ERISA issues could surface from staff cuts, reduced hours
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Beyond potentially detrimental effects on an employer's business operations, reducing employees' hours or cutting staff to avoid an influx of new members to a group health benefit plan could have substantial legal ramifications.
Section 510 of the federal Employee Retirement Income Security Act generally prohibits companies from taking adverse employment actions against their employees in order to prevent them from exercising their rights under an ERISA-governed benefit plan. It also says employers are barred from “interfering with the attainment of any right to which such participant may become entitled under the plan.”
However, experts note, the U.S. Supreme Court's 1997 decision in Inter-Modal Rail Employees Association v. Atchison, Topeka and Santa Fe Railway Co. grants an employer some degree of flexibility to restructure its workforce in the course of making “fundamental business decisions.”
“If there were another legitimate business reason that's part of that decision ... that may reduce an employer's ERISA 510 liability,” said Diane Dygert, a Chicago-based partner at Seyfarth Shaw L.L.P.
To date, the U.S. Department of Labor has not issued formal guidance regarding potential conflicts between the Section 510 provisions of ERISA and employers' staffing decisions in reaction to the health care reform law.
“Realistically, the DOL already has too much on its plate,” said Andrea Kinkade, president and CEO of Maumee, Ohio-based Kaminsky & Associates Inc. “They're probably not going to start auditing employers to find out if they adjusted their workforce solely to avoid paying for benefits, but they could eventually do that if they wanted to.”
Even absent an emphasis on enforcement by the DOL, Ms. Dygert said employers would be wise to factor the potential for civil litigation into their cost/benefit calculations.
“We can't assure employers that (the issue) won't be raised,” Ms. Dygert said.
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