Landmark lawsuit: ACA employer mandate case costs Dave & Buster's $7.4M

overtime, lawsuit, DOL, FLSA

To avoid the employer mandate for not offering healthcare coverage, can employers cut employees’ hours to avoid having them count as full-time employees under the ACA? HR pros everywhere were hoping a first-of-its kind lawsuit would answer this question. 
Unfortunately, employers won’t get an answer to that question from the lawsuit we’re referring to.
The class-action lawsuit, Marin v. Dave & Buster’s, claimed the restaurant and entertainment chain purposely cut employees hours to below 30 per week to avoid the ACA required to provide all full-time employees (those working at least 30 hours per week) with health insurance or pay a penalty.
The suit claimed Dave & Buster’s move violated ERISA.
After trying — and failing — to get a high-profile lawsuit dismissed, Dave & Buster’s agreed to pay $7.425 million to settle the suit, which accused the restaurant and entertainment chain of illegally cutting staffers’ hours to prevent them from receiving healthcare benefits.
If the court approves the settlement terms, it will bring to an end a two-year lawsuit and could impact approximately 1,200 class members.
As HR Morning covered previously, the ERISA lawsuit was the first case in which an employer was accused of intentionally interfering with employees’ hours to avoid the ACA’s employer mandate.

ERISA Section 510

The lawsuit hinged on a very specific section of ERISA — the employees sued under ERISA Section 510.
Granted, 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. In refusing to dismiss the suit, 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.
A few things that hurt 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 healthcare reform,” and
  • a Dave & Busters 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 problem with this settlement from an employer standpoint: Without any clear guidance from the court, employers still run the risk of getting sued — for charges one court has already allowed to proceed to trial — if they implement ACA-circumventing strategies similar to Dave & Busters.