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During Kathy Smith's first year in a customer service job, her husband was diagnosed with heart disease and her son with water on the brain. Treatment was covered under the firm's health plan, but the HR director told Smith that families like hers were "a drain on the company." Two weeks later, the firm fired Smith, citing several customer complaints.

She sued under the Employee Retirement Income Security Act (ERISA), claiming that reducing health insurance costs was the real reason for her firing.

A lower court sided with the company, but a federal appeals court let her case go to trial. Reason: A jury might find evidence that the firm violated ERISA's anti-retaliation provision, which bans employers from denying benefits to employees because of their association with someone who has a disability.

Beyond its "drain on the company" comments, the company sank itself by firing her soon after her son's diagnosis, giving her an 8 percent raise six weeks earlier and failing to criticize her performance until after her son's diagnosis. (Smith v. Hinkle Mfg. Inc., No. 00-3320, 6th Cir., 2002)

Advice: Almost every company is reeling from skyrocketing medical insurance, but don't try to trim your costs by getting rid of employees whose medical conditions jack up your rates. You'll violate ERISA by interfering with benefits.

When firing any worker, particularly one with personal or family health conditions, identify legitimate, nondiscriminatory reasons. Also, advise HR and managers to avoid making comments about the high cost of covered medical treatments.

But what if you need to fire a worker for poor job performance shortly after giving her a raise or a glowing review? Unless she committed an egregious or willful act, the safest course is to forgo immediate termination. Then 1) document all poor job performances and 2) follow your progressive discipline policy, which can lead to firing. Bottom line: An employee should never be in a position to claim that she's surprised by a termination for job performance.

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