There is understandable confusion among employees and their employers about an employee’s access to disability insurance coverage after termination of the employee/employer relationship.
Disability insurance coverage is an employee benefit, and some assume that when employment ends, employee benefits – including disability insurance – end. However, that is not always the case.
In fact, the termination of employment generally should not affect ongoing short-term disability (STD) or long-term disability (LTD) benefits or even prevent employees from applying for benefits post-termination, assuming the employee was disabled before their employment ended.
Below are answers to frequently asked questions about employment termination and its impact on disability benefits recipients and applicants.
Can an employer terminate an employee’s employment while actively receiving STD or LTD benefits?
Short answer: Yes, but be mindful of Family and Medical Leave Act (FMLA) and state law waiting periods.
Discussion: If an employee is on leave from work and receiving STD or LTD benefits, they may be eligible for temporary job protection under the FMLA. FMLA generally applies to employers with 50 or more employees and requires employers to hold an employee’s job for up to 12 weeks while they are on medical leave (though some state and local laws may provide additional protection for a longer period of time).
Generally, employers are allowed to terminate an employee’s employment if they are unable to return to work after 12 weeks.
What happens to STD or LTD benefits if an employer terminates the recipient’s employment?
Short answer: This should not affect benefits.
Discussion: If employment is terminated with a pending STD or LTD claim filed, or one that has been approved and is active, the termination should not affect the employee’s eligibility for benefits.
In fact, the employee can apply for benefits after termination if they became disabled prior to termination. Similar to car insurance, the question is whether there was coverage in place at the time the date of disability occurred, akin to the date of an accident. Even if the coverage has lapsed since then, beneficiaries should be able to make a retroactive claim for benefits.
Naomi R. Swain, U.W. 2021, is an associate attorney at Hawks Quindel’s, Madison office. Her practice covers worker’s compensation, disability benefits, and family law.
What happens if an employee became disabled but failed to apply for disability benefits prior to termination?
Short answer: If the employee became disabled prior to termination of insurance coverage, the employee may still apply and receive LTD or STD benefits.
Discussion: The majority of benefit plans are governed by ERISA, or the Employee Retirement Income Security Act of 1974. ERISA requires that every employee benefit plan maintain reasonable procedures relating to the filing of benefit claims.
ERISA disallows employers from administrating claims in a way that “unduly inhibits or hampers the initiation” of benefit claims. Given that a disabling condition often requires employees to stop working, it would be unreasonable to disallow a former employee from making a claim for benefits if their disability began while they were covered under their employer’s STD or LTD plan.
An Important Practice Tip
Timing around STD and LTD benefits is very important!
Once a claim governed by ERISA is denied, there is a 180-day deadline by which the claimant has to appeal. If this deadline is missed, no other information can be added to the administrative record should a lawsuit be filed. This makes the appeal process itself very important as well as the deadlines.
It’s best for employers and employees navigating these issues reach out to experienced counsel from the outset to avoid missteps.
This article was originally published on the State Bar of Wisconsin’s Labor & Employment Law Section Blog. Visit the State Bar sections or the Labor & Employment Law Section webpages to learn more about the benefits of section membership.
