This U.S. district court ruling is a real game-changer for employers — and not in a good way. Turns out, you CAN now be sued for simply reducing an employee’s hours.
Here’s the deal: If an employee can show that your intent in reducing his or her hours was to deny the person access to some benefit or right he or she would’ve otherwise been entitled to, you can be sued.
That’s according to a new ruling by the U.S. District Court for the Southern District of New York.
This ruling has major ACA implications.
Example: If you reduce employees’ hours below 30 per week to avoid having to offer them health insurance per the ACA — and employees provide any evidence that your intention behind the hour reduction was to avoid having to offer insurance — bang … lawsuit.
The court just ruled Dave & Buster’s employees can sue the restaurant chain for that very reason.
Protected by ERISA
The employees sued under ERISA Section 510.
Yes, ERISA was written primarily to apply to retirement plans. But Section 510 can be applied to a number of benefit plans as well — including healthcare coverage.
Section 510 says (the critical parts are in bold):
“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 subchapter, section 1201 of this title, or the Welfare and Pension Plans Disclosure Act [29 U.S.C.A. § 301 et seq.], or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan, this subchapter, or the Welfare and Pension Plans Disclosure Act. 29 U.S.C. § 1140.”
According to the court, Dave & Buster’s health insurance plan is an employee welfare benefit plan under ERISA.
In the lawsuit, employees claim the restaurant chain violated Section 510 by reducing their hours below 30 per week to avoid Obamacare’s employer mandate to provide full-time employees with health insurance.
The suit claims that during a meeting at one Dave & Buster’s location, attended by the lead plaintiff Maria De Lourdes Parra Marin, a company general manager said that the Obamacare mandate would wind up costing the company upwards of $2 million. And to skirt those costs, the manager claimed the restaurant planned to cut the hours of full-time workers, which it then did, according to the suit.
The plaintiffs then claim that similar meetings were held company-wide.
Their case hinged on whether or not ERISA could actually be applied to health plans. The court ruled it could.
D&B’s flawed defense
Dave & Buster’s tried to get the employees’ lawsuit thrown out during the summary judgment phase. It said the employees’ had no legally sufficient claim because Section 510 doesn’t apply to benefits “not yet accrued,” and it argued that employees must show more than a “lost opportunity to accrue additional benefits” to sustain a claim under ERISA Section 510.
But the court said the employer’s “intent” is what mattered — and not necessarily when employees were to obtain benefits.
It said for the lawsuit to proceed to trial, the plaintiffs had to demonstrate the employer specifically intended to interfere with benefits. They succeeded, according to the court. So the employees’ lawsuit will proceed to trial, where Dave & Buster’s is looking — at best — at a costly defense bill or an expensive settlement.
A few things that spelled doom for the restaurant in the case:
- Marin’s account of a company general manager saying that the Obamacare mandate would wind up costing the company upwards of $2 million and that management was reducing employees’ hours to avoid that cost
- similar meetings appeared to have been held at other Dave & Buster’s locations
- an employee from another location posted on the restaurant’s Facebook page on June 9, 2013 that “[t]hey called store meetings and told everyone they were losing hours (pay) and health insurance due to Obamacare”
- the senior VP of HR responded to a query from The Dallas Morning News about the employer’s reduced workforce by saying that “D&B is in the process of adapting to upcoming changes associated with health care reform,” and
- a Dave & Buster’s filing with the Securities and Exchange Commission from September 29, 2014 stated that “Providing health insurance benefits to employees that are more extensive than the health insurance benefits we currently provide and to a potentially larger proportion of our employees, or the payment of penalties if the specified level of coverage is not provided at an affordable cost to employees, will increase our expenses.”
The court ruled that as long as these allegations are proven, the lawsuit “states a plausible and legally sufficient claim.”
The bottom line
The big takeaway for employers: If employees can tie a reduction in their hours to an intent to skirt ACA requirements, you could be staring down the barrel of an expensive lawsuit.
As a result, the ruling further limits employers’ options when it comes to creating an ACA compliance strategy. For now, it appears that in many causes reducing your workforce or employees’ hours in an attempt to reduce your health insurance bill may be off the table — or at least highly risky.