Seyfarth Synopsis: Compliance with the EEOC’s position that employers must consider granting job protected leave to employees who have exhausted FMLA (or who are not eligible for FMLA) on a case-by-case basis under the ADA may have an additional unintended consequence. Where an employee who has exhausted FMLA has not been terminated and is receiving disability benefits paid for, at least in part, by the employer, such hours are considered “hours of service” under the Patient Protection and Affordable Care Act  (“ACA”) and can trigger obligations to continue group health benefits.

The EEOC has been taking the position for many years that employers who have hard and fast “leave cutoffs” violate the Americans with Disabilities Act (“ADA”).  The EEOC has aggressively sought to enforce this position even though the ADA was not considered a “leave law” when it was passed in 1990 (effective in 1992), prior to the passage of the Family and Medical Leave Act (effective in August 1993).  The EEOC believes employers must consider requests for additional job protected leave on a case-by-case basis for employees with ADA disabilities. This position was recently solidified by the issuance of a document from EEOC on May 9, 2016 called:  “Employer-Provided Leave and the Americans with Disabilities Act.”

A recent Internal Revenue Service (“IRS”) notice addressing compliance topics under the ACA clarified the IRS’s view that hours of service for purposes of determining if an employee is full-time so as to be eligible for medical benefits include periods during which an employee is receiving disability benefits, either short-term or long-term, if the individual remains an employee of the employer and the employer paid for some or all of the cost. For these purposes, employee-pay-all disability would still be considered employer-paid if funded on a pre-tax basis through a cafeteria plan.  This is true even if the benefits are being paid by an insurance company. A full-time employee under ACA is generally one who averages 30 hours of service per week or 130 hours per month.

Moreover, according to informal IRS guidance, even though an employee on disability may only receive a fraction of his/her pre-disability pay (e.g., 60%), the hours of service credited to the employee must equate to his or her pre-disability average, not a proportionately reduced amount.

Many senior living and long-term care employers have generous short-term and long-term disability programs. Employers need to closely examine their practices to make sure that they are in compliance with the IRS position. Failure to extend “affordable” coverage to a “full-time” employee (as determined under IRS rules) could result in significant fines.  Employers may also consider whether to change from company-paid LTD programs to those that are employee-paid (on an after-tax basis).  This could, of course, prove challenging for employers that have historically offered a base-level, company-paid disability benefit to some or all employees.