Lisa Edison-Smith and Leslie Bakken Oliver, Editors
Vogel Law Firm

Vol. 13, No. 4
May 2008

EMPLOYEE BENEFITS

Need surgery? Sorry, you're laid off . . . er, fired!

Health insurance is a big budget item for most employers, and the costs keep going up. As most of you know, premiums can skyrocket if you happen to have a group of employees ― or sometimes just one employee ― who use more than an average amount of medical care. A single employee with cancer or another catastrophic illness can cause a big bump in insurance costs. So what can you do to protect your business from the roller coaster premium ride? Can you simply terminate the employee and save yourself a big health care bill? The Eighth U.S. Circuit Court of Appeals (which covers North Dakota) recently wrestled with that issue and more. Read on to learn what it had to say.

Lack of work or lingering bathroom breaks?

Danny Fitzgerald began working for Action, Inc., in 2003. On February 20, 2005, he was injured on the job when another employee caused him to fall, aggravating a previous back and shoulder injury. In May, after treatment for his shoulder was unsuccessful, he told his supervisor, Raymond Easley, that his doctor had recommended surgery.

On May 19, Easley told Fitzgerald he was being laid off. He claimed that the decision came from "upstairs" and that the company did "not need a reason." When Fitzgerald pressed him further about the decision, Easley said he was being let go for "lack of work." However, Easley later submitted an affidavit claiming that he was terminated because of employee misconduct. The affidavit outlined the company's bold new position that Fitzgerald was terminated because his use of "the restroom for long periods of time, usually . . . before break time or time to go home" was an abuse of restroom privileges and break time. (Anyone else think this is a bad idea?)

The record before the court showed that Fitzgerald was written up for employee misconduct on seven occasions from February 4 to May 17, 2005. Although he admitted to receiving verbal warnings for not wearing a seatbelt on a forklift and smoking in the doorway to the shop, he claimed he was never issued a written disciplinary warning or ever asked to sign one.

As you've come to expect from these tales, Fitzgerald sued Action, alleging he was terminated, in part, because of the company's desire to maintain reasonable insurance costs and in violation of the Employee Retirement Income Security Act (ERISA).

Legitimate nondiscriminatory reasons or pretext?

Section 510 of ERISA prohibits you from terminating an employee to prevent him from receiving benefits under an employee benefit plan. To succeed on his claim, Fitzgerald was required to show that Action had a "specific intent" to interfere with his insurance benefits.

The court applied the familiar three-part McDonnell-Douglas burden-shifting test regularly applied to discrimination claims. Neither party challenged whether Fitzgerald succeeded in making his initial case. The court next had to determine whether Action articulated a legitimate nondiscriminatory reason for the termination. The Eighth Circuit concluded that Action's claim of misconduct met that burden. Fitzgerald then rebutted with evidence that his termination was intended to deny his insurance coverage.

The court's decision was based largely on the somewhat obvious fact that Action gave inconsistent reasons for terminating Fitzgerald's employment. Although the company argued that each explanation it provided was a "legitimate reason for terminating Fitzgerald's at-will employment," it didn't get the point. The point is this: Even if any one of the reasons given was true, the fact that multiple reasons were given at different times enhances the likelihood that noneof the reasons were true.

Pretext also can be established by showing that an employer failed to follow its own policies. The court pointed to the fact that Action failed to follow its own disciplinary policies in terminating Fitzgerald, mainly that it would terminate an employee only after he had been written up three times for the same violation. Easley admitted that Fitzgerald hadn't been written up three times for restroom abuse. In fact, he had never terminated anyone for abuse of restroom privileges.

Finally, the court looked at the company's treatment of David Gipson, a similarly situated employee to Fitzgerald. He had a similar length of service and was a similar age to Fitzgerald but was arguably a "far less satisfactory employee." During the period in question, Gipson was written up for insubordination, was involved in the same smoking incident as Fitzgerald, missed more days of work, and arrived late to work more times than Fitzgerald.

In another situation, Gipson was observed "doing nothing" by a water cooler for five to 10 minutes. When Easley observed him and told him to help load a truck, Gipson replied, "F__k you, get my check." The next day, Easley allowed him to return to work with no disciplinary action. The court concluded that a reasonable jury could conclude that Action treated Fitzgerald more harshly than Gipson because of his claim for medical benefits. Fitzgerald v. Action, Inc., Civ. No. 07-2199, April 4, 2008.

Practical pointers

Don't do any of the above. OK, you're not going to let us off that easily. So, let's look at the specific lessons we (and hopefully, Action) learned from this month's tale of woe.

• It's unlawful to terminate an employee to prevent him from receiving benefits under ERISA. According to the Act,"It shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan."
• Always be prepared to give a short, truthful reason for a termination. It may hurt you in a lawsuit if you are unprepared to give the employee you are terminating an immediate reason for his termination, you give no reason at all, or you provide a false reason.
• Be very careful about the reason you do give for terminations. For example, think twice about using an incident that occurred two years ago as your explanation. If an incident occurred two years ago, why didn't you terminate the employee then? Such a reason, along with long laundry lists, often look pretextual.
• Be cautious with your progressive discipline policies. Action's policy of requiring three notices for the same offense before termination was a nightmare. Even if you have disclaimers in your handbook to avoid contract claims, that won't help you with a pretext issue. Don't write or adopt policies if you aren't prepared to follow them consistently. The policy in this case was simply too difficult to follow on a regular basis.
• Remember the limits of at-will employment. Action may have been lulled into thinking it was covered by the familiar doctrine of at-will employment: "We don't need a reason." Does that sound familiar? If it does, don't rely on it too often. Sometimes it's true and other times ― as Action learned the hard way ― it isn't.

Copyright 2008 M. Lee Smith Publishers LLC

NORTH DAKOTA EMPLOYMENT LAW LETTER should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only. Anyone needing specific legal advice should consult an attorney. For further information about the content of any article in this newsletter, please contact the editor.