This is an excerpt from a much longer benefit and compensation advisory issued by Alston & Bird. The entire 8-Page PDF is worth your time to read, however, I wanted to call special attention to the below issue as it is an issue I've seen bubble up numerous times in the last year or so.
... On May 8, 2015, a federal class action lawsuit was filed in the Southern District of New York against the restaurant chain Dave & Buster’s. The lawsuit alleges that the company violated the Employee Retirement Income Security Act of 1974 (ERISA) by moving full-time employees to part time to avoid the ACA. On February 9, 2016, the court denied Dave & Buster’s motion to dismiss this lawsuit.
In Marin v. Dave & Buster’s, the plaintiffs alleged that some employees who were receiving health care coverage had their hours cut to avoid providing them ongoing health insurance benefits. Moreover, the plaintiffs alleged that the company stated that their hours were cut to reduce the company’s health care expenses. ... This, according to the plaintiffs, violated § 510 of ERISA, which makes it “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.”
The defendant argued, on a motion to dismiss the complaint, that the conduct alleged was entirely legal. Specifically, the reduction in hours was for the purpose of avoiding the provision of future benefits to which plaintiffs had no legal right. Although the district court rejected this argument, it is possible that it will ultimately prevail or that it would prevail in another district or circuit. Indeed, the defendant clearly could have achieved the same goal, legally, simply by excluding the plaintiffs from eligibility first, and then reducing the hours in order to avoid excise taxes. While the district court in Dave & Buster’s allowed the case to go forward, other courts may not consider it sensible to distinguish between two very similar means to achieving what is clearly a legal result – no coverage and reduced hours.
The Dave & Buster’s case has struck fear into the hearts of many employers, for good reason....
Under ERISA § 3(7), a “participant” is an employee or former employee “who is or may become eligible” to receive benefits under an employee benefit plan. In Firestone Tire & Rubber Co. v. Bruch, 498 U.S. 101 (1989), the Supreme Court held that the term “participant” means “either an employee in, or reasonably expected to be in, currently covered employment.” That means “participant” includes employees who are eligible to be covered, but not enrolled. However, if a class of employees is not eligible to participate in a plan, courts have held that they are not participants under ERISA....
Based on this precedent, if a participant who is currently enrolled in or eligible for the plan establishes that his or her hours were reduced to prevent future eligibility, under the plaintiffs’ theory in Dave & Buster’s, he or she would establish a prima facie case under ERISA § 510. The employer would then have to establish that plan coverage was not the primary motivation for its action. However, if an individual was never eligible for coverage (or if the plan were amended to remove coverage for the employee before the hours were reduced), it seems unlikely that the employee could establish a prima facie case under ERISA § 510 because the reduction in hours would be for the legitimate purpose of minimizing excise taxes, not for the purpose of denying benefits. (But note that minimizing excise taxes is still not a legitimate basis for retaliation against an employee for obtaining an ACA subsidy or premium tax credit, even though such action could result in the employer paying an excise tax.) ...
