The ERISA Litigation Newsletter - June 2013

EDITOR'S OVERVIEW

Our articles this month focus on health care reform. First, Jim Napoli and Brian Neulander comment on the potential for litigation under the Affordable Care Act's (ACA's) whistleblower protections and ERISA Section 510 as a result of workforce realignments or other attempts by employers to avoid ACA's coverage requirements and corresponding tax penalties. Next, Eugene Holmes reminds us that, in making certain health care plans are compliant with ACA, we should not forget about HIPPA/HITECH. The new regulatory guidance addresses multiple issues, but, as Eugene explains below, the most prominent impact is in the security breach notification rules, business associate agreements, limitations on protected health information, and HIPAA Notice of Privacy Practices.

As always, the Newsletter also addresses a multitude of topics under Rulings, Filings and Settlements of Interest, including wellness programs, DOMA, COBRA, ERISA's anti-alienation rule, benefit claims, PBGC Guidance, and NYSE and NASDAQ Compensation Committee Adviser Independence Rules.

THE VIEW FROM PROSKAUER: HEALTH CARE REFORM LITIGATION RISKS — THE INTERSECTION OF ERISA SECTION 510 AND THE AFFORDABLE CARE ACT'S WHISTLEBLOWER PROVISIONS*

By James R. Napoli and Brian S. Neulander

The Affordable Care Act (ACA) is significantly changing employer health care obligations under the Employee Retirement Income Security Act (ERISA). Prior to ACA, the Supreme Court held that ERISA did not require employers to offer any level or type of welfare benefits, such as health care benefits.1 Now that ACA has passed constitutional muster, effective 2014, employers with more than 50 full-time employees will be required to provide "affordable" health care coverage to their full-time employees or face financial penalties. Because the penalties are calculated based on the number of full-time employees, employers should carefully examine the legal risks of realigning their workforces to minimize the use of full-time employees in favor of employees whose status would not trigger ACA's coverage mandate. This article discusses the ACA whistleblower and ERISA Section 510 claims that might arise from such workforce restructurings or other attempts by employers to avoid ACA's coverage requirements and corresponding tax penalties.

The "Play or Pay" Mandate. ACA Section 1513, codified at 26 IRC § 4980H, is known as the shared responsibility or "play or pay" mandate. This provision applies to "large" employers, defined as 50 or more full-time employees (including full-time equivalents). For this purpose, "full-time" means employees that work 30 or more hours per week or 130 hours per month; part-time employees are counted based on their fraction of full-time status and then summed towards the total number of "full-time" employees.

Employers subject to the "play or pay" mandate face financial penalties if they fail to provide any health coverage or fail to provide "affordable" coverage that meets "minimum value." A failure to provide any coverage results in a $2,000 penalty multiplied by all full-time employees (excluding the first 30 employees), when at least one employee receives a federal subsidy2 for purchasing coverage through a public health insurance exchange.3 For example, Large Employer has 130 employees and does not offer health coverage. If one employee is eligible for a federal subsidy to obtain coverage on a public health insurance exchange and actually purchases such coverage via a public exchange, Large Employer's annual penalty would be $200,000 ((130 - 30) x $2,000). The second penalty applies to employers that offer "unaffordable" coverage. Health coverage is generally deemed unaffordable if its cost exceeds 9.5% of a full-time employee's household income (W-2 wages can be used) or it fails to provide minimum value to the employee (i.e., provides less than 60% actuarial value).4 The penalty for offering "unaffordable" coverage is $3,000 multiplied by the number of full-time employees receiving federal subsidies to purchase coverage from a public health insurance exchange. Again using Large Employer as an example, the "unaffordable" penalty could be any amount between $0 and $390,000, depending on the number of employees that qualify for a subsidy and purchase coverage from an exchange.

Avoiding ACA's "Play or Pay" Mandate. Employers are currently weighing the costs of ACA compliance against the risks and costs of realigning their workforces to avoid the mandate. Any workforce realignment to reduce the number of employees working more than 30 hours per week (or the number of employees below 50) may give rise to arguments that the employer specifically interfered with the right to benefits under ACA's whistleblower provisions, or ERISA § 510, or both.

