Workers’ Compensation: When You Can Terminate An Injured Employee’s Health Benefits; 3 Guidelines To Follow

Several years ago, the California Workers’ Compensation Appeals Board ruled that it’s illegal to terminate an injured worker’s health benefits unless you can show a legitimate business reason for doing so. But now the board has ruled that you can cut off health benefits for an employee out on workers’ comp leave so long as the termination is pursuant to the terms of your health benefit plan. We’ll review the decision and provide practical tips you can use to avoid problems.

Employer Maintains Health Benefit Plan

A & A Farming belonged to the Western Growers Assurance Trust, which provided health benefits to the employees who worked at least 20 hours a week. Under the terms of the trust, A & A adopted a policy that it would continue making trust contributions for up to 90 days on behalf of a disabled employee who became unable to work, whether or not the disability was work-related.

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Plan Contributions Stop For Injured Worker

Alonso Navarro was a foreman and irrigator for A & A Farming, and A & A made trust contributions on his behalf. Navarro eventually became unable to work due to an on-the-job back injury. When Navarro stopped working, A & A made trust contributions on his behalf for 90 days in accordance with its continuation policy. But when the 90 days were up, A & A told Navarro that it would not continue to make trust contributions and that continuation coverage was available through COBRA.

Navarro charged that A & A’s action in setting up and administering its employee benefit plan discriminated against him as an industrially injured worker because, but for his injury, he would have continued working and receiving benefits. A & A argued that it had the right to follow the terms of its health benefit plan.

Employer Could Terminate Benefits Under Plan Terms

The Workers’ Compensation Appeals Board explained that it’s illegal to take adverse action against a worker because they have filed a workers’ comp claim. However, the board said the federal Employee Retirement and Income Security Act, which regulates employee benefit plans, supersedes state law claims regarding the wrongful denial of employee benefits. And to the extent that state workers’ comp law would require employers to provide industrially injured workers with benefits that they wouldn’t be entitled to under their ERISA plans, that law impermissibly interferes with federal law. Thus, because A & A discontinued Navarro’s health benefits according to the terms of the trust, the board said that Navarro’s workers’ comp retaliation claim had to be dismissed. 

3 Guidelines To Follow

Here are some tips for avoiding lawsuits in connection with an injured worker’s employee benefits:

1. Follow ERISA requirements. If your health plan qualifies as a “welfare benefit plan” under ERISA, the new ruling means that you can terminate coverage pursuant to your plan’s terms without being liable for workers’ comp discrimination. Employment attorney Alisa Wynd points out that it’s still illegal to have an arbitrary cutoff date for ending an injured worker’s health benefits. But if the terms of your plan require you to terminate benefits for all employees on leave after a certain period of time, you can end coverage for injured workers at that time as well. Be sure to always treat employees who are injured on the job the same way you treat other employees on leaves of absence.

2. Arrange for reimbursement. You can require employees on a workers’ comp leave of absence to continue contributing their share of their health insurance premiums. If they fail to do so, Wynd advises that you notify them in writing that their health coverage will be terminated unless they pay their portion and that you give the employee adequate time to reimburse you. You may want to consider offering a repayment plan to ease the financial burden on injured employees. However, if the employee fails to comply, you will have added justification to stop paying your portion of the premiums.

3. Use caution with vacation and sick leave accrual. According to Wynd, since most vacation and sick leave plans are not covered by ERISA, the board’s new ruling doesn’t affect your obligation to continue vacation and sick leave accrual for an employee on workers’ comp leave.