Does the ACA Mean Possible Liability for Employers

With the Affordable Care Act now a reality upheld by the Supreme Court in King v. Burwell, and the employer mandate upon us, it’s time for employers and plan sponsors to address the possible conflicts and liability issues that could arise as employers and employees adjust to the changes.

One possible flashpoint: As the employer mandate affects more employers this year and next year, many employers may be contemplating attempting to restructure their workforces to avoid or minimize the impact and reduce the number of employees who are entitled to an employer-sponsored health plan.

Be very careful about making these kinds of changes: Section 510 of the Employee Retirement Income Security Act (not the ACA!) prohibits employers from taking employee action or structuring their businesses solely to improperly deny granting employees the right to benefits due the under ERISA or the HSA.

Here’s the text:

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 title, section 3001 [29 USC §1201], or the Welfare and Pension Plans Disclosure Act, or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan, this title, or the Welfare and Pension Plans Disclosure Act.

For example -Indeed, it’s already happening:

In Marin v. Dave & Buster’s, attorneys have already filed a lawsuit based on this specific provision, and sought ‘class action’ status for as many as 10,000 employees nationwide. The lead plaintiff, Maria De Lourdes Parra Marin, claims that Dave & Buster’s, which owns and operates a combination restaurant/video arcade business with 72 stores in 30 states, illegally reduced her hours to avoid paying mandated benefits.

According to her complaint, she was hired as a full-time employee at the Times Square store in New York City in August of 2006, and routinely worked full time in the kitchen there, 30 to 45 hours per week.

However, in June 2013, she alleges, the company dramatically held a meeting in which the store general manager told employees that the ACA would cost the business as much as $2 million, and therefore they intended to reduce the number of full-time employees at the store from 100 to 40. Ms. Marin’s hours – and those of many others – were subsequently reduced to less than 20 hours per week. For the next 15 months, her work hours never broke 30 – which happens to be the cutoff point to qualify for full-time status under the ACA. Her weekly income dropped from $450-$600 per week to $150-$375.

Ms. Marin also points to statements by company executives in the media expressing concern that the number of full-time staff at the company needed to be “right-sized,” and to language in a registration filing with the Securities and Exchange Commission in which the company warned investors that the ACA would negatively impact their earnings if they were forced to pay more in health care coverage for employees.

Nobody knows how the claim will play out in court. Section 502 of ERISA doesn’t allow for outsized punitive damages, but it could force ‘equitable restitution.’

Meanwhile, Dave & Buster’s has filed a motion to dismiss the suit, raising the following points:

  • The employer mandate did not exist in 2013, when they reduced their full-time headcount.
  • The law does not apply to benefits the worker is not yet entitled to
  • They don’t have a ‘right’ to employer-sponsored health insurance, anyway, since employers always had a right to drop coverage altogether and pay a fine, if they choose.

The suit is still pending in the Southern District of New York. A lot of employment lawyers are watching this case closely. If Marin wins her suit, any business potentially subject to the employer mandate can expect a lot more similar suits in the future.

Conclusion

The combination of potential employee actions arising from disputes over employee classification, whether they worker is part-time or full-time under the law, potential fiduciary liability and even personal claims against directors and HR staff, mean that smart employers will be taking a hard look at coverage for employment practices and employee benefis. These plans are almost never included with your general liability coverage. Discussing these potential coverage gaps with you agent is best done before a lawsuit occures and not after it may happen, most especially since policies excude incidents that occur before the policy was in effect.

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