The Affordable Care Act (ACA) is significantly changing employer health care obligations under the Employee Retirement Income Security Act (ERISA). Prior to ACA, the Supreme Court held that ERISA did not require employers to offer any level or type of welfare benefits, such as health care benefits. Now that ACA has passed constitutional muster, effective 2014, employers with more than 50 full-time employees will be required to provide “affordable” health care coverage to their full-time employees or face financial penalties. Because the penalties are calculated based on the number of full-time employees, employers should carefully examine the legal risks of realigning their workforces to minimize the use of full-time employees in favor of employees whose status would not trigger ACA’s coverage mandate. This article discusses the ACA whistleblower and ERISA Section 510 claims that might arise from such workforce restructurings or other attempts by employers to avoid ACA’s coverage requirements and corresponding tax penalties.
The “Play or Pay” Mandate. ACA Section 1513, codified at 26 IRC § 4980H, is known as the shared responsibility or “play or pay” mandate. This provision applies to “large” employers, defined as 50 or more full-time employees (including full-time equivalents). For this purpose, “full-time” means employees that work 30 or more hours per week or 130 hours per month; part-time employees are counted based on their fraction of full-time status and then summed towards the total number of “full-time” employees.
Employers subject to the “play or pay” mandate face financial penalties if they fail to provide any health coverage or fail to provide “affordable” coverage that meets “minimum value.” A failure to provide any coverage results in a $2,000 penalty multiplied by all full-time employees (excluding the first 30 employees), when at least one employee receives a federal subsidy for purchasing coverage through a public health insurance exchange. For example, Large Employer has 130 employees and does not offer health coverage. If one employee is eligible for a federal subsidy to obtain coverage on a public health insurance exchange and actually purchases such coverage via a public exchange, Large Employer’s annual penalty would be $200,000 ((130 – 30) x $2,000). The second penalty applies to employers that offer “unaffordable” coverage. Health coverage is generally deemed unaffordable if its cost exceeds 9.5% of a full-time employee’s household income (W-2 wages can be used) or it fails to provide minimum value to the employee (i.e., provides less than 60% actuarial value). The penalty for offering “unaffordable” coverage is $3,000 multiplied by the number of full-time employees receiving federal subsidies to purchase coverage from a public health insurance exchange. Again using Large Employer as an example, the “unaffordable” penalty could be any amount between $0 and $390,000, depending on the number of employees that qualify for a subsidy and purchase coverage from an exchange.
Avoiding ACA’s “Play or Pay” Mandate. Employers are currently weighing the costs of ACA compliance against the risks and costs of realigning their workforces to avoid the mandate. Any workforce realignment to reduce the number of employees working more than 30 hours per week (or the number of employees below 50) may give rise to arguments that the employer specifically interfered with the right to benefits under ACA’s whistleblower provisions, or ERISA § 510, or both.
ACA’s Whistleblower Provision. ACA’s whistleblower provision states that no employer shall discharge or discriminate against “any employee with respect to his or her compensation, terms, conditions, or other privileges of employment” because, among other things, the employee “has received” a credit or subsidy provided by ACA. The U.S. Department of Labor recently issued regulations and guidance on the statute’s whisteblower provisions. This guidance specifically states that an employee’s hours or pay may not be reduced for having received a subsidy to purchase insurance via a public health insurance exchange. The guidance leaves open whether courts will view ACA’s whistleblower provisions as applicable to the reduction of an employee’s hours so that the employee would not have coverage and also not be full-time. In that case, the employee might go to a health insurance exchange to purchase coverage and obtain a premium subsidy. As explained above, had the employee been full-time, the employee’s action might have resulted in a tax penalty to the employer. The ACA whistleblower issue is whether this type of employer activity would be prohibited by being viewed as reducing hours of work in anticipation of the employee receiving a subsidy to purchase insurance via an exchange and in an effort to avoid a penalty with respect to the employee. This open issue is at the heart of workforce realignment strategy.
ACA did not create its own whistleblower claims procedures, but adopted the notice requirements, limitations periods, and remedies of the Consumer Products Safety Improvement Act (CPSIA). Under CPSIA, and now ACA, employees have 180 days following an adverse employment action to submit a complaint to the Occupational Safety & Health Administration (OSHA). OSHA is charged with investigating the claim and can order preliminary reinstatement of the employee upon finding “reasonable cause.” Following a preliminary investigation, OSHA must provide the parties with its findings; either party may object and request a hearing. Within 120 days of the hearing, OSHA must issue its final order. Final orders are reviewable in the United States Court of Appeals. If OSHA fails to issue a decision within 210 days of the filing of the complaint, the complainant may bring an action for de novo review in United States District Court, without regard to the amount in controversy, and either party can ask for a trial by jury.
