An ever-growing number of employees are literally making a federal case out of once-routine benefits denials under employers’ health and disability plans. Here’s what you need to know.

Lawyers for employees denied certain health benefits, COBRA and/or disability have latched onto a single ERISA provision – Section 510, which prevents “benefits interference.” Here’s what you need to know.

Most plans affected

Several years ago, a Supreme Court ruling widened the scope of Section 510 to include “all health and welfare” benefits rights, including those that haven’t vested (such as some 401(k) or pension cases) or in which vesting doesn’t apply (such as medical benefits).

What’s happened since: Employees’ lawyers have started to use Section 510 as a catch-all for disputing benefits denials. There are often ERISA implications when you terminate an employee, outsource a benefits plan, or your third-party administrator denies a disability claim.

If your company is sued under Section 510, the case may shift from state to federal court, upping the ante considerably if your organization loses. In extreme cases, ERISA can open up your firm’s managers to personal liability.

Three key areas

Cases usually hinge on three key For the employee to win the suit, he or she must prove three things:

1. The disputed benefit is covered by ERISA
2. Your benefit plan documents failed to protect the employee’s rights, and
3. Your company took an action designed to prevent someone from collecting deserved benefits (e.g., a pregnant employee’s firing was timed to deny maternity benefits).

Many cases ultimately hinge on whether your firm acted in good faith. Good news: Even if your company made an honest mistake, the law is on your side.

Case in point: A university fired an employee for poor performance and a bad attitude (Ancekewicz v. Long Island University). The employee sued, saying he was unfairly terminated and the university illegally interfered with his retirement and health benefits.

It turned out the employee’s poor performance and attitude had been exaggerated by a supervisor with whom the employee had clashed. But the organization still won the lawsuit.

The judge said that HR/benefits took the fired employee off the health plan and terminate his future retirement plan contributions the same way it would have for any other worker who’d been let go. It wasn’t as though this employee had been singled out by the folks in charge of administering the organization’s benefits (e.g., denied the opportunity to take COBRA).