If your company’s benefit plan confines benefits only to “employees,” take a second look. You could end up providing benefits to independent contractors.
The Oregonian newspaper recently had to provide benefits to a regional correspondent it considered an independent contractor because it didn’t adequately define who was covered in its benefits plan.
The Oregonian’s plans limited benefits to “employees,” and the correspondent’s contract stated that she was an “independent freelance contractor.” Accordingly, the Oregonian’s plan administrator denied the correspondent benefits under the plan. The Court disagreed. In Barnard v. Advance Pension Plan, Case No. 06-cv-6265 (D. Ore. Nov. 4, 2008), the Court said that because “employee” is an ambiguous term, the common law definition of employee can be used to determine plan eligibility. What follows is four pages of legal soup where the Court analyzed whether the Oregonian had the “right to control” the correspondent’s work. The Court determined that the newspaper did have the right to control the work, and thus the correspondent was an “employee” for purposes of the benefits plan and entitled to benefits from the Oregonian.
The Oregonian could have avoided this legal morass by narrowing the definition of who was covered by its benefits plan. For example, it could have specifically excluded workers “classified as independent contractors in their employment agreements,” or limited plan enrollment to employees “permanently employed for a minimum of [x] hours per week.” In the case of the latter, the Court said that it would be unreasonable to classify the correspondent as permanently employed since her contracts only lasted from six months to a year.
If you want to avoid a similar situation and the complicated analysis of whether a contractor is an employee under common law, tighten up the definitions of eligibility in your benefits plan. Think hard about who you want to include, and take the extra step in defining that class.