During this process, complainants must show only that a protected activity was a “contributing factor” leading to the adverse employment action. Upon making this prima facie case, the burden shifts to the employer to demonstrate by clear and convincing evidence that the same employment action would have resulted absent the protected activity. A “contributing factor” is “any factor which, alone or in connection with other factors, tends to affect in any way the outcome of the decision.” OSHA’s interim final rule notes the nature of the “contributing factor” test:
In proving that protected activity was a contributing factor in the adverse action, a complainant need not necessarily prove that the respondent’s articulated reason was a pretext in order to prevail, because a complainant alternatively can prevail by showing that the respondent’s reason, while true, is only one of the reasons for its conduct, and that another reason was the complainant’s protected activity.
As for remedies, ACA authorizes “all relief necessary to make the employee whole, including injunctive and compensatory damages,” such as reinstatement, back pay with interest, and “special damages,” including but not limited to: litigation costs, attorneys’ fees, and expert fees.
It remains unclear whether ACA’s whisteblower protections will apply to workforce realignment decisions. As discussed above, ACA’s “pay or play” penalties are only assessed on the number of full time employees, thus realignments to reduce hours, especially for low wage workers eligible for subsidies and credits, could be viewed as unlawful interference with the terms of employment. From the employees’ perspective, such workforce changes directly impact access to medical care for all similarly-situated individuals, and would stem solely from to an employer’s desire to avoid ACA’s penalties – penalties that are triggered when one or more full-time employees receive a subsidy through a public health insurance exchange. From the employer’s perspective, realignment is a business decision to avoid taxes, and such changes could help workers qualify for subsidies and credits, thereby providing more affordable access to care. Given the burden shifting approach for ACA’s whistleblower protections, and the enhanced remedies provided by ACA, including back pay with interest and special damages, plaintiffs may well pursue claims that workforce realignments interfere with protected rights to coverage. Because ACA’s protections mirror Title VII, it is possible that courts will apply the forward-looking Title VII protections announced in Burlington N. & Santa Fe Ry. Co. v. White, 548 U.S.C. 53, 57 (2006), to expand ACA’s protections from tangible adverse employment actions to any action that “could well dissuade a reasonable worker” from obtaining coverage.
ERISA Section 510. Section 510 of ERISA makes it unlawful to interfere with employee benefits and protects the right to both present and future benefit entitlements. First, the provision protects plan participants from adverse employment action, such as termination, discipline, or discrimination, for exercising the right to benefits available under the terms of the governing plan. Second, employers may not use adverse employment action to interfere “with the attainment of any right to which such participant may become entitled under the plan.” Third, participants are protected from retaliation when they give information, have testified, or are about to testify “in any inquiry or proceeding relating to [ERISA].” Because any employment decision may impact the right to present or future benefits, courts require plaintiffs to show specific intent to interfere with benefits to prevail under Section 510. Plaintiffs enforce these anti-retaliation and anti-discrimination protections under ERISA’s remedial provisions, Section 502(a)(3). Remedies are thus generally limited to “appropriate equitable relief,” which can include reinstatement, restitution, and back pay. There are substantial disputes, however, regarding the scope of any monetary remedies, including backpay, for Section 510 violations. Thus, plaintiffs may try to argue their claims also arise under ACA’s whistleblower protections to qualify for the enhanced remedies available to such claims.
Because ERISA applies to health plans established or maintained by employers, the statute’s anti-discrimination and anti-retaliation provision may apply to workforce realignment decisions when such action interferes with employee access to employer-provided health coverage.
Proskauer’s Perspective. Employers seeking to avoid ACA’s coverage mandates by realigning their workforces may risk suit under the statute’s whistleblower protections and ERISA § 510. Because such suits may straddle both ACA and ERISA, parts of these cases could proceed before a jury. In the event that such cases arise, plaintiffs may try to first establish that the employer was acting with specific intent to avoid the newly codified health care coverage responsibilities. If “specific intent” is demonstrated under ERISA § 510, then violation of the ACA’s “contributing factor” standard may be a foregone conclusion. There are, however, substantial defenses against such claims, including that such changes are the natural result of legitimate business decisions and completely insulated from attack. More plainly, efforts to avoid ACA’s penalties flow from the desire to limit a company’s tax bill, not a specific intent to interfere with the provision of benefits. Individualized facts also may be important to this analysis, e.g., an employer’s decision to limit a newly hired employee’s hours may be viewed differently than an employer’s decision to reduce the hours of a full-time employee. Because of the various facts and circumstances that may arise from any workforce restructuring, employers may be able to successfully defend these claims during administrative exhaustion, and as to class certification, remedies, and merits issues.