What Employers Can Learn from Dave & Buster’s About Affordable Care Act Compliance

With all the rules and potential penalties within the Affordable Care Act (ACA), it may be tempting to make some changes to business structure to avoid headaches or increased cost.  Be aware that doing so may have greater consequences than intended.  Keep reading for an example of a company’s attempts to navigate the regulations on their own.

Right sizing goes wrong
Maria De Lourdes Parra Marin worked full-time in the kitchen at the Dave & Buster’s entertainment complex in New York City’s Times Square. From 2006 to June 2013, Marin averaged more than 30 hours per week at $15 per hour. Her weekly salary was between $450 to $600.  As a full-time employee, Marin was also eligible to participate in the company’s medical plan. In June 2013, Dave & Buster’s initiated a program to “right size” its workforce by decreasing the number of full-time employees and increasing the number of part-time employees. This move by Dave & Buster’s resulted in Marin’s average hours being cut to 17.5 per week, her pay being reduced to an average of $150 to $375 per week and her ability to participate in the Dave & Buster’s medical plan being eliminated.

ACA class action lawsuit
Marin and many other employees were, understandably, none too happy about these developments.  She brought a class action lawsuit on behalf of the approximately 10,000 Dave & Buster’s hourly employees alleging that the right sizing exercise was done “with the intent and purpose, in whole or part, of interfering with their attainment of their rights as participants” under the employer’s medical plan.  The class seeks:

• Reinstatement to full-time positions.
• Restoration of their rights to participate in the company’s medical plan.
• Lost wages and benefits.
• Restitution of the premium and out-of-pocket costs associated with alternate health insurance secured by the employees.
• Attorney’s fees.

Section 510 of the Employee Retirement Income Security Act (ERISA) prohibits company actions which “interfere with the attainment of any right” to which a participant “may become entitled” under a plan.   Case law has established that if plaintiffs can prove the company acted with the “specific intent” to interfere with a participant’s right to health insurance, then a violation of Section 510 has occurred. In support of her specific intent claim, Marin points to a meeting at which her general manager allegedly stated that compliance with the ACA would cost “as much as $2 million” and that in order to avoid that cost, Dave & Buster’s was reducing the number of full-time employees.    Other publicly available comments regarding a “pre-emptive strike against Obamacare” and that providing more extensive benefits under the ACA would increase Dave & Buster’s expenses are also cited. In a motion to dismiss, Dave & Buster’s argued that:

• Employees do not have a right to future benefits.
• Employees do not have a right to employer- provided health benefits.
• The plaintiffs had not shown that Dave & Buster’s specifically intended to interfere with plan benefits.

In essence, the company argued that Ms. Marin had not alleged interference with current benefits and therefore could not bring a claim. In February 2016, the employees won this first round as the judge rejected the company’s motion to dismiss.  In deciding a motion to dismiss, a judge must accept the facts as alleged by the plaintiffs as true.  Whether plaintiffs can ultimately prove those facts remains to be seen.  Nevertheless, the judge acknowledged that the facts, if ultimately proven, would show that Dave & Buster’s acted with an “unlawful purpose” when “right sizing” its workforce.

What employers can learn from the Dave & Buster’s incident
This case has a long way to go and Dave & Buster’s may ultimately prevail as they have solid legal arguments on their side as well.   However, regardless of the ultimate outcome, several important lessons can be learned at this stage of the proceedings.

• First, written and oral communications regarding benefit changes need to be carefully vetted. Advantages accruing to the company, such as millions of dollars in savings, as a result of the benefit changes impacting employee’s lives should be de-emphasized.   Managers need to be trained specifically on what to say and more importantly what not to say.  Even if Dave & Buster’s ultimately wins this case, the comments cited by the plaintiffs were sufficient to survive a motion to dismiss and have cost the company much in time, money and negative publicity.
• Second, the timing and method of any benefits changes can be critical in how those changes are received. Keep in mind that Dave and Buster’s changes not only affected benefits but also resulted in a significant pay cut as well. That is a bad combination.   Although companies have wide discretion to make such changes, they should be done in a manner that mitigates the risk of such claims. Providing sufficient advance notice and assisting with the transition to other benefits may be helpful.
• Finally, companies may want to assess their exposure to such claims. Have you made recent benefits changes? Do you have employees making significant “noise” about those changes?    What was said, both written and orally, in connection with the changes?  Companies should also be aware that even reductions in hours of part-time or variable hour employees, with the specific intent to prevent them from becoming eligible for benefits, could give rise to similar claims.

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