Court Allows Suit Challenging Changes Due to ACA to Move Forward
Editor's Note: Reducing an employee's hours simply to avoid the requirements set by the Affordable Care Act (ACA) may constitute a violation of the Employee Retirement Income Security Act (ERISA), a New York federal court judge has ruled, refusing to dismiss a class action suit against Dave & Buster's. In an article first published in Manatt's "Employment Law" newsletter, we take an in-depth look at the case and why it matters. To read the order in Marin v. Dave and Buster's, Inc., click here. For more information, contact Rebecca Torrey, Partner, Employment and Labor.
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Case Summary: Why It Matters
Maria De Lourdes Parra Marin sued the national chain alleging that store managers informed workers that due to the $2 million the ACA would cost the company, the New York location she worked at was cutting its full-time employees from over 100 to about 40 before the new law took effect last January. Marin told the court her previously full-time position was cut to about 17 hours per week, resulting in a loss of hundreds of dollars of income each week as well as health benefits. The employer countered that employees are not entitled to benefits or hours that had yet to be accrued and that Marin had only demonstrated a lost opportunity insufficient to bring suit. But the judge disagreed, writing that the plaintiff alleged the loss of both current and future rights, as "the complaint states a plausible and legally sufficient claim for relief, including, at this stage, plaintiff's claim for lost wages and salary incidental to the restatement of benefits."
Detailed Discussion
Maria De Lourdes Parra Marin was a full-time employee at a Dave & Buster's (D&B) location in New York's Times Square, working between 40 and 45 hours each week beginning in 2006. As a full-time employee, she received health insurance under the D&B health insurance plan, which was an "employee welfare benefit plan" under the Employee Retirement Income Security Act (ERISA).
According to Marin, the D&B store managers held a meeting in June 2013 to inform employees that things would be changing due to the requirements of the Affordable Care Act (ACA). The managers told workers that compliance with the ACA would cost the company as much as $2 million, and to avoid this expense, D&B intended to reduce the number of full-time employees at the Times Square location from more than 100 to about 40.
After the meeting, Marin's hours were reduced to an average of 17.43 hours per week, ranging between 10 and 20 hours. She also received a letter from D&B informing her that because she now had part-time status, her full-time health insurance coverage would be terminated. All told, she claimed, she suffered a loss of full-time status, a reduction of hundreds of dollars in pay each week (from $450-$600 to $150-$375), and the termination of her medical and vision benefits.
She sued. D&B violated Section 510 of ERISA, Marin alleged, which provides that it is "unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan … or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan."
Filed as a putative class action, Marin's complaint estimated the class consists of roughly 10,000 current and former D&B employees, requesting reinstatement to full-time status and restoration of benefit entitlements along with payment of lost wages and benefits, including reimbursement for insurance or out-of-pocket healthcare costs.
Dave & Buster's moved to dismiss the suit, telling the court that the plaintiff failed to state a legally sufficient claim for relief because Marin had no entitlement in benefits that had yet to accrue.
U.S. District Court Judge Alvin K. Hellerstein disagreed.
Read fairly, the complaint alleged that the employer intentionally interfered with Marin's current healthcare coverage, the court said, motivated by a concern about future costs. The plaintiff also put forward factual support for her claims, referencing multiple meetings held by the store managers and the $2 million figure cited.
"The complaint describes a nation-wide effort to lower the number of full-time and part-time employees, and that similar meetings were held at other locations," the judge wrote, including an employee from another location posting on Facebook about a similar June 2013 meeting where "[t]hey called store meetings and told everyone they were losing hours (pay) and health insurance due to Obamacare."
In addition, Marin noted that a senior human resources official with the company was quoted in a newspaper article about reduced workforce saying, "D&B is in the process of adapting to upcoming changes associated with healthcare reform." A September 2014 Securities and Exchange Commission filing further stated: "Providing health insurance benefits to employees that are more extensive than the health insurance benefits we currently provide and to a potentially larger proportion of our employees, or the payment of penalties if the specified level of coverage is not provided at an affordable cost to employees, will increase our expenses."
The reduction in Marin's hours affected her employment status, her pay, and the benefits she had and to which she would be entitled, the court said. Her claims were more than just a lost opportunity, as argued by the defendant, as she alleged D&B's discrimination affected her current benefits in addition to interfering with her ability to attain future benefit rights.
"The critical element is intent of the employer—proving that the employer specifically intended to interfere with benefits," Judge Hellerstein wrote, and the plaintiff satisfied that requirement. "Plaintiff's claim arises from the employer's unlawful motivation, acting to interfere with either the exercise or the accrual of benefits to which Plaintiff 'may become entitled,' " the court said. "Plaintiff has sufficiently and plausibly alleged this element of intent."
Accepting Marin's factual allegations as true, "the complaint states a plausible and legally sufficient claim for relief, including, at this stage, Plaintiff's claim for lost wages and salary incidental to the reinstatement of benefits," the court wrote, denying the employer's motion to dismiss.