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July 12, 2002
PEOs' Benefits Subject of Class-Action Suits
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PEOs take over the employees of a business, then "lease" them back to the company. The PEO, which sees itself as a "co-employer," is responsible for providing benefits. Increasingly, those benefits involve self-funded medical plans.
The Salt Lake City Tribune reports that the latest suit was filed by Jill Hills, who works at a mortgage company under a PEO arrangement and faces $190,000 in unpaid medical bills for the premature birth of her daughter, Tayci.
The birth came six months into the pregnancy, when an obstetrician diagnosed Hills as dangerously toxemic and had her flown to a Salt Lake City hospital.
The Tribune quotes the lawsuit as alleging that the majority of Hills' claims were never processed. As for the ones that were, "the reasons the defendants have given for the denial of payment have been clearly bogus, such as claiming that care for Hills or Tayci was not medically necessary."
The suit pursues Hills' health insurance providers under the federal Employee Retirement Income Security Act (ERISA) and the Racketeering Influenced and Corrupt Organization Act (RICO).
The Tribune reports that Hills' PEO, the American Employment Group, referred questions on the lawsuit to its lawyer, who did not return phone calls.
The other two suits filed in recent months include one against the PEO Employee Leasing and Management Inc., where $365,000 is sought for a child's leukemia treatment, and the PEO Comprehensive Employee Solutions, involving failure to pay $10,000 in medical costs incurred by the family of an employee at a small electrical company.
The newspaper says the suits are filed as class actions because they may affect thousands of Utah workers.
"You've got small-business owners being talked into going the self-funded route with a PEO," says Salt Lake City lawyer Brian King, who is handling all three suits. He does not rule out that the small businesses involved could become entangled in lawsuits, if the PEOs fail to come up with the money and particularly if the businesses carry insurance on executive errors and omissions.
"The greatest error on the part of the small business is not doing enough homework on PEOs," King says. "Caveat emptor, it really is."
Because of increasing benefit costs and the related paperwork tangle for small businesses, the number of PEOs had grown more than 500 percent since 1992, according to a study by a staffing industry watchdog group, Center for a Changing Workforce.
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