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Cutting Hours Can Be Hazardous To Your Health

We Always Wondered. Now We Know - Sort of.

A major feature of the Affordable Care Act is the employer mandate. The ACA requires large employers to offer health care coverage as an employee benefit to "full-time employees" who average at least 30 hours per week. Almost immediately, employers thought a way around the employer mandate was simply to juggle hours below 30 hours per week to limit the number of full-time employees subject to coverage.

But benefits attorneys recognized a potential danger with this approach in the form of remedies available under the Employee Retirement Income Security Act of 1974 ("ERISA"). Most claims under ERISA involve claims that an employer failed to provide a benefit owed to an employee, or that the employer breached its fiduciary duty to employees in the way it operated its benefit plans.

Hiding in the corner of the esoteric world of ERISA claims, however, is a rough-edged guy called Section 510. Although technically a member of the exclusive ERISA claims club, Section 510 is really much more comfortable in the blue-collar world of garden variety employment discrimination claims. Those are the kind of claims that say an employer discriminated against an employee because of the employee's race, gender, religion or national origin. An ERISA Section 510 claim says that employers may not "discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary for exercising any right to which he is entitled or may become entitled under an ERISA plan."

So the question has been: "If I limit my employees' hours to minimize the number of employees who qualify for health insurance coverage, will I violate Section 510?" Maria De Lourdes Parra Marin wanted to find out the answer to that question, and she brought along 10,000 of her friends in a class action brought against their employer, Dave & Buster's, a national restaurant chain.

In February, a federal district court rejected the restaurant's argument that employees are not entitled to benefits that have not yet accrued and the plaintiffs must therefore demonstrate more than lost opportunity to accrue additional benefits to sustain a section 510 claim. The court found sufficient evidence that work hours were cut because the employer determined that, without limiting the work schedules of its staff, the ACA could impose as much as two million dollars of new expense in 2015. That evidence was enough, said the court, to at least state a potential Section 510 claim that the employer intentionally interfered with employees' benefits, and allowed the case to move forward.

What does this mean for employers? Here are a few takeaways: First, the court's refusal to dismiss the claim does not mean that the employees will ultimately be successful on their claim. The employees may find it difficult to assert that they are "entitled" or "may become entitled" to welfare benefits under ERISA, as nothing in ERISA requires employers to offer group health insurance.

Second, employers who are considering limiting employee hours to mitigate the impact of the employer mandate should consider "grandfathering" existing employees who are already eligible for coverage. New hires will find it hard to argue that a newly hired employee who is never eligible for benefits under the employer's ERISA plan could mount a successful Section 510 claim.

Third, an employer should carefully consider the reasons it gives employees and others for cutting back employee hours. There may be legitimate reasons for doing so that have a secondary effect of reducing the number of employees who are eligible for health care coverage.

Doug Powers limits his practice to employee benefits compliance and litigation. He is currently the President of the Great Lakes Tax Exempt and Government Entities Council, one of five regional councils that regularly advise the Internal Revenue Service on benefits issues. He may be reached at 260.422.0800 or at dpowers@beckmanlawson.com.

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