general purposes only and does not constitute legal advice. Readers should not act upon the information in this article without individual professional counseling. Ross I. Molho specializes in business counseling and employment law at Clingen Callow & McLean, LLC a full-service law firm of business advisers and counselors based in Wheaton. Contact him directly at 630-871-2614 or molho@ccmlawyer.com.

Posted on Tuesday, September 02, 2008 (Archive on Tuesday, September 09, 2008) Posted by jstoltz  Contributed by jstoltz

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