Attempting to Avoid the Affordable Care Act's Mandate by Reducing Hours Provokes ERISA Class Action Challenge
Employers nationwide are closely watching a first-of-its-kind decision concerning part time employees. A federal court recently upheld the right of employees to sue their employer for allegedly cutting employee hours to less than 30 hours per week to avoid offering health insurance under the Affordable Care Act (ACA).
Specifically, the District Court for the Southern District of New York denied a defense Motion to Dismiss in a case where a group of workers allege that the national restaurant chain, Dave & Buster's, “right-sized” its workforce for the purpose of avoiding healthcare costs. In Marin v. Dave & Buster's, Inc., S.D.N.Y., No. 1:15-cv-036081, the plaintiffs allege D&B reduced their hourly work schedules as part of a company-wide effort to avoid the costs of complying with the so-called “employer mandate” of the ACA.
Part Time Employees and the Affordable Care Act Requirements
The ACA requires employers who employ 50 or more “full-time equivalents” to offer affordable minimum-value coverage to full-time employees and their dependents or pay a penalty if any of their full-time employees receive federal premium assistance to purchase individual coverage in the Health Insurance Marketplace (also known as the “Employer Mandate”).
Critics of the Affordable Care Act predicted that many employers would respond to the “Employer Mandate” by reducing full-time employee hours to avoid the coverage obligation and associated penalties. This outcome was expected because the ACA does not require an employer to offer affordable, minimum-value coverage to employees generally working less than 30 hours per week.
In this case, the plaintiff's (Maria De Lourdes Parra Marin) hours were reduced, resulting in the loss of full-time employee status and eligibility for medical and vision benefits. Marin alleged that her managers held at least two meetings with the staff in which they explained that D&B was reducing work schedule hours because “the ACA would cost the company two million dollars.” Marin's complaint also referenced a public statement made by a senior executive that D&B was reducing its workforce to “adapt” to upcoming changes associated with the ACA, as well as disclosures in the company's securities filings in which it stated that complying with the ACA would impact its bottom line.
An employer who reduces employee hours does not violate any specific provision of the ACA. However, there is an open question as to whether such an action would violate another federal law. As alleged by the plaintiff and similarly situated employees, such a reduction creates a cause of action under the Employee Retirement Income Security Act of 1974, known as “ERISA”.
According to court documents, the class action suit was brought on behalf of […persons currently or formerly employed by Dave & Buster's (i) who were participants in an ERISA health insurance plan sponsored by Dave & Buster's; and (ii) whose hours were involuntarily reduced by Dave & Buster's from June 1, 2013 to the present, after the enactment of the Patient Protection and Affordable Care Act (“ACA”), which reductions resulted in either the loss of their insurance coverage under the Dave and Buster's Plan or being offered only inferior health insurance (the “class”)].
Section 510 of ERISA prohibits discrimination and retaliation against plan participants and beneficiaries with respect to their rights to benefits. More specifically, ERISA Section 510 prohibits employers from interfering “with the attainment of any right to which such participant may become entitled under the plan.” Because many employment decisions affect the right to present or future benefits, courts generally require that plaintiffs show specific employer intent to interfere with benefits if they want to successfully assert a cause of action under ERISA Section 510.
Federal Court Ruling
D&B moved to dismiss the complaint, arguing that ERISA did not prohibit the company from changing its employment model to avoid the mandate. But in a recent ruling, the court allowed the lawsuit to move forward, holding that the plaintiffs had sufficiently alleged facts showing that D&B violated Section 510 of ERISA, which prohibits employers from intentionally interfering with employees' eligibility for benefits under the company's health plan.
The lawsuit against Dave & Buster's is the first case to address whether a transition to a substantially part-time workforce in response to the Employer Mandate constitutes a violation of ERISA Section 510. This case is not over and only time will tell how the final decision shapes the handling of part-time employee hours.
Questions about California's Wage and Hour Laws?
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