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August 04, 2005
Off-payroll employees excluded from ERISA plan
Three employees sued under the Employment Retirement Income Security Act (ERISA) claiming that the employer violated ERISA by placing them on the payroll of third-party payroll agencies with the result that they were excluded from the employer's ERISA plans. The trial court dismissed the claims; the 1st Circuit affirmed. Edes v. Verizon Communications (1st Cir 08/02/2005)
When the plaintiffs were hired in April 1994 the employer required them to sign on with independent payroll agencies who issued their paychecks during the entire time of their employment. In 1998 the employer terminated the plaintiffs' employment. In 1999 the plaintiffs demanded ERISA plan benefits, and the employer refused. The ERISA plans were expressly limited to employees who were paid directly by the employer, and the plaintiffs sued in October 2001 alleging that this violated ERISA.
- (1) Plaintiffs were not entitled to benefits under ERISA Section 502(a)(1)(B) because, although they may have been common law employees, they were explicitly excluded from the ERISA plans because they were not paid directly by the employer.
- (2) Plaintiffs' Section 510 claim (that the employer failed to move them to the employer's payroll after they were hired) was time-barred under the state's three-year statute of limitations. The claimed wrong was a misclassification that occurred in April 1994, and there was no "continuing violation" based on each subsequent paycheck.
- (3) Plaintiffs' ERISA Section 404 claim (breach of fiduciary duty) was time-barred by the ERISA three-years statute of limitations. Although there is an apparent split of opinion among the circuits as to how to analyze questions of "actual knowledge" of a breach or violation, these plaintiffs had actual knowledge in April 1994, even though they did not have actual knowledge of the plans' eligibility criteria.
- (4) The employer did not violate ERISA's minimum participation standards, as there is "no statutory provision that prohibits the use of such arbitrary eligibility criteria." Even if the employer failed to comply with certain tax regulations, that would not permit a court to re-write a plan.
Posted August 04, 2005 by Ross Runkel, Editor at LawMemo, publisher of Employment Law Memo. Try it.
July 13, 2005
Restraining order isn't a COBRA "qualifying event"
Today's Employment Law Memo tells us that a protective order from a divorce court does not trigger COBRA's notice requirement.
The Consolidated Omnibus Budget Reconciliation Act (COBRA) authorizes a qualified beneficiary of an employer's group health insurance plan to maintain coverage, when she might otherwise lose coverage, upon the occurrence of a "qualifying event."
A "qualifying event" requires the health plan administrator to notify the beneficiary that she may elect to continue health insurance coverage in return for premium payments. "Divorce or legal separation of the covered employee from the employee's spouse" constitutes a "qualifying event" under COBRA. 29 USC Section 1163(3).
After Zeda Simpson sued her husband for divorce, the divorce court entered three interlocutory protective orders requiring Zeda's husband to stay away from her and the marital residence. Her ERISA Plan administrator decided this was a "qualifying event," and sent her a COBRA notice. Zeda protested, but elected coverage.
Nobody paid Zeda's premiums, so the Plan cancelled the insurance.
Later, Zeda told the Plan she had a final divorce decree and wished to elect COBRA coverage, but the Plan told her that her COBRA rights had expired.
The 10th Circuit put the issue this way:
"whether an Oklahoma divorce court's interlocutory protective orders requiring a husband, a 'covered employee,' to stay away from his wife, a 'qualified beneficiary,' pending their divorce qualified as a 'legal separation,' thereby triggering COBRA's notice requirement and the wife's corresponding obligation to pay premiums in exchange for continued coverage."
The 10th Circuit answered "no." Simpson v. T.D. Williamson Inc (10th Cir 07/11/2005).
The court concluded that "'legal separation,' and thus a 'qualifying event,' occurs within the meaning of COBRA Sections 1161(a) and 1163(3) only upon entry of a final court decree adjudicating the parties legal rights and obligations but preserving the marriage bond."
My view: A correct reading of ERISA and COBRA. Any divorce lawyer will tell you that an order restraining one spouse from having contact with the other is not the same as a legal separation.
Posted July 13, 2005 by Ross Runkel, Editor at LawMemo, publisher of Employment Law Memo. Try it.
