What happens when an employer provides a disabled employee continued regular wages, paid out of general employer assets? This is known as a “payroll practice”… and ERISA may not apply.

A new case that highlights the point is Foster v. Sedgwick Claims Management Services, Inc. and Sun Trust Bank Short Term and Long Term Disability Plans, __ F.3d __ (D.C. Cir. November 29, 2016).

Also notable from this case:

(1) This is the D. C. appellate court’s newest application of the abuse of discretion standard in ERISA cases;

(2) Even post Amara, a Summary Plan Description “may ‘be examined to determine the appropriate standard of review.’” Op. at 16.

FACTS: Foster sought short term and long term disability benefits under ERISA plans adopted by her employer. Her claims were denied because she failed to provide “objective medical documentation” of disability. She brought suit under ERISA claiming both her short term and long term disability benefits were improperly denied.

HELD: Plaintiff’s claim for short term disability benefits under ERISA DISMISSED.

DISTRICT OF COLUMBIA CIRCUIT COURT OF APPEALS RATIONALE:

  1. “The Department of Labor exempts from ERISA certain ‘payroll practices,’ including: ‘[p]ayment of employee’s normal compensation, out of the employer’s general assets, on account of periods of time during which the employee is physically or mentally unable to perform his or her duties, or is otherwise absent for medical reasons.” Op. at 4 (citing 29 C.F.R. Section 2510.3-1(b)(2)).
  2. “[T]he employer’s short-term disability benefit plan was a payroll practice because it was paid from [the employer’s] general assets and was ‘entirely separate’ from [the employers] ERISA-covered Employee Benefit Plan. Op. at 6.
  3. Here’s the “trifold” test to establish the short term disability benefit is exempt from ERISA as a “payroll practice”: (a) “paying normal wages, (b) from [the employer’s] general assets, (c) on account of work missed due to medical reasons.” Op. at 12.
  4. Plaintiff argued (belatedly) on appeal that eligibility under the short term and long term disability is “intertwined” and therefore ERISA should also govern the short term disability claim. The Court rejected this argument because “‘eligibility for [short-term] benefits is not at all affected by the [long- term plan….]” Op. at 24.
  5. Even post Amara, a Summary Plan Description “may ‘be examined to determine the appropriate standard of review.’” Op. at 16.