"Él no merece esto."
Translation:He does not deserve this.
Your version changes the verb from "deserve" to "is" and changes the notion of "deserve" from a verb to a modifier. Duo probably does not like that.
It seems to me there is a difference. For example if you did not deserve something bad that happened to you, it would not mean anything about being worthy. you might be very worthy of happiness and yet... **** happens.