Reducing Worker Hours to Avoid ACA Obligations Violates ERISA, Suit Alleges

A case to watch by those  who have, or might, cut back employee hours to avoid providing heatlh coverage

By Joseph J. Lazzarotti, © Jackson Lewis Jul 28, 2015

One strategy for minimizing exposure to the employer shared responsibility penalties under the Affordable Care Act (ACA) is to minimize the number of “full-time employees”—that is, the number of employers working 30 or more hours per week on average. Employers can accomplish this through reducing the number of hours certain current and future employees work so that they will not be considered to be “full time” as defined by the ACA, requiring coverage to be offered to a smaller group or none at all.

One company’s alleged attempt to do just that is the central claim in a class action lawsuit by an employee alleging the company has interfered with her rights to benefits under the Employee Retirement Income Security Act (ERISA), in Marin v. Dave & Buster’s Inc. (Southern District of New York).

The claims are based on Section 510 of ERISA, which provides:

It shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan, this title, section 3001 [29 USC §1201], or the Welfare and Pension Plans Disclosure Act, or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan, this title, or the Welfare and Pension Plans Disclosure Act.

Put simply, the law makes it unlawful for any person to discriminate against a participant or beneficiary for exercising a right granted (or interfering with the attainment of a right) under ERISA or an ERISA employee benefit plan. In this case, the plaintiff is claiming that the employer reduced her hours of work to below that which the ACA would cause her to be a “full-time employee.” In doing so, the defendant avoided the requirement under the ACA to offer her coverage, as well as any the corresponding penalty under Internal Revenue Code Section 4980H if she were a full-time employee.

In other words, the essence of the plaintiff’s claim is that by reducing her hours of employment, the employer interfered with her attainment of a right under the plan to be eligible to be offered coverage under the medical plan.

So, plan documents say that if you work 30 or more hours per week on average you will be offered coverage, and that by lowering your hours per week, triggering a loss of eligibility for coverage, the employer has impermissibly interfered with your right to eligibility for benefits.

Could this be right? Employers have historically modified their workforces in this manner—trimming work hours and consequently eligibility for welfare benefits—as business needs dictated. COBRA, for example, recognizes this ebb and flow of the workplace providing protection for workers who experience a “qualifying event” when they have a reduction in their hours of employment that leads to a loss of coverage under a group health plan. If successful, one effect of plaintiff’s argument may be that once an employer hires an employee in an eligible classification under an ERISA plan, that employee has a right under ERISA and the plan to be eligible, and any change by the employer in that classification, or what causes the employee to be in that classification, is an impermissible interference with that right.

ERISA section 510 claims, however, are not simple to establish and win. For example, a plaintiff generally must show that the employer acted with a specific intent to violate ERISA section 510 in order to interfere with the plaintiff’s attaining a right under the plan. This intent can be difficult to prove and, absent direct evidence to the contrary, the defendant may be able to show that its motivation for reducing hours of certain employees was not to interfere with any rights the employees may have had under the medical plan, but was for legitimate, nondiscriminatory reasons. In addition, plaintiffs have generally had a difficult time succeeding under ERISA section 510 in regard to welfare benefit plans because of the broad power employers have to amend or terminate benefits under those plans, which typically do not vest like benefits do under retirement plans.

We believe this is the first case in which a court will address this issue and an important case for employers to watch, especially those employers that have taken or are thinking about taking similar steps to address their employer shared responsibility obligations under the ACA.

Joseph J. Lazzarotti is a shareholder in the Morristown, N.J., office of Jackson Lewis P.C © 2015 Jackson Lewis PC. All rights reserved. Reposted with permission.

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