## Facts

- Denice Lessard worked for Applied Risk Management, Inc. (ARM) and participated in ARM’s self-funded group medical plan governed by ERISA.
- Lessard suffered a work-related spinal injury and went on workers’ compensation/medical leave, remaining a plan participant while not actively working.
- ARM sold its assets to Professional Risk Management (PRM), a subsidiary of MMI Companies, Inc. (MMI), under an Asset Sale Agreement.
- The Agreement provided for automatic transfer of ARM employees to PRM/MMI with uninterrupted welfare-benefit coverage only if the employee was “actively employed” at the time of sale or on non-medical, non-extended leave.
- Employees on medical, disability, workers’ compensation, or other extended leave (including Lessard) were excluded from automatic transfer and would become eligible only upon returning to active work.
- ARM was required to fund its plan through a specified end date, after which the ARM plan terminated; Lessard’s coverage ended and she was not accepted into PRM/MMI’s plan.
- Lessard sued ARM, PRM, and MMI under ERISA § 510 for interference with benefit rights; the district court granted summary judgment for defendants.

## Issues

1. Whether an asset-sale agreement that conditions automatic employment transfer and uninterrupted benefits on being “actively employed” and excludes employees on medical/disability leave constitutes facial discrimination prohibited by ERISA § 510.
2. Whether facially discriminatory plan-related employment terms supply direct evidence of the intent required for ERISA § 510 liability, making McDonnell Douglas burden-shifting unnecessary.
3. Whether Lessard was entitled to judgment as a matter of law on ERISA § 510 liability based on the agreement’s express terms.

## Decision

- The Ninth Circuit reversed the district court’s summary judgment for defendants.
- The court held the Agreement facially discriminated against employees on medical and disability leave in violation of ERISA § 510.
- The court concluded the facial discrimination constituted direct evidence of the intent to interfere with protected benefit rights.
- The case was remanded with directions to enter judgment and award damages in Lessard’s favor.

## Legal Principles

- ERISA § 510 prohibits discriminating against a plan participant for exercising plan rights or for the purpose of interfering with the attainment of rights under an ERISA plan.
- When a challenged employment-related term expressly classifies employees in a manner that disfavors those on medical/disability leave with respect to benefit continuity, the discrimination can be facial and actionable under § 510.
- Facial discrimination in the governing transaction documents can constitute direct evidence of the requisite intent under § 510, so circumstantial-evidence frameworks such as McDonnell Douglas are not required.
- A transaction characterized as a neutral business decision does not avoid § 510 liability when the agreement’s text specifically singles out employees on medical/disability leave for worse benefit-related treatment.

## Conclusion

The Ninth Circuit held that an asset-sale agreement’s explicit exclusion of employees on medical or disability leave from automatic transfer and uninterrupted welfare benefits is facial discrimination under ERISA § 510, establishing intent and warranting judgment and damages for the excluded employee.


Lessard v. Applied Risk Mgmt., Inc., 307 F.3d 1020 (9th Cir. 2002)