Can the ACA Employer Health-Insurance Mandate Be Avoided by Reducing Employees’ Hours?

McGuireWoods Healthcare Reform Guide: Installment No. 56

April 21, 2016

This is the 56th in a series of WorkCite articles concerning the Patient Protection and Affordable Care Act and its companion statute, the Health Care and Education Reconciliation Act of 2010 (referred to collectively as the ACA). This article discusses the decision of the federal district court in Marin v. Dave & Buster’s, Inc., No. 15 Civ. 3608 2016 U.S. Dist. LEXIS 18086 (S.D.N.Y. Feb. 8, 2016).

In Marin, the court denied a defendant employer’s request to dismiss a lawsuit alleging acts of discrimination in violation of Section 510 of ERISA. Plaintiff, a former employee of defendant suing on behalf of herself and a purported class, alleged that defendant intentionally interfered with her ability, and that of other employees, to obtain healthcare coverage under defendant’s group health plan by reducing their scheduled work hours.

Under the ACA’s “play-or-pay” employer mandate, an “applicable large employer” must offer health insurance coverage to its “full-time” employees − those employed an average of at least 30 hours per week − or else be subject to penalties. Some employers have considered reducing employees’ hours to below the 30-hour threshold in order to avoid having to offer health insurance to them.

ERISA Section 510 makes it unlawful for any person, among other things, to discharge, fine, suspend, expel, discipline or discriminate against a participant or beneficiary of an employee benefit plan “for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan.” Marin appears to be the first reported case questioning whether an employer can be liable under Section 510 if it reduces employees’ hours in order to avoid the ACA mandate.

The Complaint

In May 2015, Maria De Lourdes Parra Marin filed a purported class-action lawsuit against her former employer, Dave & Buster’s, Inc. (Dave & Buster’s), alleging that it violated Section 510 by reducing her hours so that it could reduce the number of its full-time employees.

In her complaint, plaintiff alleged that she was hired as a full-time employee in August 2006 and worked approximately 30 to 45 hours a week for seven years. During that time, she was eligible for and received health insurance coverage under Dave & Buster’s group health plan. She also alleged that in 2013, Dave & Buster’s designed and implemented a nationwide effort to “right-size,” or rebalance, the number of full-time to part-time workers that it employed. Specifically, she alleged that Dave & Buster’s:

  • held employee meetings to communicate their intention to cut the number of full-time employees “to avoid increasing health care costs”;
  • told a reporter that they were “in the process of adapting to upcoming changes associated with health care reform”;
  • noted in public filings that “[p]roviding health insurance benefits to employees that are more extensive than the health insurance benefits we currently provide … to a potentially larger proportion of our employees … will increase our expenses”; and
  • stated in a letter to plaintiff’s attorney that reducing her hours was part of a nationwide program to “right-size” the number of company full-time and part-time employees.

Plaintiff alleged that her hours were reduced to 10 to 25 hours a week from August 2013 to February 2014 and that in March of 2014, Dave and Buster’s notified her that she was no longer eligible to participate in its group health plan because she was no longer a full-time employee averaging 30 hours or more per week.

The complaint seeks, on behalf of plaintiff and the class, restitution for lost wages and benefits, with interest, from the date of the reduction of their hours and benefits.

The Motion to Dismiss

In February, the district court denied Dave & Buster’s motion to dismiss the complaint for failure to state a legally sufficient claim under Section 510. In the motion, Dave & Buster’s argued that plaintiff was not entitled to future benefits under the health plan and, therefore, could not sustain a claim under Section 510 because she was alleging only loss of an opportunity to accrue future or additional benefits.

In its decision, the court explained that the critical element in a Section 510 claim is the intent of the employer. In other words, did the employer intend to interfere with benefits? The court noted that (i) plaintiff alleged that Dave and Buster’s alleged discrimination affected her current benefits, in addition to interfering with her ability to attain future benefit rights; and (ii) her claim arose from the employer’s unlawful motivation, acting to interfere with either the exercise or the accrual of benefits to which plaintiff “may become entitled.” The court was required, for purposes of a motion to dismiss, to accept that the factual allegations in the complaint would be proved. It therefore concluded that the complaint stated a plausible and legally sufficient claim for relief that Dave & Buster’s interfered with plaintiff’s current healthcare coverage, in addition to interfering with her ability to attain future benefits.

The court noted that Dave & Buster’s’ reliance on prior summary judgment opinions issued by the court and the Second Circuit was premature at this stage of the case. As a result, the case will proceed into discovery. The court has yet to consider whether the class that plaintiff purports to represent is entitled to be certified.

Other Cases in the Second Circuit

The courts in several cases in the Second Circuit have ruled in favor of employers in connection with Section 510 claims.

  • In Dister v. Cont’l Grp, Inc., 859 F.2d 1108 (2d Cir. 1988), the court of appeals affirmed a district court’s grant of summary judgment in favor of the employer, finding that no reasonable jury could find that the employer intentionally fired a complaining employee to interfere with his ability to obtain certain retirement plan benefits because there was insufficient evidence presented that the employer had a discriminatory motive for terminating him.
  • In Kelly v. Chase Manhattan Bank, 717 F. Supp. 227 (S.D.N.Y. 1989), the district court granted summary judgment for an employer because the complaining employee’s claim that he was prevented from enjoying a future benefit, not created at the time of his discharge, was not a cognizable claim under Section 510.
  • In Gioia v. Forbes Media LLC, 501 Fed.Appx. 52 (2d Cir. 2012), the court of appeals affirmed a district court’s grant of summary judgment in favor of the employer who was accused of violating Section 510 because it laid off employees who, as a result, had their group health insurance benefits terminated. The Second Circuit affirmed the ruling because plaintiffs, executors of the estate of a deceased former employee, did not present evidence that the employer who made the decision to lay off the employees had knowledge of the decedent’s health insurance claims or claim history.
  • Plaintiffs argued that the employer hired new employees around the same time as the layoff, which would undercut the employer’s claim that the layoff was part of an effort by it to reduce costs. However, on review of the record, the Second Circuit found that those new employees filled different, pre-existing positions, and that the decedent was only one of a group of employees in the same group who were laid off during that time.
  • As to an email presented as evidence in which the supervisor of the decedent discussed allocation of responsibilities after the layoff to a reduced staff, the Second Circuit found that it failed to establish a genuine issue of fact because there was no suggestion in the email that there was an intent on the supervisors’ part to terminate the complaining employee to cut healthcare costs.

Employer Takeaways

Though the Marin case calls into question whether an employer can lawfully manage the hours of its workforce in light of the increased costs of providing healthcare coverage under the ACA, it is important to note that the district court’s refusal to dismiss the case does not provide an answer. Rather, with this ruling, the issue is one step closer to being addressed by the court.

As Marin unfolds, employers should be aware that similar litigation may surface. In the meantime, employers should carefully review, before distribution, all communications to employees regarding decisions to modify work schedules. This case demonstrates how such communications may bolster an employee’s claims of discriminatory intent. In contrast, a careful coordination of disclosures accompanied by a well-crafted communications strategy can help to minimize the risk of future litigation.

For further information, please contact either of the authors of this article, Felicia M. Gardner and Maria P. Rasmussen, or any other member of the McGuireWoods employee benefits team.