ACA Suit Challenging Reduction in Hours Allowed to Proceed

Many employers are still working to catch up to and understand the new requirements of the Affordable Care Act (ACA) – including the IRS, which has announced automatic extensions to certain reporting requirements for this year. In the first case of its kind, a federal court in New York City has recently given employers some potential instruction on how it view the inevitable interplay between the Employee Retirement Income Security Act (ERISA) and the ACA. It also suggests that lawsuits alleging employers have reduced employee hours to avoid the requirements of the ACA will be permitted to proceed to consideration of the underlying facts.

In the recent decision, the court rejected the employer’s request to dismiss a proposed class action alleging that the company intentionally reduced its workforce hours to prevent employees from being eligible for health benefits. Brought by an employee who had worked at the company as a full-time employee until 2013, the lawsuit alleges that the company reduced the employee’s hours – and those of hundreds of other employees – to make them part-time workers ineligible for company-provided health-care benefits. These company actions were allegedly motivated by the ACA’s employer mandate requiring larger employers to provide employees with affordable health insurance that meeting minimum-value standards or potentially face penalties. The lawsuit further alleges the company violated an ERISA provision prohibiting employers from interfering with employees’ receipt of ERISA-governed benefits, such as health insurance.

The employer argued it could not violate the ERISA provision by making its workers ineligible for future benefits because a claim pursuant to that section of ERISA requires that an employee show more than a lost opportunity to accrue benefits and ERISA does not entitle an employee to future benefits. The court rejected these arguments, contending the lawsuit at least initially states a plausible and sufficient claim for relief by (1) alleging the company’s actions affected both current benefits and the ability to attain future benefits and (2) containing sufficient factual allegations regarding the company’s intent to interfere with the workers’ right to health insurance.

While this recent decision is not a ruling that establishes the alleged claims are valid, it does allow the lawsuit to at least proceed. As the case develops, it may provide future guidance on the interplay of ERISA and the ACA, and we can expect that the legal landscape pertinent to the employer mandate of the ACA will continue to evolve. In the meantime, the court’s ruling cautions employers against taking similar actions that could be deemed to interfere with employee’s health insurance benefits.