Firing A High-Cost Claimant Is Only More Costly

By: HUB’s EB Compliance Team

In a recent decision, the Third Circuit Federal Court of Appeals has upheld an award of front pay and attorneys’ fees to an employee who claimed he was fired as a result of his medical expenses. Among other claims, the employee alleged his employer violated ERISA § 510 when it terminated his employment. The case represents a warning signal to employers who might take adverse action against employees who incur high-cost medical claims.

Background

In this case, the employer had a self-funded health plan. The employee incurred large medical expenses and was expected to incur additional future expenses. The employer eliminated the employee’s position and terminated his employment. However, the trial court did not find the explanation of a job elimination to be credible. The trial court awarded the participant equitable relief in the form of $67,500 in front pay (essentially pay he would have been entitled to had he been rehired) plus attorneys fees.

Under ERISA § 510, it is unlawful to terminate a participant’s employment in retaliation for exercising a right under an employee benefit plan. Additionally, it is unlawful for the employer to interfere with attainment of any right to which a participant may become entitled under the plan.

The Appeal

On appeal, the employer challenged the trial court’s conclusions in favor of the Plaintiff. The employer claimed there was no evidence that the termination was “anything other than” a legitimate business decision.” However, the Third Circuit found no clear error in the trial court’s findings for the Plaintiff. It noted, among other factors, that the participant had received a five-figure bonus less than a week before he was fired. The employer also borrowed another employee from a related company to perform some of the participant’s duties shortly after his termination.

In addition, the Third Circuit determined that the trial court reasonably inferred that the employer knew about the cost of the participant’s medical expenses. For example, every invoice the employer produced as evidence in the trial court had claims with the same employee payroll code highlighted. As a result, the Third Circuit concluded that the trial court was reasonable in assuming the employer could parse the expenses from health care invoices.

Conclusion

While terminating an employee for using (or in anticipation of them using) health benefits may seem farfetched to some, it is an action some employers choose to take. The case demonstrates that discriminatory adverse actions can have expensive consequences. While claims under ERISA § 510 can be difficult to prove, they can result in certain equitable relief, like front pay and attorneys’ fees. This ruling could increase the awards of front pay in ERISA § 510 cases.

Additionally, this ruling is only one of several discrimination claims the former employee brought (such as the Americans with Disabilities Act, Age Discrimination, and breach of contract). While this employee was largely unsuccessful in those other claims, it is worth noting that employment actions of this type can result in claims beyond ERISA § 510 as well.

NOTICE OF DISCLAIMER

Neither Hub International Limited nor any of its affiliated companies is a law or accounting firm, and therefore they cannot provide legal or tax advice. The information herein is provided for general information only, and is not intended to constitute legal or tax advice as to an organization’s or individual's specific circumstances. It is based on Hub International's understanding of the law as it exists on the date of this publication. Later developments may result in this information becoming outdated or incorrect, and Hub International is not obliged to update it. You should consult an attorney, accountant, or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your or your organization’s particular needs.