Descriptions of benefit plans can create unilateral contracts in Pennsylvania | Drinker Faegre Biddle & Reath LLP

Descriptions of benefit plans may expose Pennsylvania employers to additional contractual obligations and liabilities. Pennsylvania Superior Court three-judge panel finds providing employees with benefit plan descriptions can constitute a binding unilateral contract creating rights and obligations separate from an employee’s at-will relationship with the employer .

Employers typically provide benefit plan descriptions to assess employees for certain benefit information such as eligibility and duration. On January 5, a panel of the Superior Court of Evans vs. Capital Blue Cross considered that such descriptions can create an independent contractual relationship between employer and employee. In Evans vs. Capital Blue Cross, insurance company Capital Blue Cross (CBC) provided complainant Barbara Evans with a “Summary Plan Description” (SPD) detailing CBC’s short-term disability benefits when CBC hired her in 2002. 2016, Evans developed severe anxiety and depression and requested a short-term disability. The SPD explained that employees on short-term disability were entitled to 26 weeks of benefits as long as they remained disabled and unable to perform the essential duties of their job. The administrator of the short-term disability plan terminated Evan’s benefits before 26 weeks, ultimately making her ineligible for long-term disability benefits from the company.

Evans sued and the trial court entered summary judgment for CBC, finding 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 found that the SPD had created an independent contractual relationship. Although Evans was an employee at will, she had the right to take legal action against CBC based on a relationship created by the SPD.

In reaching this conclusion, the committee 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 that an employee handbook was a unilateral contract. There, the employee handbook explained that people who worked more than 36 hours a week for 90 days would be considered full-time employees. The Superior Court found that a reasonable person in the position of employee would interpret this employee handbook provision to mean that an individual is entitled to full-time benefits after working the required hours, regardless of either its status at will. In the opinion, the court explained that the unilateral contract created by the employee handbook does not supersede the employer-employee relationship at will; rather, it created a separate contractual relationship.

Applying Bauer in Evans’ case, the Superior Court again found that the SPD created a contractual relationship separate and in addition to the at-will employment relationship. The CBC’s discretion in determining eligibility has been undermined by a provision in the DPS allowing for legal action when an employee disagrees with the administrator’s determination of his or her disability. The court ruled that a reasonable person in Evans’ position would interpret the SPD as requiring the CBC to continue to provide benefits as long as Evans performs his duties (i.e. maintaining employment while remaining disabled and unable to perform his duties).

This decision presents new risks for Pennsylvania employers who must continue to provide employees with detailed information about benefits programs. By providing this information, an employer may inadvertently create an additional contractual relationship and expose themselves to additional liability. Employers should carefully review all benefit plan descriptions and make any necessary revisions to indicate to employees that these descriptions are informational in nature and are not intended to create an additional contractual relationship with the employer.

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