Litigation Alert: Reducing Employee Hours to Avoid Obamacare Has Already Gotten One Employer Sued Under ERISA § 510

The importance of this case cannot be understated to employers with large populations of variable hour employees.  Yes, it is important to all employers, but in the lower wage, hourly types of populations where employers have been managing hours worked to keep benefit costs affordable, this could be devastating.  

This is from Joseph Lazzarotti writing at Jackson Lewis, Benefit Law Advisor (hat tip to BenefitsLink for yet another outstanding find): 

One strategy for minimizing exposure to the employer shared responsibility penalties under the Affordable Care Act (ACA) is to minimize the number of “full-time employees” – that is, the number of employers working 30 or more hours per week on average. Employers can accomplish this through reducing the number of hours certain current and future employees work so that they will not be considered to be “full time” as defined by the ACA, requiring coverage to be offered to a smaller group or none at all. One company’s alleged attempt to do just that is the central claim in a class action lawsuit by an employee alleging the company has interfered with her rights to benefits under ERISA. (Marin v. Dave & Buster’s, Inc., S.D.N.Y., No. 1:15-cv-03608)

The claims are based on Section 510 of ERISA. The relevant section of that law provides: 

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.

Put simply, the law makes it unlawful for any person to discriminate against a participant or beneficiary for exercising a right granted (or interfering with the attainment of a right) under ERISA or an ERISA employee benefit plan. In this case, the plaintiff is claiming that the employer reduced her hours of work to below that which the ACA would cause her to be a “full-time employee.” In doing so, the defendant avoided the requirement under the ACA to offer her coverage, as well as any the corresponding penalty under Internal Revenue Code Section 4980H if she were a full-time employee. In other words, the essence of the plaintiff’s claim is that by reducing her hours of employment, the employer interfered with her attainment of a right under the plan to be eligible to be offered coverage under the medical plan.

... If successful, one effect of plaintiff’s argument may be that once an employer hires an employee in an eligible classification under an ERISA plan, that employee has a right under ERISA and the plan to be eligible, and any change by the employer in that classification, or what causes the employee to be in that classification, is an impermissible interference with that right. ...