Class Action Lawsuit Accusing Employer of Reducing Employees’ Hours to Avoid Providing ACA Health Coverage

A May 8, 2015 class action lawsuit filed in New York alleges restaurant chain Dave & Buster’s, Inc. violated ERISA Section 510, which prohibits interfering with an employee’s attainment of an employee benefit under an ERISA benefit plan, when it converted up to 10,000 employees from full-time to part-time status in 2013 in an effort to right-sized its work force in response to the Affordable Care Act (ACA).   This is one of the first lawsuits we are aware of making this allegation.

The Complaint alleges Dave & Buster’s made numerous public statements that the reason they reduced employees’ hours of employment was to avoid the increased costs of providing health benefits to their full-time employees after the ACA.  If those allegations are proven true, the restaurant chain will have a difficult time defending their actions.

And worse is yet to come.  As we began warning employers back in September 2013 and October 2013, the risk of lawsuits challenging workforce restructuring and reductions in force is greater since the employer mandate and the individual mandate went into effect, due to anti-retaliation provisions included in the ACA, which prohibit any adverse employment action in retaliation for receiving subsidized coverage through the Marketplace.  As we explained back in 2013:

Imagine that Employee A … receives a federal subsidy for his marketplace coverage,…. [a few months later], your company determines it needs to conduct a reduction in force due to a business slowdown. Your HR manager works with senior management to carefully select RIF participants based on their skills, length of service with your company and the expected needs of your business.

The HR manager makes sure the RIF does not disproportionately impact people based on all of the protected classifications (race, nationality, sex, age, disability, etc.). …. Employee A is laid off …. 

Employee A files a claim against your company with the Occupational Safety and Health Administration, alleging that your company chose Employee A for the RIF because he received subsidized coverage through the marketplace.

Employee A can establish a case of retaliation under the Affordable Care Act merely by providing evidence that his receipt of a subsidy was a “contributing factor” in the RIF decision. And under the OSHA rules that have been proposed to enforce the retaliation prohibition, Employee A will be able to meet his burden merely by showing that the HR manager knew he was receiving a subsidy at or near the time he was laid off.

The burden then shifts to your company to establish by clear and convincing evidence (which is a high bar to clear) that it would have laid Employee A off even if he had not received the subsidy.

Inside Tucson Business, October 25, 2013.

The lessons to draw from all of this include:

  • If you are planning a RIF (or any other adverse employment action), consider whether anyone making the employment decisions knows that any of the affected employees is or has received subsidized coverage through the marketplace.
    • If so, address it like you would for other protected classifications like age, race, sex, national origin and disability status (by documenting your reasons for the decision before you take the action).
    • If not, include that fact in the documentation you create before taking the adverse employment action.
  • And above all, don’t shoot yourself in the foot by proclaiming to the world that you are reducing employees’ hours because you are trying to reduce your risk of incurring the employer mandate.

Author: Erwin Kratz

Erwin Kratz practices exclusively in the areas of ERISA and employee benefits law, focusing on tax and regulatory matters relating to qualified and nonqualified deferred compensation and welfare benefits.