EEOC Settlement of Wellness Suit Leaves Unresolved Issues

Courts split over whether ADA safe harbor applies to wellness programs

Stephen Miller, CEBS By Stephen Miller, CEBS April 27, 2017
EEOC Settlement of Wellness Suit Leaves Unresolved Issues

A settlement reached by the U.S. Equal Employment Opportunity Commission (EEOC) and an employer over whether worker participation in a worksite health screening was "voluntary" is a warning signal not to go too far in pressing employees to participate in wellness-promoting initiatives. But conflicting federal rules and court decisions continue to muddy the compliance waters for employee wellness programs.

The EEOC's April 5 settlement with Orion Energy Systems, a Manitowoc, Wis.-based producer of energy-efficient lighting platforms, ends the agency's litigation against the company. The EEOC had charged Orion with violating the Americans with Disabilities Act (ADA), among other allegations. The suit contended that Orion's wellness program required medical examinations and made disability-related inquiries in violation of the ADA's employee protections.

Wendy Schobert was an Orion employee who declined to participate in the company's wellness program. Orion subsequently required her to pay the entire premium for her employee health benefits and, shortly thereafter, fired her.

The case, EEOC v. Orion Energy Systems Inc., was filed in August 2014 in the U.S. District Court for the Eastern District of Wisconsin.

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

  • Pay Schobert $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 benefits coverage and wellness programs.

[SHRM members-only toolkit: Designing and Managing Wellness Programs]

A Disputed 'Safe Harbor'

Last September, the district court ruled partially in favor of the EEOC. The court rejected Orion's argument that the ADA's safe harbor provision for health insurance plans immunizes wellness programs from ADA scrutiny.

The court held that there were issues of fact regarding whether Schobert was fired because of her opposition to the wellness program or for other reasons, and it indicated that the case on that issue would be set for trial. The settlement resolves this matter.

The court also concluded that the EEOC's May 2016 final rules on the ADA's safe harbor provision were within the agency's authority to issue. The rules permit employers to offer a limited financial reward (e.g., 30 percent of the total cost of self-only coverage) for participation in a wellness program.

"Orion's wellness program would not have met the incentive limits in the EEOC's final ADA regulations on wellness programs, but this was not an issue because the final regulations were issued after the case originated," said Allison Klausner and Sharon Cohen, principals with Conduent, an HR consultancy.

The court, however, upheld the applicability of the EEOC's rules going forward.

Ensuring Compliance

"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]," said Russell Chapman, special counsel in the Dallas office of Littler.

Also, wellness programs that are part of the employer's group health plan should be reviewed to ensure that they're in compliance with final wellness regulations under the Affordable Care Act (ACA), issued in May 2013 by the departments of Health and Human Services, Labor, and the Treasury, and with the Health Insurance Portability and Accountability Act's nondiscrimination provisions, he advised.

Conflicting Standards

The district court ruling in Orion Energy was at odds with a decision handed down in December 2015 in EEOC v. Flambeau Inc., where the U.S. District Court for the Western District of Wisconsin held that an employer's health assessment and testing requirement 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 district court's Flambeau decision was appealed, and on Jan. 25, 2017, the 7th Circuit Court of Appeals issued its decision, ruling against the EEOC on procedural grounds—finding that the EEOC's claim was moot since the employee in question was no longer employed by Flambeau. The 7th Circuit did not address underlying issues involving conflicts between the treatment of wellness incentives under the ADA and ACA and thus left the district court ruling in place.

Proposed legislation (H.R. 1313) that the House Education and the Workforce Committee approved in March would smooth out differences between wellness program rules issued by the EEOC and other federal agencies. The legislation also exempts workplace wellness programs from the ADA's limits on medical examinations and inquiries of employees, and from GINA's limitations on collecting the genetic information of employees or family members of employees, when these activities are part of a workplace wellness program that complies with the ACA's limits on rewards for employees participating in the program.

The ACA's statutory limits on incentives are higher than those under the EEOC's rules, reaching up to 50 percent of the value of health care premiums for participation in tobacco-cessation programs, for instance.

But the bill, which businesses supported but disability rights groups opposed, has stalled in the House of Representatives.

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