As business needs change, companies reshuffle their human resource deck often. But there is a new elephant in the room called the Affordable Care Act, and very bright spotlights will now be trained on employment moves that some might claim are “discriminatory” under a dusty ERISA provision. Just ask Dave & Buster’s.

A court recently declared that a class action (which some had deemed devoid of merit) could proceed against D&B on exactly these ERISA grounds.

Key recommendation: know exactly where you stand before making workforce changes because of the ACA.

Why?

For many employers the Affordable Care Act (ACA) would have required that a traditional major medical health insurance plan be offered—at relatively little cost to employees—to many more employees than those employers historically had offered such coverage. Unless those employers restructured their workforces, the costs would have been crushing. Employers facing this prospect tended to be in the retail, restaurant and hospitality industries, but those certainly are not the only industries that were affected.
Strategies for dealing with the ACA's employer shared responsibility mandate (a/k/a pay-or-play penalties) varied, but one that was particularly tempting for some employers was to manage employees' hours and thus eligibility for benefits and exposure to ACA excise taxes. Strategies often included one or more of a firm cap on hours that can be worked at some point below 30 hours per week, conversion of formerly full-time positions to part-time positions, and/or upper management directives to regional or store-level managers instructing them to not schedule certain types of employees for more than X number of hours per week.

Ever since the Affordable Care Act (ACA) became law, the benefits legal community has debated whether such strategies potentially violated ERISA section 510, a section that folks who are not often embroiled in ERISA litigation rarely, if ever, have need to reference. ERISA section 510 simply says, "It shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan [or ERISA], or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan [or ERISA]."

As loosey-goosey as the language in that section is, you can see how ERISA geeks could wax philosophical with each other about it at happy hours and on their blogs. (For some examples—and for some great analysis, truly—see this post and this post by Alden Bianchi writing for the Employment Matters blog and this post by Ann Caresani writing for the Employee Benefits Law Report blog.) There's plenty more waxing to be had, for sure, but the theoretical is rapidly becoming the practical.

Lawsuit Against Dave & Buster's Survives the Theory Stage

Last year, a plaintiff's litigation firm filed a class-action suit against Dave & Buster's (D&B) alleging that the company restructured its workforce to reduce hours of more than 10,000 full-time employees so that those employees would be part-time and not benefits-eligible. Importantly, the plaintiffs allege that D&B's primary, if not exclusive, motivation for restructuring its workforce was to avoid both the new costs of health insurance (if it offered insurance to folks to whom it had historically not offered such coverage) and the ACA employer pay-or-play penalties (if it did not offer such insurance). This, the plaintiffs allege, amounted to unlawful interference with one's rights under ERISA. Any plaintiff can make allegations and propose a legal theory to support his or her case. What's significant is that a court recently agreed with the plaintiffs and denied D&B's motion to dismiss, giving practical and real credence to a legal theory that, until now, had just been a ... well ... theory.

Here's how the (newly court-approved) theory works. Suppose an employer offers a health insurance plan to its full-time employees—"full-time" being defined as 30 hours per week, on average, consistent with the ACA. Assume further that, right before the ACA employer mandate kicks in, the employer then caps hours of some segment of its full-time workforce such that they are no longer full-time under the plan and thus not eligible for benefits. By taking the adverse employment action of reducing hours, the employer arguably has partially suspended or discriminated against or interfered with those employees' attainment of rights to which they would have otherwise been entitled under both the plan and ERISA—i.e., participation in the benefit plan. Note that in this scenario the wronged employees are those who were full-time and who the employer then made part-time. ERISA section 510 doesn't fit as well with newly hired employees, though capping hours of new hires has its own ACA compliance problems.

Key Takeaways

D&B may eventually win the case based on the facts, but because the court gave concrete support to the employees' legal theory, it will wind up paying a king's ransom to get there. Here's what's important for employers to know and discuss with legal counsel:

1. There is very real risk of an ERISA lawsuit for restructuring the workforce to avoid health insurance coverage and ACA penalties. Success breeds success, so when plaintiffs' lawyers win against one employer, expect more to follow suit.
2. The risk is just as real for a single individual or department or business unit as it is to a large class of employees against a national employer. A class action with 10,000 plaintiffs may have been attractive for a plaintiffs' personal injury law firm to take on as a test of its theory, but there's nothing special in ERISA section 510 that limits this claim to mass torts. A single employee whose hours were cut could conceivably make a colorable claim.