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Independent contractors, others can be plan beneficiaries

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in Compensation and Benefits,Discrimination and Harassment,Employee Benefits Program,Human Resources

J.L. Hollis worked as a sales rep for Hendrick Graduate Supply House for more than 10 years. Then he signed an agreement that reclassified him as an independent contractor. He still participated in the employer's disability insurance plan, and the company paid $600 a year toward the premium.

After 15 years under this contractor arrangement, Hollis resigned because of back problems. Although he initially received disability benefits, the insurer later argued that he didn't qualify as having a total disability. Hollis sued and was awarded damages, but the 5th U.S. Circuit Court of Appeals reversed the decision, deciding that his claims were pre-empted by ERISA, the Employee Retirement Income Security Act.

The appeals court, agreeing with three other jurisdictions, decided that an independent contractor can be a "beneficiary" under an ERISA disability benefit plan. And if the contractor is a beneficiary, he can't go to court with a state-law claim because ERISA pre-empts it. Instead, Hollis has to exhaust the administrative remedies under ERISA and then seek any court review of those decisions. (Hollis v. Provident Life, No. 99-60877, 5th Cir., 2001)

Advice: Remember that nonemployees, such as independent contractors, may not be participants under an ERISA plan but still can have limited claims as beneficiaries. Other courts have ruled that a controlling shareholder and firm partner were ERISA beneficiaries.

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