The moment an employee requests a leave of absence, employers confront an alphabet soup of leave and benefits laws: FMLA, ADA, ERISA, COBRA, ACA, and USERRA. Complying with the nuances in the law often requires careful deliberation despite the pressure for an immediate answer. Employees may take a leave of absence for a variety of reasons and under a variety of laws. The Family and Medical Leave Act (FMLA) and the Americans with Disabilities Act (ADA) are triggered most frequently; however, an employer may also offer a general or personal leave of absence.¹ Regardless of the purported justification, the issue is what happens to an employee’s benefits when the leave commences and whether employers (as the plan sponsors /administrators) are potentially exposed to liability for not properly managing an employee’s benefits while they are on leave? The short answer is yes.

FMLA AND BENEFITS

FMLA requires an employer to maintain an employee’s benefits. “During any FMLA leave, an employer must maintain the employee’s coverage under any group health plan … on the same conditions as coverage would have been provided if the employee had been continuously employed during the entire leave period.”² Employees must remain on the employer’s group health plan and cannot be charged more than the employee’s share of premiums while on FMLA. Both the employer and employee must continue making timely payments. The employer can offer the following options to the employee: prepay benefits,³ pay monthly, or catch up on payments upon return from leave. Contrary to common assumptions, benefits can be terminated while an employee is on leave in limited circumstances. Examples include the employee’s failure to timely pay pre miums or if the employee informs the employer of his or her intent not to return to work after exhaustion of leave.⁴

Frequently, employers forget an employee does not have to elect to continue any benefits during FMLA. FMLA is considered a qualifying life event that allows an employee to change a benefit selection in accordance with Internal Revenue Code Section 125. Additionally, even if the employee elects to discontinue benefits during leave, or benefits are terminated due to the employee’s nonpayment, benefits must be reinstated once the employee returns from leave.⁵

The scenario most frequently creating liability arises when the employee submits a provider’s note stating that the employee needs “two to three more weeks” before returning to work. Do benefits continue? Most employers, and sometimes their counsel, would answer yes. The reality is more complicated because to answer that question, the Employee Retirement Income Security Act (ERISA) plan document must be reviewed.

ERISA §402(a)(1) requires that every employee benefit plan be “established and maintained pursuant to a written instrument.”⁶ Regardless of employer size, if the employer sponsors a group health plan, there must be the “written instrument” — the plan document. ERISA plans must be administered “in accordance with the documents and instruments governing the plan.”⁷ An employer’s handbook is not considered a plan document, because ERISA sets forth specific topics that must be addressed in the written plan document, including, but not limited to, benefits and eligibility, funding, and plan amendment and termination procedures.⁸ Most handbooks do not include these provisions; nor should they. Another common misconception employers have is assuming the carrier booklets or carrier documents are the plan document. While carrier documents are critical, those documents might not fully address all of the requirements in Section 1102 and often refer to the employer’s definition of eligibility.

The key will be determining how the employer’s plan defines eligibility. A common definition of eligible employees includes “all active full-time employees who work a minimum of 30 hours a week.” Utilizing this definition, if an employer continues benefits as is for those “two to three more weeks,” the employer is effectively violating the terms of the plan. The employee is no longer “active”, as the protected FMLA leave has ended, and is no longer working “a minimum of 30 hours a week.” In this scenario, the employer should terminate benefits and send out a COBRA notice. To do otherwise risks breaching fiduciary obligations.

Fiduciary duty lawsuits continue to rise, but the overall risk to the average employer is relatively minimal. The more likely consequence is denial of coverage by a carrier, such as a stop-loss carrier, if the carrier conducts an audit and determines the employee was not benefits eligible. An employer would likely be responsible for the entire cost of all medical benefits and not be able to pass any costs onto the employee (absent contractual cost-sharing, such as a deductible or co-insurance).

ADA LEAVES

Employment counsel and employers in general also need to be cautious about benefit continuation when considering ADA leaves. The common assumption is that benefits must be continued during an ADA reasonable accommodation leave, but that is not always true. The confusion arises because, frequently, an employee is also utilizing FMLA and having ADA leave run concurrently. Equal employment opportunity Commission (EEOC) guidance states that one category of reasonable accommodation includes “modifications or adjustments that enable a covered entity’s employee with a disability to enjoy equal benefits and privileges … [as] other similarly situated employees without disabilities.” ⁹ The guidance further reiterates: “An employer must continue an employee’s health insurance benefits during his/her leave period only if it does so for other employees in a similar leave status.”¹⁰ Thus, if an employer only continues health benefits during an FMLA leave and for no other leaves, the employer is not obligated to continue benefits during an ADA leave once FMLA leave has been exhausted.

