Magazine article Personnel Journal

Termination to Avoid Payment of Benefits Is Unlawful

Magazine article Personnel Journal

Termination to Avoid Payment of Benefits Is Unlawful

Article excerpt

The United States Court of Appeals for the Eleventh Circuit has held that employers may not terminate an employee to avoid paying the employee's health or other welfare benefits even if those benefits are not vested.

Patricia Seaman worked for Arvida Realty Sales Inc. and was covered by its health insurance and its Section 401(k) pension plans. Seaman claimed that Arvida had terminated her employment because she had refused to sign an independent contractor agreement with Arvida under which no such benefits were provided. Arvida continued to provide such benefits for other employees remaining at the company.

Seaman sued Arvida in federal district court, alleging that her termination violated Section 510 of the Employee Retirement Income Security Act (ERISA). Section 510 makes it unlawful for an employer to discharge plan participants for exercising any right to which they are entitled under the plan, or to fire them to interfere with their attainment of any ERISA rights. The U.S. District Court for the Middle District of Florida dismissed her claim on the ground that Arvida's benefits were not vested and thus could be terminated at any time.

Upon appeal, the Eleventh Circuit rejected the district court's rationale for dismissing the claim. It noted that Section 510 of ERISA prevents employers from discharging employees to keep employees from taking advantage of future benefits, even if those benefits are not yet vested. The validity of a Section 510 claim does not hinge upon whether the benefits involved are vested but upon the purpose of the discharge.

According to the court, a plaintiff must show that the employer has the specific intent to interfere with the employee's rights to benefits. To do so, the plaintiff must show more than incidental loss of benefits as a result of the discharge, but need not show that interference with ERISA rights was the sole reason for the discharge.

The court stated, " t!he combined effect of our holding today and the cases such as McGann is an interpretation of ERISA that prohibits employers from discharging employees to avoid paying benefits, but permits employers to reduce or terminate non-vested benefits simply by changing the terms of the Plan...." The court concluded that if Seaman's allegations are true, Arvida had violated section 510 of ERISA because it had terminated Seaman for declining to work without benefits she previously enjoyed, although those benefits were still available for the remaining employees.

Thus, the Eleventh Circuit reversed and remanded the action to the district court for trial. Seaman v. Arvida Realty Sales,--F.2d--, Case No. …

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