The Affordable Care Act (ACA) is a federal law introduced by President Barack Obama, which aims to increase the quality and affordability of healthcare in the United States. Changes have been rolled out incrementally over a four-year period, with the Employer Mandate being delayed until this year.

Under the Employer Mandate, large employers are subject to the shared responsibility provision. This provision ensures employers offer minimum essential coverage that is affordable and provides minimum value to their full-time equivalent (FTE) employees and their dependents up to the age of 26. If not, the employer must make an employer shared responsibility payment to the IRS.

In preparation for the Employer Mandate, large employers with 100 or more FTE employees were required to provide at least 70% of their FTE employees with health insurance last year. From January 1st, 2016 large employers (with 50 or more FTE employees) are now required to provide at least 95% of their FTE employees and their dependents with health insurance. The IRS has put together this guide to allow employers to easily calculate the number of FTE employees in their organization.

In conjunction with the Employer mandate, large employers must also file annual reports detailing the health insurance options they offer to employees. Small employers, with less than 50 FTE employees, are subject to less scrupulous requirements, which has resulted in some workforce restructuring. Small employers:

  • Have less reporting requirements,
  • Can purchase health care coverage through the Small Business Health Options Program (SHOP), and
  • Avoid the Employer Shared Responsibility Provisions.

To take advantage of these benefits, a number of employers are reducing the number of FTE employees in their workforce. As a result of this, employees are being subjected to reduced working hours, or worse, being let go, as well as losing out on their health benefits.

Dave and Busters, Inc. (D&B) are currently subject to a lawsuit from one of their employees. In 2013, D&B began restructuring its workforce to reduce the number of FTE employees from 100 to 40, to minimize their exposure to the employer shared responsibility provision. Maria De Lourdes Parra Marin heard from store managers in June 2013 that it would cost the company $2million to provide affordable healthcare to all full-time employees.

To avoid paying this cost, many full-time employees were shifted to part-time positions which resulted in a loss of eligibility under group medical plans. Marin alleged that D&B violated her rights under Section 510 of ERISA, which states that it is unlawful to discharge an employee if the discharge is done for the purpose of interfering with a benefit plan to which the employee “may become entitled.”

Based on the plaintiff’s claim, the court denied D&B’s motion to dismiss the case. As the case enters discovery and possibly a trial, it will be an interesting one for employers to watch. In the meantime, if workforce restructuring is necessary for other specific business reasons, consulting legal counsel can mitigate any litigation risk.