On May 31, 2018, the Nevada Supreme Court issued a unanimous decision in MDC Restaurants, LLC v. The Eighth Judicial Dist. Court, 134 Nev. Op. 41 (May 31, 2018), addressing arguably the most hotly contested issue of law regarding the Nevada Constitution’s Minimum Wage Amendment, Nev. Cost. art. XV § 16 (“MWA” or the “Amendment”). Specifically, the court was asked to clarify what constitutes “health benefits” for purposes of paying Nevada’s lower-tier minimum wage. The court answered that question by determining, based on “common sense,” that “the MWA requires an employer who pays one dollar per hour less in wages to provide a benefit in the form of health insurance at least equivalent to the one dollar per hour in wages that the employee would otherwise receive.”
The MWA establishes a two-tier minimum wage in Nevada. The lower tier is equal to the applicable federal minimum wage rate (currently $7.25 per hour) and applies if qualifying health benefits are offered. The higher tier is a dollar more per hour (i.e., $8.25) and applies if such benefits are not offered. The Amendment further defines “health benefits” as benefits that are “available to the employee for the employee and the employee’s dependents at a total cost to the employee for premiums of not more than 10 percent of the employee’s gross taxable income from the employer.” Further, the Nevada Labor Commissioner in enacting the Nevada Administrative Code section 608.102(1) (Minimum wage: Qualification to pay lower rate to employee offered health insurance), defined “health insurance” pursuant to the MWA as plans that cover “those categories of health care expenses that are generally deductible by an employee on his individual federal income tax return pursuant to 26 U.S.C. § 213” or benefits offered pursuant to federal labor laws (i.e., union benefit plans under Taft-Hartley).
What are "Health Benefits"?
This issue of what constitutes “health benefits” for Nevada's lower-tier minimum wage reached the Nevada Supreme Court based on a district court decision that held the MWA incorporated certain sections of Nevada law (Nevada Revised Statutes (NRS) chapters 608, 689A and 689B) to create substantive requirements for health insurance. On appeal, the petitioner argued the issue was prematurely before the court because it should have been presented first to the Nevada Labor Commissioner. The petitioner also argued that the term "insurance" under the MWA is not defined by the requirements of chapters 689A and B of the NRS. Amicus curiae supported the petitioner’s second argument and added a third argument that any incorporation of chapters 689A and B would render the MWA preempted by the Employee Retirement Income Security act (ERISA).
In its opinion, the court rejected the petitioner’s first argument on the basis that constitutional interpretation is not a responsibility the court can abdicate to an agency. The court did, however, find that chapters 698A and B do not define insurance as used in the MWA. Clearly concerned with ERISA preemption issues, the court made clear it was not determining what constitutes “health” benefits; rather, it was determining whether some minimum quality or substance of insurance is required for an employer to pay the lower-tier minimum wage under the MWA. In doing so, the court reasoned that because the employees offered health benefits may receive one dollar per hour less in wages, “health benefits” must mean the equivalent of one extra dollar per hour in wages to the employee, but offered in the form of health insurance as opposed to dollar wages.
The court then took its opinion one step further and held that the health benefits must also be “at a cost to the employer of the equivalent of at least an additional dollar per hour in wages…” This appears to mean that in order to pay the lower-tier minimum wage to an employee, an employer must demonstrate that the cost of the insurance to the employer is at least one dollar per hour of work. The opinion is silent as to why the benefit to the employee must come at a cost to the employer. Similarly, the opinion does not specify what constitutes a cost to an employer. For example, left unanswered is whether administrative and other miscellaneous expenses associated with providing health insurance to employees should be factored into the calculation and if so, how.
In sum, the court—unprompted—created a new requirement defining health insurance under the MWA and, in an effort to provide clarity, potentially created new confusion. Nonetheless, this decision will have a major impact on numerous pending class actions and affect most Nevada employers.
Employers in Nevada may pay the lower-tier minimum wage of $7.25 per hour only if the employer offers health insurance to the employee and the employee’s dependents at a cost to the employer of at least one dollar an hour and the cost to the employee does not exceed 10% of the employee’s gross taxable income from the employer.
Employers paying any employees below $8.25 per hour should evaluate the cost of providing health insurance to those employees and determine whether the cost is the equivalent of an extra one dollar per hour in wages. Employers paying the lower tier minimum wage should consult legal counsel to assist in determining the cost and compliance of qualifying health insurance.