Employment/ERISA-Fourth Circuit Rules That Employer Properly Denied Short-Term Disability Benefits

Leone v. Tyco Electronics Corporation, No. 09-1821 (4th Circuit 2011)(an unpublished opinion) is a curious case. The plaintiff , Joseph Leone (“Leone”), had sued his former employer, Tyco Electronics Corporation (“Tyco”). He claimed that Tyco breached a contractual provision of its short-term disability policy (the “Policy”), by refusing to pay him short-term disability benefits from June 6, 2007 through December 5, 2007. He also claimed that Tyco’s refusal of his claim violated the North Carolina wage law. The district court granted summary judgment in favor of Tyco on both claims, and Leone appealed. For convenience, the wage law claim is not discussed below.

In analyzing the breach of contract claim, the Court applied North Carolina law and reviewed the Policy. It found that the Policy does not guarantee that an employee will receive short- term disability benefits, even if the employee meets the Policy’s requirements for having a short-term disability. Rather, the Policy allows the employee to file a claim for benefits, under an established claims procedure that provides Tyco with the discretionary right to determine whether the benefits will be paid. Thus, an employee’s right to short-term disability benefits is subject to Tyco’s approval. Here, Tyco did not approve the benefit claim. Under North Carolina contract law, Tyco is required to exercise its discretionary power in a reasonable manner based upon good faith and fair play. The evidence shows that Tyco met this requirement when denying Leone’s claim. Accordingly, the Court affirmed the district court summary judgment in Tyco’s favor.

My question: What happened to ERISA? The Policy appears to be a welfare benefit plan, subject to ERISA. On this question, the Court stated, in effect, that ERISA is not relevant to its breach of contract analysis. Why?