Is it legal to cut workers’ hours so you don’t have to give them health insurance?

There may be a new type of Obamacare lawsuit looming on the horizon — and this one would target employers. 

Since the enactment of Obamacare’s employer mandate, attorneys and employment law experts have wondered if Section 510 of ERISA could be used to bring lawsuits against employers who cut workers’ hours to circumvent that mandate.

Section 510 says, in part:

“… it shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary of an employee benefit plan for the purpose of interfering with the attainment of any right to which such participant may become entitled under an employee benefit plan …”

Yes, ERISA was written mainly to apply to retirement plans. But could this section be used to sue employers who cut workers’ hours in an attempt to avoid having to provide them with health insurance under the Affordable Care Act?

Well, we’re about to find out.

Employees file class action lawsuit

Employees of Dave & Buster’s just filed a class action lawsuit against the restaurant chain, alleging it violated ERISA’s Section 510 by reducing their hours below 30 per week to avoid Obamacare’s employer mandate to provide full-time employees with health insurance.

In the lawsuit, the employees say Dave & Buster’s main goal in reducing their hours below 30 per week was to avoid having to off them health insurance. This, they claim is exactly the kind of move ERISA was designed to prohibit.

The suit claims that during a meeting at one Dave & Buster’s location, attended by the lead plaintiff Maria De Lourdes Parra Marrin, a company general manager said that the Obamacare mandate would wind up costing the company upwards of $2 million. And to skirt those costs, the restaurant planned to cut the hours of full-time workers, which it then did, according to the suit.

The plaintiffs then claim that similar meetings were held company-wide.

Their case hinges on whether or not ERISA can actually be applied to health plans.

Potential fallout

We’ll have the answer to that soon enough — and employers need to be paying attention.

Rumor has it lots of employers are planning to cut full-time workers’ hours to avoid the individual mandate — or have already done so.

If it’s ruled that the plaintiffs have a legitimate complaint in the Dave & Buster’s case, it would be a huge — and expensive — blow to these employers cost-control strategies.

Then there’s the potential for damages and penalties assessed to those companies that have already deployed this kind of strategy.

Stay tuned. We’ll be following this case closely.

Cite: Marin v. Dave & Buster’s Inc.