ACA's Whistleblower Provision. ACA's whistleblower provision states that no employer shall discharge or discriminate against "any employee with respect to his or her compensation, terms, conditions, or other privileges of employment" because, among other things, the employee "has received" a credit or subsidy provided by ACA.5 The U.S. Department of Labor recently issued regulations and guidance on the statute's whisteblower provisions. This guidance specifically states that an employee's hours or pay may not be reduced for having received a subsidy to purchase insurance via a public health insurance exchange.6 The guidance leaves open whether courts will view ACA's whistleblower provisions as applicable to the reduction of an employee's hours so that the employee would not have coverage and also not be full-time. In that case, the employee might go to a health insurance exchange to purchase coverage and obtain a premium subsidy. As explained above, had the employee been full-time, the employee's action might have resulted in a tax penalty to the employer. The ACA whistleblower issue is whether this type of employer activity would be prohibited by being viewed as reducing hours of work in anticipation of the employee receiving a subsidy to purchase insurance via an exchange and in an effort to avoid a penalty with respect to the employee. This open issue is at the heart of workforce realignment strategy.

ACA did not create its own whistleblower claims procedures, but adopted the notice requirements, limitations periods, and remedies of the Consumer Products Safety Improvement Act (CPSIA).7 Under CPSIA, and now ACA, employees have 180 days following an adverse employment action to submit a complaint to the Occupational Safety & Health Administration (OSHA).8 OSHA is charged with investigating the claim and can order preliminary reinstatement of the employee upon finding "reasonable cause."9 Following a preliminary investigation, OSHA must provide the parties with its findings; either party may object and request a hearing. Within 120 days of the hearing, OSHA must issue its final order. Final orders are reviewable in the United States Court of Appeals. If OSHA fails to issue a decision within 210 days of the filing of the complaint, the complainant may bring an action for de novo review in United States District Court, without regard to the amount in controversy, and either party can ask for a trial by jury.

During this process, complainants must show only that a protected activity was a "contributing factor" leading to the adverse employment action. Upon making this prima facie case, the burden shifts to the employer to demonstrate by clear and convincing evidence that the same employment action would have resulted absent the protected activity. A "contributing factor" is "any factor which, alone or in connection with other factors, tends to affect in any way the outcome of the decision."10 OSHA's interim final rule notes the nature of the "contributing factor" test:

In proving that protected activity was a contributing factor in the adverse action, a complainant need not necessarily prove that the respondent's articulated reason was a pretext in order to prevail, because a complainant alternatively can prevail by showing that the respondent's reason, while true, is only one of the reasons for its conduct, and that another reason was the complainant's protected activity.11

As for remedies, ACA authorizes "all relief necessary to make the employee whole, including injunctive and compensatory damages," such as reinstatement, back pay with interest, and "special damages," including but not limited to: litigation costs, attorneys' fees, and expert fees.12

It remains unclear whether ACA's whisteblower protections will apply to workforce realignment decisions. As discussed above, ACA's "pay or play" penalties are only assessed on the number of full time employees, thus realignments to reduce hours, especially for low wage workers eligible for subsidies and credits, could be viewed as unlawful interference with the terms of employment. From the employees' perspective, such workforce changes directly impact access to medical care for all similarly-situated individuals, and would stem solely from to an employer's desire to avoid ACA's penalties - penalties that are triggered when one or more full-time employees receive a subsidy through a public health insurance exchange. From the employer's perspective, realignment is a business decision to avoid taxes, and such changes could help workers qualify for subsidies and credits, thereby providing more affordable access to care. Given the burden shifting approach for ACA's whistleblower protections, and the enhanced remedies provided by ACA, including back pay with interest and special damages, plaintiffs may well pursue claims that workforce realignments interfere with protected rights to coverage. Because ACA's protections mirror Title VII, it is possible that courts will apply the forward-looking Title VII protections announced in Burlington N. & Santa Fe Ry. Co. v. White, 548 U.S.C. 53, 57 (2006), to expand ACA's protections from tangible adverse...

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