Court Rules That Third Party Administrators Can Be Held Liable For FMLA-Related Violations

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http://www.fmlainsights.com/TPA.jpgEmployers often outsource to third party administrators the task of managing their FMLA processes.  Under this model, the TPA handles FMLA requests, paperwork and approvals instead of the employer's human resources or benefits department.  TPAs often utilize case managers to help make leave determinations, and they generally oversee the FMLA administration.

Where a TPA simply performs administrative functions as part of the leave process, the FMLA regulations do not hold the TPA liable for any FMLA violations that may result.  In these instances, the employer remains on the hook for any these violations.  29 CFR 825.106(b)(2)

However, a federal court decision issued last week may well turn this concept on its head by opening the door to viable FMLA-related claims against TPAs. 

The Facts

Arango v. Work & Well started out as a proposed class action of current and former Sysco employees who claimed that the Company (through its TPA, Work & Well) violated the FMLA by insisting that employees provide more medical information than is legally required in the FMLA medical certification and clarification process.  

Here is what the plaintiff claims the TPA did:  The plaintiff submitted medical certification supporting the need for FMLA leave from November 22 through January 15.  It appears as though the TPA did not clarify the certification or otherwise question its validity.  Instead, it accepted the certification but granted the plaintiff only four weeks of leave through December 18 (or about one-half of the leave certified by the employee's health care provider).  The TPA then informed the plaintiff that his leave would be extended only if he provided additional medical information supporting his need for FMLA leave from December 19 through January 15.  When the plaintiff failed to provide the information, his employment was terminated.

Uh oh.  

The Court Ruling

The court quickly cut this case down to size.  It dismissed the FMLA claim because it could not be raised against the TPA.  It also dismissed the class action claims.  But the TPA caught a bad break -- it ran into a creative and very well regarded plaintiffs' attorney, Alex Caffarelli, who raised a unique legal theory on behalf of his client.  Making an end run around the FMLA, he argued that the TPA still should be on the hook because it tortiously interfered with plaintiff's employment relationship with his employer.  

Huh?  What is t-o-r-t-i-o-u-s interference?

Tortious interference with employment is a creative but rather nebulous legal claim that can be raised under state law in virtually any state.  In raising the claim, the plaintiff alleges that the defendant's wrongful conduct intentionally caused the employer to end an ongoing business relationship that it had with its employee when that relationship otherwise would have continued.

Here, the plaintiff claimed that the TPA intentionally denied a portion of his FMLA leave even though it was supported by medical certification, and as a result, the TPA's actions caused Sysco (as the plaintiff's employer) to terminate his employment.    

The court bought into the plaintiff's argument.  Although the decision allowing this claim to be heard by a jury is not necessarily surprising, I found the court's reasoning interesting.  Notably, the court took an interest in the language of the contract for services between the TPA and Sysco.  That contract stated, in part, that "[the TPA's FMLA adminstration] services ensure consistent, complete FMLA compliance" and "will reduce the number of leaves and leave time out of work."  (I've seen this language in nearly all the TPA contracts I've reviewed, so it's not unique.)  

Based on this contract language, the court found that "it is reasonable to infer that [the TPA] knew what kind of information the FMLA permitted it to obtain from an employee and when it was permitted to do so. The court also picked up on language straight out of the FMLA regulations:

[The TPA] knew that if an employee submits a complete and sufficient certification signed by the health care provider, the employer may not request additional information from the health care provider.

It also knows that if the medical certification indicates that the minimum duration of the condition is more than 30 days, the employer must wait until that minimum duration expires before requesting a recertification. . . . 

Because the TPA accepted complete and sufficient certification supporting the need for eight weeks of leave, but only provided four weeks, the court held that these facts "are sufficient to suggest, though they do not conclusively prove, that defendant intentionally denied meritorious FMLA leave requests to enhance its reputation as a benefits administrator and increase its book of business."  The Court's decision can be found here: Arango (pdf)

Unless I am missing something, the facts here certainly are not flattering toward the TPA. Keep in mind, however, that these facts are viewed in a light most favorable to the plaintiff, since the TPA was seeking to dismiss his case.  At trial, the TPA will have a chance to tell its side of the story.  

Insights for Employers

There are plenty of takeaways from this decision for employers (and TPAs).  Several suggestions come to mind:

  1. It is imperative that employers consider whether (and how) their FMLA policies and procedures expose them to claims that can be advanced by a group or class of employees.  Strongly consider conducting a comprehensive audit of your entire FMLA administration to ensure your procedures do not violate the regulations and expose potential class claims.  A couple questions might help to guide your analysis:
    • Does your leave request form elicit necessary information without delving beyond the medical condition at issue?
    • Are you requesting more medical information than allowed through the FMLA's medical certification form or the regulations?
    • Are you approving only a portion of an employee's leave of absence where a complete and sufficient certification clearly indicates a longer leave is necessary? 
    • What medical information do you require upon an employee's return to work?  Does your practice comport with the FMLA's return-to-work rules?
    • As to those employees who have taken FMLA leave, are there a disproportionate number who have been denied promotional opportunities or terminated (for unexplained reasons)?
    • How does your FMLA policy mesh with your attendance and other leave policies?  Are there inconsistencies?
  2. Closely analyze your relationship with any third-party administrator that conducts FMLA administration on your behalf.  Do you know how your TPA handles the questions above?  If not, find out.  Keep in mind that the employer generally is on the hook for the TPA's FMLA administration.  Thus, the lines of communication between employer and TPA must constantly remain open so that you are able to obtain information, as necessary, and that you are partnering with the TPA on particularly difficult FMLA scenarios.
  3. TPAs obviously should be concerned about this decision, as it broadens the risk of liability for administering their clients' FMLA processes.  At a minimum, TPAs should review their contracts and marketing materials in light of the decision.  Do they need to be tweaked?  
  4. TPAs also should review how they administer FMLA, particularly the medical certification process.  Where certification is incomplete or insufficient, what is the process to cure/clarify/seek second opinion?  On the other hand, where certification is complete and sufficient, the regulations clearly indicate that no further information can be obtained. So, if the TPA still denies leaves of absence on these occasions, the process needs to be reviewed with employment counsel to ensure proper compliance. 
  5. I know I sound like a broken record, but employers must ensure that your managers are properly trained on their responsibilities in FMLA administration.  Although front-line managers may play little to no role in the FMLA process, they are your eyes and ears of potential FMLA abuse.  Conversely, their inappropriate comments or poor handling of an FMLA situation may create significant liability.