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Dave & Busted? ERISA Class-Action Lawsuit Alleges that Employer Cannot Reduce Work Schedules to Get Around Health Insurance Mandate under the ACA

By W. Andrew Douglass and Brian M. Johnston

Since its enactment in 2010, the Affordable Care Act (the “ACA”) has required employers to make numerous changes in the types of health insurance coverage they offer to their employees, and endure continued uncertainties around compliance issues as the ACA guidance evolves.    Historically, employers have often excluded various classifications of employees from coverage under their health insurance plans, particularly if they were expected to work less than a certain number of hours per week.  Beginning in 2015, however, employers with at least 50 full-time employees (“FTEs”) must now offer health insurance to all employees who work at least 30 hours or more per week to comply with the ACA.   A company that fails to satisfy this so-called “employer mandate” faces the possibility of significant penalties under the ACA.   

In light of these new mandates, many employers that have previously excluded employees working less than 40 hours per week under their health plans now face the possibility of having to offer participation in their plans to additional individuals.   This has caused significant concerns for employers such as retailers and restaurant chains, which tend to have large numbers of non-covered employees with lower wages and fluctuating work schedules. 

To reasonably manage the employer costs associated with providing health insurance coverage for the ACA employer mandate, many employers have been reducing the work schedules of hourly employees to bring  them below the 30-hour per week threshold.    While there is no express rule under the ACA prohibiting this approach, we have been predicting for some time that claims would eventually be brought under the Employee Retirement Income Security Act (“ERISA”) and employment discrimination laws regarding whether employers have the right to manage their employees’ hours in this manner.  

In what appears to be the first case of its kind, a class action lawsuit now has been filed in federal court for the Southern District of New York to test the legal waters on this issue.    In Marin v. Dave & Buster's, Inc., S.D.N.Y., No. 1:15-cv-03608, the plaintiffs allege that Dave & Buster’s, the national restaurant chain, violated ERISA Section 510 by impermissibly interfering with employees’ rights to health insurance benefits by reducing their hourly work schedules to less than 30 hours per week to avoid any additional costs under the ACA employer mandate.  The plaintiffs are seeking lost wages and the restoration of their health coverage, as well as reimbursement of their out-of-pocket medical costs.

While it is far too soon to make any predictions around the merits of the claims being made in this case, this lawsuit illustrates the continued uncertainty that only further complicates employer strategies when managing around their ACA compliance responsibilities.   Companies that are subject to the ACA employer mandate should review their compliance strategies now to address any risks with their employment classifications and the delivery of health care benefits to their FTEs.