The ACA employer mandate: reduce employee hours to less than 30! Right?

Not so fast. You may run into trouble with ERISA section 510. As we all know now, the Affordable Care Act (“ACA”) defines a full-time employee as anyone who works on average 30 hours or more each week. Since the law was upheld, employers have been analyzing their workforces to determine ways to reduce the potential financial impact from having to provide health insurance coverage or pay a penalty for all such full-time employees. One such strategy, rather widespread, has been to reduce employee hours to less than 30 per week.

Over the past several years, as we have worked with employers in an effort to assist them in developing and implementing strategies to comply with the ACA requirements through a rational design of their healthcare insurance coverage, we have advised caution, so as not to implicate ERISA section 510 (29 U.S.C. Section 1140).

It now appears that may have happened. A class action law suit was recently filed in the Southern District of New York (Marin v. Dave & Buster’s Inc., S.D.N.Y., No. 1:15-cv-03608).

Approximately 10,000 workers allege that their employer reduced their hours to keep them from attaining full-time status for the purpose of avoiding the requirement to offer them healthcare coverage under the ACA’s employer mandate.

ERISA section 510 provides, in part:

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…or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan.

While on its face this would seem a rather straightforward violation, numerous complexities lie underneath. One issue will be the definition of “participant.” Employers are well advised to check the eligibility provisions in their health care plan, as some plans provide that only full-time employees are eligible to become participants. ERISA goes on to develop this concept in Section 202 (29 U.S.C. section 1052), implementing several analytical steps. The steps require asking (i) is the employee a member of a classification that is eligible to participate; (ii) are age requirements satisfied; (iii) are service requirements met and; (iv) has the employee reached the entry date for eligibility? This issue has been the focus of considerable debate. (See Firestone Tire & Rubber v. Bruch, or Fleming v. Ayers & Assoc., or  Sanders v. Amerimed, Inc.)

A second issue will be one of employer intent. A critical issue in ERISA cases is whether the employer acted with specific intent to interfere with an employee’s rights under a plan. Employers are well advised to avoid making public statements regarding employment classifications or health benefits strategies. Similarly, internal communications may be used against the employer in a section 510 action, so employers should take care to have workforce management discussions occur in the larger context of business needs.

Employers should monitor this New York case closely, as it has the very real potential to impact how employers structure part-time work hours in an effort to comply with the ACA.