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The increased use of independent contractors also brings an increased risk of benefit-related lawsuits. An employer recently prevailed in such a dispute through careful plan design, in light of the famous Vizcaino v. Microsoft case decided several years ago.
Sue Downes worked for J.P. Morgan Chase as an independent contractor. When her assignment ended, she sought COBRA coverage and other ERISA benefits because she claimed she was a common-law employee. Eligibility for J.P. Morgan Chase’s plans required not only employee status but also that the individual be on the payroll as a salaried employee.
The Court noted that Downes could not meet these last two requirements and was not eligible for COBRA even if she were determined to be a common-law employee. In granting J.P. Morgan Chase’s motion for summary judgment, the Court made the following observation:
“Nothing prevents an employer from specifying that its benefit plans apply only to employees that meet particular criteria, including a criterion providing that coverage does not extend to those whose payment is arranged in certain ways.”
The case continued on claims under the Equal Pay Act that were unrelated to the COBRA and ERISA issues.
Recall that in the Vizcaino case, decided in 1999, numerous Microsoft contractors became eligible for benefits when they were reclassified as common-law employees. Microsoft ultimately settled the case for just under $100 million. In response, many employers revised eligibility requirements so that benefits were available to a more specific class of employees. J.P. Morgan Chase obviously was among them. It is now common to see a W-2 requirement for benefit plan eligibility. Employers should check their plan language and contractor practices to determine if they need to make any changes.
Infinisource offers services related to plan documents that directly address this very issue. For additional information about these services, contact our Sales Department at 800-779-6384 or SalesSupport@infinisource.net.
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