Experts caution on cutting hours to avoid ACA

Now that the employer mandate is taking effect at the beginning of the year, and business with over 100 employees will have to offer health insurance to full-time employees or pay a fine, some companies are considering capping or cutting back hours so that workers have 29 or less hours a week, keeping them in part-time status. 

While that may seem like a reasonable alternative and well-within the rights of employers to manage their workforce, lawyers are warning that this could expose employers to class action liability. Section 510 is the anti-abuse provision of the Employee Retirement Income Security Act (ERISA) which was enacted to prevent unprincipled employers from firing employees shorty before their pension rights vested. Now, there is a good chance that plaintiffs' attorney could use section 510 as a means of suing employers that have reduced hours to avoid paying health insurance. It could be argued that an employer's act of limiting hours interfered with an employee's rights to benefit under the plan, especially if the employee had been working over 30 hours per week previously.

"Not too many people are eager to sue their employer, and it would often be difficult to prove that hours were reduced specifically to keep health benefits from vesting," said Timothy Jost, a leading health law expert and professor at the Washington and Lee University School of Law in Virginia. "I have seen this argument before, however, and it might work in some cases."

There are a couple things employers can do to minimize risks in case they do choose to cut back some of their employees hours to part-time status.

A key element to section 510 is whether or not the employer acted with the specific intent of interfering with the employee's rights of benefiting under a plan. To play it safe, business owners should not make any public statements regarding any strategies regarding how they might avoid the costs associated with the employer mandate. Such statements could alert plaintiff's attorneys to a potential target and then be used as evidence of intent.

"Management has the prerogative to organize staff in such a way that their company runs properly and there are a million justified reasons to change staffing levels," said Adam C. Solander, associate in the Washington, D.C., office of Epstein Becker Green. When explaining why certain positions are part-time, take care to focus on the justifiable reasons. Avoiding the employer mandate is not one of them."

In addition, since employees who currently work over 30 hours a week would have the best case against a company that limited their hours, it's a good idea to create a separate classification for these people in which they receive benefits. That way, even if their hours fluctuate, they remain covered.

"Risk is stratified," Solander said, "and the highest risk is going to come from people who were working 30 or more hours prior to any interrupting changes."

Experts note, however, while some employees are working 30 or more hours and will want to hold on to their hours, there are also full-time employees who are willingly decreasing their hours to part-time.

An analysis released earlier this month by the Washington, D.C.-based Center for Economic and Policy Research, states that some former full-time employees are choosing to work part-time due to the Affordable Care Act. Now that individuals can easily buy personal insurance through the exchange, they are no longer dependent upon their company's coverage, meaning they no longer have to work full-time to have health benefits. Authors of the study said employees with young children are among the most likely to switch to part-time.

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