Ruling Is Mixed Bag for EEOC’s Effort to Rein in Wellness Programs

Parsing the implications for voluntary incentives in health assessment programs

Stephen Miller, CEBS By Stephen Miller, CEBS September 28, 2016

A federal district court ruled partially in favor of the U.S. Equal Employment Opportunity Commission (EEOC) on Sept. 19 in EEOC v. Orion Energy Systems Inc., a disability discrimination case involving an employer's wellness program. But the ruling ultimately vindicated the employer—leaving benefit attorneys pondering the implications for wellness programs that rely on voluntary incentives.

As SHRM Online previously reported, in 2014 the EEOC charged Wisconsin-based Orion Energy Systems with violating the Americans with Disabilities Act (ADA) by requiring employees to either submit to medical exams that were not job-related but were part of the employer's wellness program or pay 100 percent of the premium for the employer-provided health insurance. The EEOC further charged that Orion had fired an employee when she objected to the program.

The federal district court for the Eastern District of Wisconsin rejected Orion's argument that the ADA's safe harbor provision for health insurance plans immunizes wellness plans from ADA scrutiny as well. The court also concluded that the EEOC's May 2016 final rules on the ADA's safe harbor provision were within the EEOC's authority to determine, and further held that the safe harbor provision did not apply even without regard to the new regulations.

Contrary Rulings

The ruling is at odds with a decision handed down last December in EEOC v. Flambeau Inc., where the U.S. district court for the Western District of Wisconsin held that the employer's health assessment and testing requirement at the center of that case fell within the ADA safe harbor, which provides an exemption for activities related to a health insurance plan when those activities are based on underwriting, classifying or administering risks. The Flambeau decision generally followed the Eleventh Circuit Court of Appeals' broad interpretation of the ADA safe harbor in Seff v. Broward County.

In the Orion ruling, however, the EEOC did not prevail in all aspects. The agency had argued that Orion's health risk assessment was not "voluntary" as required by the ADA, since the employer shifted 100 percent of the health benefit premium to employees who opted out, while employees who completed the assessment paid no premium (but still had to pay their own deductibles, co-pays and out-of-pocket expenses); and considering that one employee, Wendy Schobert, was fired three weeks after opting out of the health assessment.

The court found that the wellness plan was nonetheless lawful under the ADA because an employee's decision whether to participate was voluntary under that statute, despite the hefty financial consequences for declining to participate.

"Even a strong incentive is still no more than an incentive; it is not compulsion," the court ruled. "Orion's wellness initiative is voluntary in the sense that it is optional. An employee is not required to participate in the program and is instead given a choice: either elect to complete the [health risk assessment] as part of the health program or pay the full amount of the health benefit premium."

The court also held that there were issues of fact regarding whether Schobert was fired because of her opposition to the wellness plan and indicated that the case would be set for trial.

"Although we disagree with the court's holding that participation in the wellness plan here was voluntary, we are pleased with the court's solid reasoning that the safe harbor concept does not apply here," said John Hendrickson, the regional attorney for the EEOC's Chicago district office. "It establishes that there is no easy out for employers from ADA scrutiny—they must make sure that their plans comply with that law."

"As the first ADA-related wellness program decision since the EEOC's May 2016 final regulations, the Orion case is very relevant to employers," explained Garrett Fenton, a benefits attorney at Miller & Chavalier in Washington, D.C. "If the case is appealed to the Seventh Circuit—where the Flambeau decision currently is pending—and the inapplicability of the ADA safe harbor to wellness programs is upheld, then Orion could create a circuit split on the issue…and potentially be ripe for Supreme Court review."

So, Who Won?

Serena Yee and Carolyn Daniels, benefits attorneys with Bryan Cave LLP in St. Louis and Denver, respectively, view the ruling as an EEOC defeat. "The court held that the protections set forth in the ADA safe harbor enable employers to design insurance benefit plans that require otherwise-prohibited medical examinations as a condition of enrollment without violating the ADA," they said. "Employers should be encouraged by the outcome of this case."

Russell Chapman, special counsel in the Dallas office of Littler, characterized the ruling as "half a loaf" for the EEOC. "While the court in Orion ultimately ruled in favor of the employer on the wellness program question, employers must heed its warnings," he said, since employers can't simply rely on a safe harbor exemption from ADA scrutiny. 

"Employers should review their wellness programs to ensure that such programs comply with the EEOC's recent guidance on what medical inquiries qualify as voluntary under the ADA," Chapman noted. "Whether or not they are a part of the employer's group health plan, wellness programs that require health screens or ask disability-related questions should be reviewed to ensure that they are in compliance with the EEOC final wellness regulations under both the ADA and GINA [the Genetic Information Nondiscrimination Act]." If a wellness program is part of the employer's group health plan, ensure that it's also in compliance with the Department of Labor's final wellness regulations under the Affordable Care Act's and the Health Insurance Portability and Accountability Act's nondiscrimination provisions, he advised.

Mark Stember, a partner in the Washington, D.C., office of law firm Kilpatrick Townsend, pointed out that "Although the penalty imposed by Orion for not participating in the program was 100 percent of the cost of self-only coverage, the new EEOC rules requiring voluntary programs to provide a maximum financial incentive of 30 percent do not apply retroactively and were not at issue in this case." The court, however, upheld the applicability of the EEOC's rules going forward.

"In the end, this case has more for the EEOC to be pleased with than it does for employers still looking to bolster support for the position that Congress intended for the ADA's safe harbor exception to have wide applicability to wellness programs," said Stember.

"Employers should be mindful that the ADA is merely the tip of iceberg for wellness program compliance," Fenton cautioned. "Employer-sponsored wellness programs can—and often do—implicate a complex web of legal issues and requirements." Therefore, "It is critical that employers fully vet their wellness programs under all applicable federal and state laws, no matter how minimal or innocuous they may seem."

Update: Case Closed

The U.S. Equal Employment Opportunity Commission announced on April 5, 2017, that it had settled its suit against Orion Energy Systems, alleging that the employer retaliated against an employee who objected to the program by terminating her, in violation of protections provided to workers under Americans with Disabilities Act.

Under the settlement, Orion agreed, among other things, to:

  • Pay the employee $100,000
  • Not retaliate against employees who object to or question any future wellness program
  • Train management (including the C-suite) and employees on the ADA and underlying regulations pertaining to health benefit coverage and wellness programs
  • Agreed that any future wellness program that seeks medical examinations or contains disability-related inquiries will be voluntary within the meaning of the ADA and its regulations.

"The resolution of the Orion case is the culmination of several lawsuits filed by the EEOC's regional attorney in the Chicago District Office, which was at the forefront of legal challenges to employer wellness programs over the last few years," according to an analysis by Conduent, an HR services provider. 


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