When the Supreme Court issued its opinion in U.S. v. Windsor on June 26, it invalidated the federal definitions of “spouse” and “marriage,” and, in so doing, altered employer obligations with respect to same-sex marriages. Although the media coverage of this decision has understandably focused on other implications of the decision, it inevitably creates new challenges for employers. In this post, we will provide insight into how the decision will affect employers moving forward and provide suggestions as to how employers can best prepare in the face of new areas of uncertainty created by this decision.
The Windsor Decision
Section 3 of the Defense of Marriage Act (“DOMA”) defined the terms “marriage” and “spouse,” as used in federal law and regulations, to exclude same-sex unions. This section was challenged in a suit brought by Edith Windsor seeking a refund of federal estate taxes she was required to pay following the death of her wife. The couple had been married in Ontario, Canada and the marriage was recognized by New York, the state in which they lived. Notwithstanding her status as a legal spouse under state law, Ms. Windsor was required to pay estate taxes because she did not qualify for the “surviving spouse” exemption under DOMA’s definitions.
The Court’s decision to strike down DOMA’s definitions of “spouse” and “marriage” relied on three principle arguments. First, states traditionally possess the right to regulate domestic relationships however they see fit without interference from the federal government—the federal definition of spouse interfered with state abilities to determine what marriages are entitled to recognition. Second, DOMA created inconsistent state and federal regimes with respect to different kinds of marriages allowed within the same state. Lastly, these contradictory regimes undermined the dignity of same-sex marriages. Understanding and accounting for these rationales is helpful in anticipating how courts and agencies are likely to respond to the nullification of the federal definitions of “spouse” and “marriage.”
Immediate and Future Impacts
While there is much we do not know about the effect of the Windsor decision, several implications for employers are already clear:
- Family and Medical Leave Act (“FMLA”): Employers will now be required to allow an employee to take FMLA leave to care for a same-sex spouse if the employee resides in a state that recognizes the same-sex marriage as legal. This applies regardless of whether the employer is located in a state that recognizes same-sex marriage because the FMLA defines “spouse” as a husband or wife recognized under the law of the state in which the employeeresides. Additionally, because the FMLA defines “spouse” in this way, even if an employer is located in a state that recognizes same-sex marriage, the same-sex spouse of an employee who resides in a jurisdiction that does not recognize same sex marriage will not be considered a “spouse” under the FMLA. Thus, unless we receive administrative or judicial guidance to the contrary, if the employer provides leave to such an employee to care for their spouse, the employer should not deduct it from the employee’s FMLA leave bank.
- Health Benefits: Under federal law, same-sex spouses will be eligible for the health coverage on the same tax-free basis as opposite-sex spouses. However, even if same-sex spouse health benefits are exempted from federal taxation, they may still be subject to state taxes on the benefit.
- COBRA: Health benefits under programs like COBRA will now afford the same rights and benefits to married same-sex couples as it has traditionally afforded opposite-sex married persons.
- Pensions and Benefits Plans: Many employer pension and benefit plans were tailored to reflect the definition of “spouse” under DOMA. In the post-DOMA world, same-sex spouses will be entitled to receive the same default benefits as other spouses such as requiring spousal consent to name a non-spousal beneficiary of the benefit.
There are, however, still many open questions. Perhaps the foremost outstanding question is what state law will govern when determining who qualifies as a “spouse” under the myriad federal statutes that previously used DOMA’s definition. Will federal agencies look to the state of celebration of a marriage or to the state in which the employee resides? Alternatively, they could look to the laws of the state in which the employee is employed. Under the first approach, federal benefits would be provided to same-sex spouses legally married in any of the 14 jurisdictions1 that recognize same-sex marriage—regardless of whether the state in which they reside or in which they are employed recognizes same-sex marriage. Under the second approach, the employer would be required to offer federal benefits if the law in the employee’s state of residence recognizes the marriage, again, regardless of whether the law in the jurisdiction where the individual is employed recognizes same-sex marriage. Under the third approach, employees residing in a state that recognizes their marriage could still be denied benefits if they worked for an employer in a state that does not. For example, the spouse of an employee legally married and living in Maryland but working in Virginia would not be eligible for the relevant federal benefits.
A question that arises with respect to benefit plans governed by ERISA is which state law will govern for the purposes of benefit accrual and distribution—e.g., will it be the employee’s state of residence when the benefit accrues or when it is distributed? Given that the Supreme Court was concerned that DOMA was discriminatorily depriving legally married same-sex couples of federal benefits, it seems likely that federal agencies will attempt to give the broadest possible interpretation of “spouse.” However, the fact that Section 2 of DOMA—which allows states to refuse to recognize same-sex marriages performed under the laws of other states—was not challenged in Windsor also implies that federal agencies will need to find an interpretation that respects states’ decisions not to recognize same-sex marriage. This tension makes it highly likely that we will see more litigation over same-sex marriage in the near future.
Another outstanding question that would have serious implications for employers is whetherWindsor will be applied retroactively. For example, will employers be required to cover medical expenses that were previously incurred by an employee’s same-sex spouse or will they only be required to offer prospective coverage? The first possibility would result in significant unanticipated expenses for employers, as well as administrative difficulties. These are just some of the questions that need to be answered before we will understand the full impact of Windsor.
Yet, even in the face of all this uncertainty, employers can and should begin preparing to make changes in response to Windsor. Employers should begin reviewing their employee policies and benefit plans now to identify areas of potential change. Employers should start making changes now in areas such as the FMLA where it is already clear how the law applies. Even where that is not the case, employers can flag potential areas of change to facilitate compliance once guidance is issued.
Co-authored by Megan Grant, law clerk.