EEOC Sues Employers’ Wellness Programs

Steep penalties for not participating said to make programs involuntary

By Stephen Miller, CEBS August 26, 2014

updated 11/3/2014

Update: Additional EEOC Lawsuits Filed

A second lawsuit by the Equal Employment Opportunity Commission (EEOC) against an employer-sponsored wellness program was announced Oct. 1, 2014, EEOC v. Flambeau, Inc.

The EEOC alleged that Flambeau Inc. in Baraboo, Wis., unlawfully threatened insurance cancellation and discipline if an employee did not submit to medical testing and assessment in connection with a wellness program. The wellness program at issue required that employees undergo biometric testing and a health risk assessment or face cancellation of medical insurance or a requirement to pay the full premium to stay covered and unspecified disciplinary action.

In a third suit, EEOC v. Honeywell International Inc., filed Oct. 27, 2014, the EEOC targeted Honeywell Inc. over its wellness program, charging that Honeywell’s financial incentives for undergoing biometric testing made the program “involuntary,” violating the Americans with Disabilities Act and the Genetic Information Nondiscrimination Act. Honeywell responded that its financial incentives fall within the range specified as allowable under the Affordable Care Act. See the SHRM Online article EEOC Targets Incentives, Sparks Criticism.

The U.S. Equal Employment Opportunity Commission (EEOC) charged Wisconsin-based Orion Energy Systems with violating federal law by requiring an employee to submit to medical exams that were not job-related but were part of the employer’s wellness program, and then firing the employee when she objected to the program.

The EEOC’s lawsuit is the agency’s first to directly challenge a wellness program under the Americans with Disabilities Act (ADA). The case, EEOC v. Orion Energy Systems, was filed on Aug. 20, 2014, in the U.S. District Court for the Eastern District of Wisconsin.

“Employers certainly may have voluntary wellness programs—there's no dispute about that—and many see such programs as a positive development,” said John Hendrickson, regional attorney for the EEOC Chicago district, in a released statement. “But they have to actually be voluntary. They can't compel participation by imposing enormous penalties such as shifting 100 percent of the premium cost for health benefits onto the back of the employee or by just firing the employee who chooses not to participate. Having to choose between responding to medical exams and inquiries—which are not job-related—in a wellness program, on the one hand, or being fired, on the other hand, is no choice at all.”

Alleged ADA Violations

The ADA limits the circumstances under which an employer may require physical examinations or answers to medical inquiries. However, voluntary medical exams and inquiries are permitted as part of an employee health plan if:

Participation in the program is voluntary.

Information obtained is kept confidential in accordance with the ADA requirements.

Information obtained is not used to discriminate against an employee.

The EEOC contends that Orion’s wellness program required medical examinations and made disability-related inquiries. When employee Wendy Schobert declined to participate in the program, Orion shifted responsibility for payment of the entire premium for her employee health benefits from Orion to Schobert. Shortly thereafter, Orion fired Schobert.

The EEOC maintains that Orion's wellness program violated the ADA as it was applied to Schobert, and that Orion retaliated against Schobert because of her good-faith objections to the wellness program. The EEOC further asserts that Orion interfered with Schobert's exercise of her federally protected right to not be subjected to unlawful medical exams and disability-related inquiries.

Cautioned Urged

“The EEOC…has questioned whether mandatory wellness programs or those that include penalties for noncompliance (as opposed to a reward for participation) would be permitted under the ADA. However, the EEOC has not issued formal guidance,” the nonprofit Disability Management Employer Coalition said in a statement. “Employers should be aware that the ADA may prohibit severe penalties under wellness programs and should monitor this case and other developments. Positive incentives are less likely to run afoul of the ADA.”

“For many years, the EEOC’s position has been that a wellness program is ‘voluntary’ as long as an employer neither requires participation nor penalizes employees who do not participate,” noted a blog post by law firm Jackson Lewis. “Obviously, in this case, the EEOC has taken a very definitive position that any penalty it determines to be ‘steep’ and ‘enormous’ would make an otherwise voluntary program involuntary.”

“The facts of this case are unusual since the employee's termination, rather than the employer's wellness plan design, appears to be the likely force behind the EEOC's complaint,” commented law firm Mazursky Constantine LLC. “Further, the amount of the reward under the employer's program (100 percent of employee premiums), although arguably permitted under the HIPAA rules, is not typical of the modest incentives offered under most employer's wellness programs. Accordingly, it seems unlikely that this case represents the EEOC's opening salvo in a war against all reasonably designed wellness programs.”

The EEOC has said that it plans to issue guidance concerning the amount of a reward/penalty allowed for a program to be “voluntary.”

Remember ACA’s New Wellness Rules

Enforcing the Affordable Care Act’s wellness regulations is outside the EEOC’s jurisdiction, but it’s important to remember the ACA’s wellness program requirements as well, advises a release from law firm Jackson Lewis:

The new regulations raise the maximum permissible reward offered in connection with a health-contingent wellness program to 30 percent. This amount is raised to 50 percent for programs that seek to reduce tobacco use.

Wellness programs can come in two forms: “outcome based” and “activity-only”:

Outcome-based wellness programs reward employees for meeting certain goals, such as lowering their body mass index or cholesterol, or quitting smoking. A reasonable alternative standard must be provided for all individuals who do not meet the outcome-based standard, to ensure that the program is reasonably designed to improve health and is not a subterfuge for underwriting or reducing benefits based on health status.

Activity-only wellness programs require individuals to perform or complete an activity related to a health factor in order to obtain a reward, although a particular outcome is not required. Activity-only programs require that a reasonable alternative standard for obtaining the reward be provided to individuals for whom it would be unreasonably difficult due to a medical condition or medically inadvisable to meet the existing standard.

Program descriptions must describe the availability of the reasonable alternatives available.

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow him on Twitter @SHRMsmiller.

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