Does cutting hours to satisfy ACA, violate ERISA?

May 15, 2016

The Affordable Care Act, sometimes referred to as Obamacare or the ACA, requires employers who employ 50 or more “full-time equivalents” to offer affordable minimum-value coverage to those employees and their dependents or pay a penalty in the event that any of their full-time employees receive federal premium assistance to purchase individual coverage in the Health Insurance Marketplace. This system is known as the “Employer Mandate.” However, when the ACA was enacted, many commentators predicted that employers would reduce full-time employee hours to avoid the coverage obligations and associated penalties.

Recently, this practice of reducing hours was tested in court. The United States District Court for the Southern District of New York declined to dismiss a case alleging that Dave & Buster’s “right-sized” its workforce for the purpose of avoiding healthcare costs. While the Court in Marin v. Dave & Buster’s Inc., has not come to a final ruling on the merits, the case could still have major implications for companies contemplating a workforce realignment.

In this case, the lead plaintiff had her hours reduced, resulting in the loss of full-time employee status and therefore eligibility for medical and vision benefits. The plaintiff alleged that her managers held at least two staff meetings in which they explained that Dave & Buster’s was reducing schedule hours because “the ACA would cost the company two millions dollars.” She also referred to a public statement by a senior executive that the company was reducing its workforce to “adapt” to upcoming changes associated with the ACA. The complaint, which is a 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 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 & Buster’s Plan or being offered only inferior health insurance (the “class”)].

Section 510 of the Employee Retirement Income Security Act of 1974 (“ERISA”) 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 intent to interfere with benefits if they want to successfully assert a cause of action under ERISA Section 510.

In the current case, Dave & Buster’s moved to dismiss the complaint, arguing that ERISA did not prohibit the company from changing its employment model to avoid the mandate. However, the court allowed the lawsuit to move forward. The court held that the plaintiffs had sufficiently alleged facts showing that Dave & Buster’s violated the relevant section of ERISA.

While the case is not over, and only time will tell how the final decision shapes the handling of part-time employee hours, the attorneys at Rock Fusco & Connelly can assist with any ERISA or ACA related inquiries, where there remains a great deal of uncertainty in how employers can protect themselves while minimizing costs.

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