Finance News & Insights

3 tricky benefits scenarios – did these companies handle them correctly?

Fact: Benefits are surpassing salaries as the most important perk to employees.  But did these companies step out of line to enforce their benefits policies?

Fact #2: Benefits ain’t cheap.

In fact, from health insurance to FMLA leave, companies pay a small fortune for benefits, both the ones they offer voluntarily and the ones they’re required to.  Small companies get hit the hardest.

True, with the price tag attached to benefits, organizations of all sizes want to do all they can to prevent anyone taking advantage of their offerings.

But that vigilance can unintentionally cross the line and land an employer in legal hot water.

The following are three real-life scenarios. Did these companies step out of bounds with their benefits administration? You decide for yourself, then see what a judge had to say on the subject.

Scenario #1: Were this company’s FMLA documentation requirements out of bounds?

The situation: An employee had been approved for intermittent FMLA leave because of an ongoing depressive condition. But the way the automated time and attendance system was set up, employees couldn’t add comments to explain if a lateness, missed shift, etc., was related to an ongoing medical condition. So employees were required to bring in a doctor’s note as documentation.

Did the company cross the line?

The court said: Yes. The policy itself wasn’t a problem – companies can require doctors’ notes to confirm that an absence is related to a medical condition. Where the company went wrong was in the tiny window of time it allowed for that documentation before firing her. That was a clear violation of the employee’s protection under the Family and Medical Leave Act (FMLA). (Cite:  Smith v. CallTech Communications, LLC, U.S. Dist. Ct. S.D. Ohio, No. 2:07-cv-144, 6/10/09.)

Scenario #2: Did company fail to give proper COBRA notice?

The situation: Another employee was on medical leave at another company, but was fired when he eventually failed to return from work.  The problem? He claimed he never received his notice of COBRA coverage benefits. The company maintained it has a standard procedure for notification: The Benefits Manager always sends notice to the employee’s home address as soon as she is notified of the termination by the person’s supervisor.  The employee maintained he no longer lived there and that it was the employer’s responsibility to verify the address before sending out the notice. The company argued prior mailings had been received at that address and that it had done all it had to to notify.

Did the company cross the line?

The court said: No. The company had not failed to give the ex-employee notice of his COBRA coverage. According to the judge, the company did as much as it could to ensure the employee received the message, considering that was his last known address.  It was on the former employee to let his former employer know if he was no longer at that address. (Cite:  Turner v. Adidas Promotional Retail Operations, Inc., 2009 WL 901487, N.D. Ill. 2009, 3/31/09.)

Scenario #3: Should company have granted this flex spending reimbursement request?

The situation: An employee submitted receipts for infant formula to be reimbursed through the company’s flex spending account. The company denied reimbursement, maintaining it was not a medical expense. But the case was more complicated: the employee had undergone a mastectomy and therefore couldn’t breastfeed, though she had planned to. The formula was not prescribed by a doctor, but, according to the employee, if not for a medical condition she never would have needed it.  The company still denied the request.

Did the company cross the line?

The court said: No. Actually it was IRS who said the company was not out of line, in a private letter ruling.  IRS cited a ruling that went back way before flex spending accounts even existed (1955) to justify this stance. That ruling stated that money spent on specific foods or beverages would only count as a medical care expense if it:

  • was prescribed by a doctor to alleviate a specific illness
  • is in addition to the individual’s normal diet
  • isn’t part of the individual’s nutritional needs, and
  • is substantiated by a doctor as to need.

That was not the case with the infant formula, despite the fact that a medical condition caused the employee to have to rely on formula in the first place. So the company was correct not to use this benefit for this purpose.

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