Reducing Employee Hours to Avoid the ACA? Prepare for a Lawsuit.
The Affordable Care Act (ACA) and its Employer Shared Responsibility Mandate have placed a costly burden on employers who traditionally did not extend employer sponsored health coverage to variable hour employees. The ACA now requires employers to offer health coverage to those employees that work more than 30 hours per week (130 hours per month over a 12 month measurement period), or risk paying a penalty.
In an effort to avoid the cost of penalties and additional health insurance expenses, a number of employers looked to ways of reducing their full-time employee population, or minimize the number of employees to whom they would be required to offer coverage or risk paying a penalty.
Makes sense. Then came the lawsuit Marin v. Dave & Buster’s Inc.
The suit claims that D&B reduced employees’ hours on a mass scale in order to avoid offering health coverage to otherwise full-time employees, alleging a violation of Section 510 of the Employee Retirement Income Security Act (ERISA). Section 510 states that “[i]t shall be unlawful for any person to…discriminate against a participant or beneficiary…for the purpose of interfering with the attainment of any right to which such participant may become entitled under the provisions of an employee benefit plan.”
So what’s the gripe—employees argue that when D&B reduced their hours it was a discriminatory action that denied them access to employer sponsored healthcare benefits.
While there has yet to be a final verdict, the fact that the court allowed the lawsuit to proceed already has problematic implications on employers that have chosen to apply the tactic of reducing hours in order to minimize their full-time employee population.
The court commented that evidence suggests the possibility that D&B deliberately reduced hours in an effort to interfere with an employee’s right to the company’s health benefits.
What does this mean for employers aiming to control their full-time population?
The government was prepared to deal with employers seeking to avoid increased healthcare costs under the ACA by reducing employee hours. This is a pretty cut and dry violation of ERISA.
If you are reducing employee hours as a way to avoid offering health coverage to an employee, you are toeing a fine line that may leave you vulnerable to a discrimination suit. You better be prepared to justify that changes in employee hours were for reasons other than avoiding Pay or Play.
In general, it's alright for employers to keep part-time employees from becoming full-timers through scheduling efforts—employers are allowed to have part-time employees and limit their hours to keep them as such.
However, employers run a high risk of a lawsuit should they take hour-reduction measures to make current full-timers into part-timers. The offense resides in taking a person that was arguably eligible for benefits as a bona fide full-time employee and enacting measures deliberately targeting their benefits eligibility status. That is an ERISA violation.
Do it on a mass scale while making public comments about how the ACA really hurt your bottom line, and you may find yourself looking for a defense attorney.