Is it illegal to “right size” employees to avoid ACA obligations?

In the past six months, I’ve had more questions from clients about group health insurance than I’ve had in the first 18 years of my practice combined. All of the questions start the same: “Our health insurance premiums are out of control. How do we…?”, finished by some inquiry about moving older workers to Medicare, or shifting high-cost workers to the exchange, or some other machination to avoid the Affordable Care Act.

The reality, however, is that the ACA makes it pretty damn hard to move high-cost employees off of your health insurance to combat out-of-control (and still rising) insurance costs.

Dave & Buster’s thought it had the answer—reducing employees from full-time to part-time.

Last month, however, the district court hearing an employee-challenge to this insurance “right sizing” handed round one to the employees.

Before we discuss the case, let’s get out of the way some general Affordable-Care-Act background. The ACA requires employers with 50 or more full-time employees (or full-time equivalents) to offer medical coverage to full-time employees and their dependents. The ACA does not, however, require an employer to offer this coverage to employees working less than 30 hours per week. It also, on its face, does not prohibit an employer from reducing an employee’s hours to escape mandated health insurance.

Dave & Buster’s believed that if it reduced employees’ hours below the 30-hour-per-week threshold, it would be off the hook for employer-sponsored coverage (and the high costs that go along with it).

The employees claim that this reduction-in-hours violates section 510 of ERISA, which prohibits employers from interfering “with the attainment of any right to which such participant may become entitled under the plan.”

In seeking the dismissal of the lawsuit, Dave & Buster’s argued that the employees could not show a specific intent to deny them health insurance, a fact that would doom their 510 claim.

The court disagreed, concluding that the employees alleged enough facts that Dave & Buster’s acted with an “unlawful purpose” for the case to survive the motion to dismiss and proceed to discovery. Specifically, the court relied on two meetings during which managers allegedly explained to employees that the company was cutting their hours to avoid paying millions of dollars for health insurance under the ACA.

What does this case mean? In the grand scheme of things, not much, really. It’s one decision, from one trial court, at the very early stages of one case. Nevertheless, it does ever-so-slightly close one door opened by the ACA to employers fighting the high cost of health insurance.

You can read the opinion here.