By David M. Whitaker, Brian R. Carnie, and Robert C. Schmidt

As employers are well-aware, the Affordable Care Act (ACA or “Obamacare”) imposes certain minimum employee health insurance coverage requirements for employers that employ 50 or more fulltime employees (aka “applicable large employers”).  Employers who do not meet the employee coverage mandate face statutory penalties for non-compliance.  In the face of these additional costs, some employers have contemplated taking steps to evade these requirements, either by reducing employee work hours to bring them below fulltime status (30 hours per week for ACA purposes) or by eliminating employee headcount.  But the results in a recent case illustrate that such tactics may create significant employer exposure.

In Marin v. Dave and Busters, Inc., United States District Court for the Southern District of New York (Civil Action No. 15-cv-3608), the plaintiff alleged that in order to avoid significant costs associated with ACA compliance, the employer engaged in a concerted effort to cut employee work hours and headcount.  The plaintiff claimed that her work hours were drastically reduced, and as a result she no longer qualified to participate in the company’s group health insurance plan.  The lawsuit asserted that these employer actions against the plaintiff and other employees violated the Employee Retirement Income Security Act (“ERISA”).  Specifically, Section 510 of ERISA makes it unlawful for an employer to discriminate against employees for exercising their rights under a covered employee benefit plan, or for the purpose of interfering with their attainment of rights under a covered employee benefit plan (such as an employee group health benefit plan).

Marin was the only named plaintiff in the lawsuit, but she sought to certify a class action on behalf of some 1,200 employees nationwide.  In support of the claim, the plaintiff cited statements allegedly made by management to employees during meetings as well as statements made by the company to the media suggesting that changes to employee work hours and head count were motivated by avoidance of ACA-mandated health insurance costs.

The federal district court denied the employer’s motion to dismiss in early 2016, finding the plaintiff had pleaded an actionable interference claim if the facts alleged were proven to be true.  After several months of additional litigation, the employer and the plaintiff recently agreed to a settlement (on a class-wide basis) in the amount of $7.4 million, inclusive of attorney’s fees to be awarded by the court (of up to 33% of the settlement fund amount).  The settlement is pending approval by the court.

The Marin case is one of the first cases in the nation to assert an ACA avoidance claim against an employer under Section 510 of ERISA, so it remains to be seen whether this is the beginning of a larger trend targeting employers on this basis.  But the availability of attorney’s fees under the ERISA statute and the opportunity to seek class action certification creates a potential for these kinds of claims to proliferate.

The Marin case provides a clear reminder that employers must proceed with caution when terminating employees or reducing their work hours in situations where those changes can be portrayed as motivated by a desire to prevent employees’ from participating in an ERISA-covered benefit plan, whether in response to concerns about mounting costs imposed by the ACA or otherwise (such as for the purpose of excluding employees with high claims history under a group health plan from continuing to participate in the plan).