Dave & Busted? Court Allows ERISA Claims to Continue Against Company Over Hours Reductions and ACA Coverage Mandate

By W. Andrew Douglass and Brian M. Johnston

Under the Affordable Care Act (ACA), employers with at least 50 full-time employees (“FTEs) must generally offer qualifying health insurance to all employees who work at least 30 hours or more per week. A company that fails to satisfy this so-called “employer mandate” faces the possibility of significant penalties under the ACA. As a result, the ACA amplifies many risks for companies with respect to their employment classifications and the delivery of health care benefits to their employees.

ACA Implications for Employers

In response to these uncertainties, some employers have gone so far as to reduce the hourly work schedules of some employees to less than 30 hours per week to avoid any additional costs under the ACA employer mandate.  In what is believed to be a case of first impression (and was  discussed in our previous blog post), the plaintiffs in Marin v. Dave & Buster's, Inc., S.D.N.Y., No. 1:15-cv-036081 challenged their employer over the reductions to their work schedules by filing a class action suit in federal court in May 2015. Specifically, current and former employees alleged that Dave & Buster’s, the national restaurant chain, violated the protections under Section 510 of the Employee Retirement Income Security Act (“ERISA”) by intentionally interfering with their eligibility for benefits under the company’s health plan. They also claimed damages for lost wages and demanded the restoration of their health coverage, as well as reimbursement of their out-of-pocket medical costs.

In response to the lawsuit, Dave & Buster’s filed a motion to dismiss and argued that the plaintiffs’ ERISA Section 510 claim failed as a matter of law because there was no guaranteed “accrued benefit” over future health insurance coverage for hours not yet worked.  On February 9, 2016, the United States District Court for the Southern District of New York denied the company’s motion to dismiss.  The court found that the complaint “sufficiently and plausibly” alleged enough facts to support a possible finding that Dave & Buster’s intentionally interfered with the plaintiffs’ rights to receive benefits under the company’s health plan. The court noted that the complaint referenced specific e-mails and other communications that the plaintiffs allegedly received when their work schedules were reduced, as well as public statements by senior executives and disclosures in the company’s securities filings, which overtly explained that the workforce management protocols were instituted to thwart the potential impact of the ACA on the company’s bottom line.

While the decision on the motion to dismiss does not necessarily mean that the employer will ultimately lose, it does signal the court’s willingness to allow the plaintiffs to develop their legal theories in subsequent court filings. One can also question the impact to the court, at least initially, of the company’s open and obvious disclosures about its reasoning for reducing the employees’ work schedules.  Based on the strong wording of the court’s ruling, however, these obvious and seemingly bold statements certainly did not help the company’s request for an early exit from this case.  As a result, the court may eventually allow robust discovery which could, of course, be cumbersome and expensive for the company.  

Takeaways for Employers

In light of this case development, 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 future health care benefits to their FTEs, and also take heed in the manner as to how they communicate any reductions in employees’ work schedules.