FAQ: We have an employee who has been out on long-term disability for several months. When can we terminate them?
September 15, 2020
There are two different issues to consider – employment termination and health plan coverage termination.
Let’s first discuss health plan coverage termination. An employee on FMLA is entitled to up to 12 weeks of continued eligibility and coverage at the same cost as an active employee. If the employee is on unpaid leave, the employee may choose to pre-pay the premiums when the leave is foreseeable, the employer may require payment during the leave through personal check, or the employer may permit repayment upon return. Similarly, an employee whose absence from work is covered by a state leave law may be entitled to continued coverage and eligibility.
Once FMLA and any state leave is exhausted, the employer should then review the terms of eligibility listed in the plan’s Summary Plan Description. Most state that an employee is eligible if they work a certain number of hours per week or on an approved leave. Most plans do not provide continued eligibility for an extended unpaid leave of absence. As an ERISA fiduciary, the employer needs to follow those terms. If they do not, it would be a breach of their fiduciary duty to follow the terms of the plan.
The employer also needs to consider the employer mandate. If the employer uses the look-back measurement method to determine eligibility, and an employee earned full-time status in the most recent measurement period, the employee would remain eligible throughout the entire stability period regardless of the number of hours worked.
Once the employee no longer meets the terms of eligibility (because they are not working the required number of hours per week and not in a covered leave period), COBRA would be offered for reduction of hours. If the employer continued the employee’s coverage under the active plan when they are not otherwise eligible, the carrier (including a stop-loss carrier for self-insured plans) could deny the claims, leaving the employer to self-insure all claims. Sometimes to soften the blow for an employee on a medical leave of absence, an employer may subsidize the COBRA premiums for a period of time.
On the second issue of employment termination, the employer should proceed with caution and consider consulting employment law counsel. But at a minimum, the employer should remember that the ADA could have some application in this regard. As background, the ADA requires employers with 15 or more employees to make reasonable accommodations for employees who are unable to perform their job duties because of a disability. A reasonable accommodation may include equipment modification/purchase, a temporary leave of absence, a modified schedule and other measures.
If an employee is in need of a leave extension, the employer will want to very carefully consider this request and its obligations under the ADA before denying the request or terminating employment. Please note that an extended leave of unpaid absence made as an accommodation to an employee is not an FMLA extension. The leave would not have the same protections as FMLA.
The EEOC prohibits an automatic termination policy. In other words, an employer couldn’t say an employee is provided six weeks of unpaid medical leave and if they don’t return at that time, they are automatically terminated. Each situation needs to be reviewed for reasonable accommodation. Before terminating an employee’s employment, the employer should engage in an interactive process to determine any reasonable accommodations and seek outside counsel.