January 11, 2022

Benefit Plan Descriptions May Create Unilateral Contracts in Pennsylvania

Written descriptions of employee benefits may expose Pennsylvania employers to additional contractual obligations and liabilities. According to a three-judge Pennsylvania Superior Court panel, providing written descriptions to employees regarding various benefits, incentives and rewards may form a binding, unilateral contract creating rights and obligations separate from an employee’s at-will relationship with the employer.

Employers commonly provide benefit plan descriptions to appraise employees of certain benefit information such as eligibility and duration. On January 5, a Superior Court panel in Evans v. Capital Blue Cross held that such descriptions may create an independent contractual relationship between employer and employee. In Evans v. Capital Blue Cross, insurance company Capital Blue Cross (CBC) provided plaintiff Barbara Evans with a “summary plan description” (SPD) detailing CBC’s short-term disability benefits when CBC hired her in 2002. It should be noted that although the complete factual background is unclear from the decision, the Superior Court stated that the short-term disability benefits were part of a salary continuation program paid from the employer’s general assets, which generally would render the short-term disability benefits exempt from the Employee Retirement Income Security Act of 1974 (ERISA). Thus, Evans asserted state law claims for breach of contract and violation of the Pennsylvania Wage Payment and Collection law. In 2016, Evans developed severe anxiety and depression and applied for short-term disability. The SPD explained that employees on short-term disability were entitled to 26 weeks of benefits so long as the employee remained disabled and unable to perform the essential duties of their job. The short-term disability plan administrator terminated Evan’s benefits prior to 26 weeks ultimately rendering her ineligible for the company’s long-term disability benefit. 

Evans filed suit and the trial court granted summary judgment for CBC holding that CBC was not contractually obligated to provide short-term disability benefits because Evans was an at-will employee. The Superior Court reversed the trial court’s finding and held that the SPD created an independent contractual relationship. Although Evans was an at-will employee, she was entitled to pursue legal action against CBC based on a relationship created by the SPD. 

In reaching this conclusion, the panel relied on Bauer v. Pottsville Area Emergency Med. Servs., Inc., 758 A.2d 1265 (Pa. Super. 2000), a 2000 case where the Pennsylvania Superior Court found an employee handbook to be a unilateral contract. There, the employee handbook explained that individuals who worked more than 36 hours per week for 90 days would be considered full-time employees. The Superior Court found that a reasonable person in the employee’s position would interpret that provision of the employee handbook to mean an individual is entitled to full-time benefits after working the requisite hours regardless of at-will status. In the opinion, the court explained that the unilateral contract created by the employee handbook did not supplant the employer-employee at-will relationship; rather it created a separate contractual relationship.

In applying Bauer to Evans’ case, the Superior Court again found that the SPD created a contractual relationship separate and in addition to the at-will employment relationship. CBC’s discretion in determining eligibility was undermined by a provision in the SPD permitting legal action where an employee disagreed with the administrator’s determination of disability. The court held that a reasonable person in Evans’ position would interpret the SPD as obligating CBC to continue providing benefits so long as Evans performed her duties (i.e., retaining employment while remaining disabled and unable to perform her duties).

Pennsylvania employers who provide employees with detailed information about benefit programs should be aware that they may inadvertently create an additional contractual relationship, exposing themselves to liability outside of the at-will employment relationship. Employers should carefully review all descriptions of benefits, whether in a handbook, an SPD, or otherwise. If you have any questions about your benefit plan descriptions or any other employment-related questions please contact an attorney on the Faegre Drinker employee benefits or labor and employment team.

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