In a case believed to be the first of its kind, a recent class action claim has accused an employer of reducing hours of employees to avoid having to provide health coverage as required under the Patient Protection and Affordable Care Act (“ACA”).

The shared responsibility mandate under ACA penalizes applicable large employers that do not provide group health coverage to full-time or full-time equivalent employees (“FTEs”). Since the enactment of ACA, many employers have sought to minimize potential exposure under the mandate by reducing hours worked by certain employees below 30 hours per week, the cutoff for purposes of determining which employees are FTEs.

In the lawsuit filed on May 8, 2015, in the Southern District of New York, a class of more than 10,000 workers allege that Dave & Buster's (“D&B”) interfered with their attainment of a right to be eligible under the D&B medical plan by lowering their hours worked. The suit was brought under Section 510 of ERISA, which provides, in relevant part, that:

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…or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan...

Claims under ERISA Section 510 generally require the showing of specific intent to interfere with the attainment of a right under an employee benefit plan. Additionally, under ERISA, employers have broad discretion to amend or terminate welfare plans (under which benefits do not vest like retirement benefits), which has historically made it difficult for plaintiffs to succeed with ERISA Section 510 claims.

In the case at issue, however, plaintiffs believe they can prove requisite intent existed. The claim points to:

  • Store meetings where managers indicated that compliance with ACA would be very costly and that to avoid the cost, D&B planned to reduce the number of FTEs at the store.
  • The Senior VP of Human Resources indicating in an interview that “D&B [was] in the process of adapting to upcoming changes associated with health care reform” around the same time the aforementioned reduction in FTE headcount occurred across 72 stores nationwide.
  • SEC filings that disclose ACA’s negative impact on its business and a subsequent filing that reported a decrease in payroll “driven primarily by decreased hourly and management labor costs.”
  • The General Counsel indicating that one plaintiff’s reduction in hours was part of a “nationwide program in 2013 intended to right-size the number of full-time and part-time employees in its stores.”

Whether or not the suit is successful, the fact that this is the first case to address the legality of an ACA-initiated workload reduction as it relates to an ERISA Section 510 claim is significant, particularly given the number of employers who have taken similar strategies in order to comply with, or adapt to, the changes brought forth by ACA’s employer mandate.