Employee Welfare Benefit Plans and the Small Employer

Preemption is a tough defense to get around, particularly in the First Circuit, where it is taken quite seriously and numerous decisions expressly declare particular state law causes of action to be preempted by ERISA. One clever response to this problem, at least when the facts will allow the argument, is to try to sidestep any fight over preemption itself by arguing that the benefit at issue was not even provided by an employee welfare benefit plan and that as a result, ERISA does not apply and state law claims over the denial of the benefits are actionable. There is more room to maneuver on such an argument than in a battle over preemption, because the test recognized in the First Circuit for determining whether a benefit was in fact provided by an employee welfare benefit plan is mutlipronged, fact based, and, on at least some elements of the test, rather amorphous. At the same time, however, it doesn't take much for an employee benefit to qualify as an ERISA governed employee welfare benefit plan, at least in this circuit.

The test is laid out and then explored in great detail in a recent decision, James O'Leary v. Provident Life and Accident Insurance Co., by Judge Saylor of the United States District Court here in Massachusetts. The court explained that "an employee welfare benefit plan has five elements: (1) a plan, fund, or program (2) established or maintained (3) by an employer or by an employee organization, or by both, (4) for the purpose of providing. . . disability. . . benefits (5) to participants or their beneficiaries," and that these are factual inquiries. In many instances involving larger employers, the application of these factors and the conclusion that should be reached are transparent from the outset; even without looking closely at the factors, there is little room to doubt that, for example, a large company's disability benefits plan for its employees satisfies these elements and is an ERISA governed plan.

What made the application of these factors interesting in the case before the court was the particular dynamic generated by the fact that it was a small employer and many of the facts at issue with regard to the employment benefit in question were unique to that one employee who was denied the benefits in question and was filing suit. This fact pattern took the case out of the realm of if it "looks like a duck and walks like a duck, its an employee welfare benefit plan," and placed it instead in the realm of coverages that might just be personal to the employee rather than part of an ERISA governed plan. It wasn't, the court eventually concluded, but the analysis in reaching that point is informative.