January 6, 2015

Be Careful of Landmines in Response to ACA

Dear Jon,


I have a confession:  We did nothing to comply with health care reform.  We employ more than 150 employees, of which 20 in management are covered by a health plan.  The remaining 130 have always worked full-time.  Our plan is to cut their hours effective January 1, 2015, to ensure that they are not full-time in order to avoid owing an offer of health benefits coverage to these individuals.  Is this allowable?


— Man with a Plan in McFarland



You might be about to step on a landmine.  The Employee Retirement Income Security Act of 1974 as amended (ERISA) at Section 510 provides, “[i]t shall be unlawful for any person to…discriminate against a participant or beneficiary…for the purpose of interfering with the attainment of any right to which such participant may become entitled under the provisions of an employee benefit plan.”  ERISA Section 3(7) defines “participant” as “any employee or former employee of an employer, or any member or former member of an employee organization, who is or may become eligible to receive a benefit of any type from an employee benefit plan.”

Traditionally, ERISA Section 510 has generally, but not exclusively, been used in pension benefit cases.  Lately, however, this provision is in the spotlight because of health care reform.  Many employers, I’m sure, have considered exactly what you are planning: capping employees’ hours of service in order to avoid the employer mandate obligation.  While nothing in the Patient Protection and Affordable Care Act (ACA) requires a large employer to offer a plan, interfering with an employee’s rights or rights that might arise in the future under an employer sponsored health benefit plan may run afoul of ERISA Section 510.  In the absence of case law directly on point (ERISA Section 510 hasn’t yet been applied to the ACA’s employer mandate provisions), it is possible to forecast some likely outcomes.

For example, assume an employer cuts the hours of full-time employees who are currently covered under an employer sponsored health plan resulting in their loss of coverage.  The employees could bring suit alleging a violation of ERISA Section 510.  The employer may argue that the hours of service reduction from full-time to part-time is independent of group health coverage, but rather was triggered by bona fide business considerations.  The burden would then shift to the employees to demonstrate that it was the employer’s intent to avoid the ACA large employer mandate penalties.  If facts favorable to the employee plaintiffs exist (e.g. if a copy of your question and any other evidence supporting employee claims came to light), it is reasonable that the employees could prevail.

Don’t lament too much.  It is possible to take action even at this late date to cut off the bleeding.  If you choose not to cap your employee hours to avoid ERISA Section 510 liability, you can get into compliance after January 1.  If you are out of compliance in January, February or even as late as March, you may face a potential large employer mandate penalty for those months if a full-time employee obtains subsidized coverage at a health insurance exchange.  However, you can offer coverage and cut off penalty exposure on a going forward basis (e.g., by February 1 or March 1).

For more information about this article or if you have other questions about health care reform contact our Health Care Reform team today at [email protected] or 800-333-4WGA. Write to Dear Jon at [email protected]. For more information and resources on Health Care Reform, visit www.wgat.com/health-care-reform.