Are part time workers’ hours being cut because of ObamaCare?
It has now been five years since the enactment of the Affordable Care Act (“ACA”), more commonly known as ObamaCare. The White House celebrated this legislative anniversary by emphasizing how this massive health care reform has propelled major increases in insurance coverage for millions of Americans. On its Twitter feed, the White House presented some extremely optimistic statistics:
“After 5 years of the Affordable Care Act: 30 million young adults can no longer be denied coverage for a pre-existing condition. 105 million Americans no longer have a lifetime limit on their health coverage. 76 million Americans are benefitting from preventative care coverage. More than 16 million Americans have gained health coverage.”[i]
While the law has indeed led to many positive changes, especially with regard to increases in insurance coverage, the complexity of the legislation and its administration has led to some uncertainty as to its overall and long-term consequences. Certain key provisions of the Act have just recently taken effect, including its large employer mandate, which necessitates insurance coverage for full-time employees.
As of January 1, 2015, under the ACA, employers with 100 or more full-time employees (defined as those working an average of at least 30 hours per week), must offer their full-time employees and dependents affordable care coverage or else incur penalties.[ii] Smaller businesses with 50 to 99 full-time employees will face the same mandate, but beginning by January 1, 2016. Now that it is several months after the large employer mandate has taken effect, analysts have begun to gather preliminary information about how organizations are responding to it and the implications that it has on the employees who it is intended to protect.
The Society for Human Resource Management (“SHRM”) surveyed more than 740 human resource professionals to examine the impact of the ACA on employers and employees, looking at a myriad of facets of the Act, including the large employer mandate. The SHRM released its survey findings on March 24, 2015.[iii] While some of the findings are positive, one of the findings creates concern about how the large employer mandate is prompting at least some employers to reduce or cap hours for their part-time employees.
The SHRM found that a notable segment of employers surveyed are reducing part-time hours for their workers because of the ACA. Specifically, 14% of organizations surveyed had already reduced part-time hours, and another 6% indicated that they planned to do so. The survey found that, on average, 19% of employees were affected at organizations that reduced or planned to reduce hours.
Cutting employee hours or reclassifying employees if the business conditions warrant it is generally permissible, but doing so specifically for purposes of evading the insurance coverage mandate of the ACA is unlawful. ACA §§ 1511-1515.
The ACA does not itself create a private right of action for the employees who suffer these hour reductions, but instead, imposes monetary penalties on the employers who engage in such conduct through enforcement by the Department of Labor and Internal Revenue Service.
However, because the ACA incorporates and amends other federal laws, such as the Employee Retirement Income Security Act (“ERISA”), which also regulates employer-sponsored insurance programs, legal analysts believe that a private right of action may exist where the employer reduces or cuts its employees’ hours to avoid providing insurance coverage.
Specifically, ERISA Section 510 prohibits employers from interfering with the attainment of any benefits that a participating employee is entitled to, or may become entitled to, under a group plan.[iv] Most Section 510 ERISA interference claims stem from a termination of employment, but courts have held that interferences may apply in other contexts as well such as reclassifying employees to independent contractors to avoid providing insurance benefits.[v] It would thus be logical to find that interferences exist where an employer cuts hours to avoid providing insurance benefits. Hence, although this is a novel theory, ERISA provides the groundwork for employees to maintain legal claims against employers for interference where the employer cuts or reduces hours to avoid providing insurance coverage under the ACA. However, the interplay between the ACA and ERISA is still so new that there is no direct guidance from the courts on this issue yet.
Even so, the dynamic of employers cutting or capping hours for part-time workers appears to be playing out, and unfortunately, the workers most negatively affected by this are those who could be thought of as needing the wages most—low-wage sector employees who work in industries such as retail, restaurants, and education.[vi]
The tenets of the ACA are on the whole very beneficial for employees in that the law’s primary aim is to promote increased insurance coverage, but the unintended consequence of the large employer mandate of having employers cut and reduce part-time employees’ hours is less than palatable.
While the ACA is still in its relative infancy and much is still unknown about how its provisions will be applied and enforced, there is at least some anecdotal evidence from those within the legal community that audits from both the Department of Labor and Internal Revenue Service to ensure compliance with the Act are on the uptick, and with ERISA as a basis for a private right of action in this context, employers should take pause before making hour reductions to specifically avoid their mandatory insurance coverage obligations with respect to employees.[vii] Employees who believe that their hours have been reduced because their employers are attempting to avoid the ACA insurance coverage mandate should consider consulting an attorney about whether they may have legal claims.
[i] https://twitter.com/WhiteHouse/status/580006557393379329
[ii] ACA §§ 1511-1515; I.R.C. § 4980H
[iii] Available at http://www.shrm.org/research/surveyfindings/pages/shrm-health-care-reform-2015-update.aspx
[iv] 29 U.S.C. § 1140.
[v] Seaman v. Arvida Realty Sales, 985 F.2d 543, 547 (11th Cir. 1993); Gitlitz v. Compagnie Nationale Air Fr., 129 F.3d 554, 559 (11th Cir. 1997).
[vi] http://www.forbes.com/sites/dandiamond/2015/01/13/obamacares-impact-companies-cut-hours-for-part-time-workers/
[vii] http://blogs.wsj.com/atwork/2015/03/25/employers-cut-part-timers-hours-citing-health-law-requirements/?mod=wsj_valettop_email
