CAN EMPLOYERS AVOID ERISA BY AVOIDING OFFERING HEALTHCARE TO FULL-TIME EMPLOYEES?

Beginning in 2015, employers employing a certain number of employees (generally 50 full-time employees or a combination of full-time and part-time employees that is equivalent to 50 full-time employees) were subject to the Employer Shared Responsibility provisions under section 4980H of the Internal Revenue Code (added to the Code by the Affordable Care Act). As defined by the statute, a full-time employee is an individual employed on average at least 30 hours of service per week. An employer that meets the 50 full-time employee threshold is referred to as a large employer, and thus required to offer healthcare coverage to its full-time employees.

Under the Employer Shared Responsibility provisions, if these employers do not offer affordable health coverage that provides a minimum level of coverage to their full-time employees (and their dependents), the employer may be subject to a penalty. To avoid the cost of having to pay for coverage, many employers decided to cut employees’ hours to prevent them from being considered full-time.

Such a practice is currently being challenged as a violation of the Employee Retirement Income Security Act of 1974 (“ERISA”). In 2015, a former employee of amusement chain Dave & Buster’s, filed a proposed class action lawsuit in United States District Court for the Southern District of New York, No. 15-cv-3608. The plaintiff, on her behalf and others similarly situated, sued her former employer claiming Dave & Buster’s reduced the hours of a proposed class of current and former employees starting June 2013 in violation of ERISA. The plaintiff claims that store managers told her the Affordable Care Act would cost Dave & Buster’s $2 million once it took effect in January 2015, and that the Times Square store would reduce its full-time workforce from more than 100 employees to about 40.  The complaint alleges that the plaintiff’s schedule was subsequently reduced to an average of 17 hours per week, causing her pay to drop from between $450 and $600 to between $150 and $375 and making her ineligible for medical and vision benefits.

In ruling on Dave & Buster, Inc.’s motion for dismissal, the Court said Dave & Buster’s cannot avoid the proposed class action over claims it slashed employees’ hours to avoid increased health care costs stemming from Obamacare, saying the employees have a case under ERISA. U.S. District Judge Alvin K. Hellerstein found that the complaint adequately argued this alleged act “[interfered] with the attainment” of her benefit entitlement as prohibited by ERISA.  “Accepting as I must that these factual allegations will be proved, the complaint states a plausible and legally sufficient claim for relief, including, at this stage, plaintiff’s claim for lost wages and salary incidental to the restatement of benefits,” the judge said.  Judge Hellerstein found that, based upon the allegations of the complaint which must be accepted as true, the plaintiff was a member of the company benefit plan and was deprived of both current and future rights. This case should be closely monitored by large employers and their counsel as any rulings in favor of the named plaintiff and/or class could open the door for a floodgate of similar claims.