Are undocumented employees entitled to the same employer-sponsored benefits as their co-workers?

According to a recent ruling from the 8th U.S. Circuit Court of Appeals, apparently not.

In Avera McKennan v. Meadowvale Dairy Employee Benefit Plan, 2020 WL 5085954 (8th Cir., Aug. 28), the appeals court ruled that a hospital (Avera) was unable to recoup significant expenses it incurred in treating a seriously ill employee of Meadowvale Dairy whose health benefits had been rescinded.

In 2015, Meadowvale Dairy LLC hired an individual who identified himself as Gilberto Fuentes Cruz and enrolled him in the organization’s ERISA-governed medical benefits plan. In 2016, the employee was treated at Avera for Guillain-Barre syndrome, a rapid-onset autoimmune disorder, and he ultimately died due to the severity of his illness. During the course of treatment, Meadowvale discovered the employee’s real name was Juan Pablo Garcia Marquez and retroactively canceled his benefit enrollment on the ground that he was undocumented and had misrepresented his identity.

Although Avera had a valid assignment of benefits and was unaware of the enrollment issues, the court barred the hospital’s claim. Marquez had died without appealing the rescission of his coverage; and when Avera attempted to do so on his (and its own) behalf, the plan denied the appeal on multiple grounds, including the prior rescission of coverage.

Avera then filed suit under the ERISA law and received a judgment for more than $750,000 to reimburse the cost of medical treatment, plus attorney fees. The appeals court reversed and dismissed the case.

Although the 8th Circuit upheld the validity of Avera’s assignment, the court found the health care provider lacked a valid cause of action due to the employee’s failure to exhaust administrative remedies. The court concluded exhaustion had not occurred because Marquez failed to appeal the rescission of coverage prior to his death and Avera’s efforts to appeal were insufficient.

In basing its ruling on a lack of exhaustion, the court evaded the underlying issue — whether Meadowvale justifiably rescinded Marquez’s benefits.

The district court expounded on the issue in its ruling, though. The lower court found “Avera’s claim to benefits turns on whether Marquez was an ‘employee’ of Meadowvale, and whether his alleged fraud — submitting a false Social Security number because he did not have permission to work in the United States — cancelled his status as an employee.” Avera McKennan v. Meadowvale Dairy Emp. Benefit Plan, 374 F. Supp. 3d 771, 786 (N.D. Iowa 2019).

The court explained the plan language did not exclude “employees who are not actually authorized to work” and then added:

“ERISA does not exclude non-citizens or limit relief to those who are authorized to work. See 29 U.S.C. Sec. 1002(6), 1003(b) (defining ‘employee’ as ‘any individual employed by an employer.’). No reasonable person could conclude that Marquez was not an employee simply because it was not legal for Meadowvale to hire him, when Meadowvale actually did hire him and pay him for his work.” 374 F.Supp.3d at 786-87 (further emphasizing “the plain reality that Meadowvale did in fact employ Marquez — whether lawfully or not.”).

The district court also pointed out that the 8th Circuit had previously ruled “employers who unlawfully hire unauthorized aliens must otherwise comply with federal employment laws.” Lucas v. Jerusalem Cafe, LLC, 721 F.3d 927, 933 (8th Cir.) (addressing claims under the Fair Labor Standards Act (FLSA)), cert. denied, 572 U.S. 1002, 134 S.Ct. 1515, 188 L.Ed.2d 450 (2013). The rationale the court applied was that there was “no reason why an employer should be exempted from paying the same wages to unlawfully hired workers that would be owed to lawful employees.”

Although Meadowvale argued the misrepresentation was material, the lower court found it did not affect the risk of insuring Marquez; and the district court also concluded: “Coverage under the Plan does not depend on whether Marquez was a wise or legal hire — it depends on whether he was an employee.” The district court also cited another similar case involving life insurance, which granted benefits to the beneficiary of an undocumented worker who had worked under a false name — Garcia-Moreno v. Great-West Life and Annuity Ins. Co., 402 F. Supp. 2d 1031 (N.D. Iowa 2005).

The district court’s decision was no outlier, while the 8th Circuit’s ruling ignored a significant body of legal authority. For example, in Bollinger Shipyards, Inc. v. Director, Office of Worker’s Compensation Programs, 604 F.3d 864 (5th Cir. 2010), the court addressed the issue of whether an undocumented immigrant worker qualified for benefits under the Longshore and Harbor Workers’ Compensation Act. The 5th Circuit relied on Supreme Court precedent holding that U.S. labor laws apply to all “employees” and do not exclude protection for undocumented immigrants.

Bollinger also cited a case from Illinois, Economy Packing Co. v. Illinois Worker’s Compensation Commission, which held:

“In interpreting a statute, undefined words are given their plain and ordinary meaning. When unmodified, the term ‘alien’ is broad enough in scope to encompass any ‘person who resides within the borders of a country but is not a citizen or subject of that country.’ The plain meaning of aliens, therefore, includes not only foreign-born citizens that can legally work in the United States, but also those that cannot. Had the legislature intended otherwise, it could have defined the term or modified it with more specific language. Consequently, we conclude that all aliens in the service of another pursuant to a contract for hire, regardless of their immigration status, are considered ‘employees’ within the meaning of the Act and, under Illinois law, are entitled to receive workers’ compensation benefits.” 387 Ill.App.3d 283, 327 Ill.Dec. 182, 901 N.E.2d 915, 920 (1st Dist. 2008).

In yet another ruling, Bay Area Roofers Health and Welfare Trust v. Sun Life Assur. Co. of Canada, 73 F.Supp.3d 1154 (N.D. Cal. 2014), a court ruled that an undocumented worker was entitled to employer-sponsored health benefits. The benefit plan had denied benefits when it discovered the employee was an undocumented worker who was working under a Social Security number that belonged to someone else. The court determined that since neither the ERISA statute nor the benefit plan defined participation to exclude an undocumented worker, benefits were due.

The consistency of these rulings makes the 8th Circuit’s rejection of Avera’s claim surprising since the court completely disregarded the underlying issue and focused on a technicality whose basis was recently questioned in a sharply worded concurring opinion issued in Wallace v. Oakwood Healthcare, Inc., 954 F.3d 879 (6th Cir. 2020) (Thapar, J., concurring). ERISA’s exhaustion requirement is non-statutory and purely judge-created. Using that doctrine to deprive a hospital of more than $750,000 in expense reimbursement that would otherwise have been covered by the benefit plan was an exceptionally harsh penalty to impose under the circumstances.

Mark D. DeBofsky is a name partner of DeBofsky Sherman Casciari Reynolds P.C. — on the web at debofsky.com. He handles civil and appellate litigation involving employee benefits, disability insurance and other insurance claims and coverage issues. He can be reached at [email protected]

This article was originally published in Law Bulletin on September 17, 2020.

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