Implementing a benefit plan that only allows for benefit continuation during FMLA or Uniformed Services Employment and Reemployment Rights Act (USERRA) leaves helps to further protect both employers and employees from potential discrimination. Neither party will have to contend with potentially being accused of or potentially being discriminated against on the basis of his or her disability or based upon a health factor in violation of HIPAA.¹¹

GENERAL LEAVE OF ABSENCE

Employers may also grant general or personal leaves of absence (LOA) that would not qualify under FMLA or as an ADA accommodation. These policies are either informal or only detailed in an employee handbook. This could create significant issues for the employer, particularly depending upon the length of leave granted. As noted above, the plan documents control benefits — not the handbook. If a general LOA is not addressed in the plan (which typically only includes the protected leaves of FMLA and USERRA), then by granting a leave of absence and keeping the employee as an active participant with respect to benefits violates the plan documents. Arguably, the risks associated with keeping the employee on the plan for a leave of absence of 30 days or fewer is minimal, particularly if benefits are normally terminated at the end of the month for other situations, such as termination of employment. The risk becomes heightened in certain situations, a few of which are identified below:

1. The leave of absence was granted because the employee had not worked with the employer long enough or had enough hours to qualify for FMLA and is incurring substantial medical expenses during the LOA;
2. The leave of absence is greater than 30 days;
3. The employee on the LOA is near or has already hit stop loss, and there is a possibility of a review of claims or an audit;
4. There is a potential class action alleging breach of fiduciary duty and overall damages to the plan (the employer is still paying the employer’s share for these individuals, premiums might be impacted, etc.)

Especially for fully insured plans, it is crucial to ensure carrier buy-in by including any general or personal LOA provisions in the plan document and to verify that the employer did not misrepresent any LOAs on any insurance applications (if asked on the application).

COBRA AND THE AFFORDABLE CARE ACT

COBRA exists precisely because ERISA does not require employer group health plans to provide active coverage indefinitely. An employee could remain an active employee with the employer but still lose benefit eligibility. This typically occurs due to a reduction in hours, such as when an employee takes a leave of absence, which is a qualifying event under COBRA. COBRA specifically lists as a qualifying event “[t]he termination … or reduction of hours of the covered employee’s employment.”¹²

When the employee needs additional time beyond protected leave (FMLA or USERRA), and the employer terminates the employee’s benefits, the employee will be able to continue coverage under COBRA. While beyond the scope of this article, it is worth noting that inaccurate COBRA notices (e.g., failure to include an FSA or HRA) could lead to uncapped penalties accruing at $110 a day per qualified beneficiary.¹³ Absent termination of benefits for failure to pay premiums, an employer should always be extending COBRA to any covered employees whose benefits terminated while they were on leave.

Under the Affordable Care Act (ACA), a covered large employer (an employer with 50 full-time employees, including full-time equivalents) needs to extend an offer of health insurance benefits to full-time employees. It is likely that an employee utilizing leave is a full-time employee and/or is within that employee’s stability period based upon the employer’s applicable measurement method. An employee within the stability period is considered a full-time employee for all ACA reporting purposes. Failing to extend an offer of coverage (COBRA is considered an offer coverage) to a full-time employee exposes the employer to penalties under §4980H.¹⁴ As an example, most employers track employee hours and determine benefit eligibility utilizing a 12-month lookback measurement method. This means that for a calendar year ERISA plan implementing a 12-month lookback, the employee is within his or her stability period until December 31 and must receive an offer of coverage each month.¹⁵

WHAT ABOUT OTHER BENEFITS?

The term “benefits” is extremely broad. Most employers assume that every single benefit offered by the employer needs to be continued during a leave. That is not the case and again depends upon the type of leave and most importantly, upon the language in the plan documents, as well as on the contractual provisions with each carrier. For example, does the plan limit benefits on a leave of absence to only “health benefits” and define health benefits as medical, dental, and vision? If so, then continuing life insurance benefits is arguably not required. Does the contract with the life insurance carrier have a provision that the employee be “actively at work”? If an employee is required to be actively at work under the contract, a life insurance carrier could deny coverage, and the employer would likely be responsible for paying any benefits owed under that policy to the employee or his/her beneficiary.

Coordination of benefits with leaves of absence becomes complex rather quickly. Employers and their counsel should take the time to carefully review all policies and relevant documents touching on leaves and benefits before making decisions about benefit continuation.