Implementing, Avoiding ACA Can Expose Employers to Litigation Claims, Speaker Says

With an emphasis on practical strategies to improve productivity and performance, and limit potential liabilities, Bulletin to Management™ concisely analyzes new developments in employment and human resources management.

By Andrea L. Ben-Yosef  

Dec. 12 --Employers that are either implementing or trying to avoid being covered by the Affordable Care Act could expose themselves to new litigation claims under the ACA and other federal and state laws, James Napoli of Proskauer Rose LLP told an audience Dec. 11.

Speaking during a webcast sponsored by the Worldwide Employee Benefits Network titled Litigation Risks Related to the Patient Protection and Affordable Care Act, Napoli reviewed new potential ACA litigation risks, including claims under the ACA itself, benefit and/or breach of fiduciary duty claims under the Employee Retirement Income Security Act, claims under federal labor and employment laws and claims under state laws.

The main issues that could foster litigation are communications to employees and plan participants, workforce realignment to avoid the employer mandate and ACA whistle-blowing, he said.

Communications to Employees

One area of potential litigation concerns communications and notices to employees, Napoli said. The first question is whether the communication is legally required, and if so, whether it is required by statute or under case law.

It is important to understand the basis of the requirement, he said. Statute and related guidance will typically instruct what needs to be in the notice while case law often gives instruction as to whether a duty to communicate exists and under what circumstances that duty exists, he said.

The next question is who is supposed to be making the communication--the plan sponsor, plan administrator or employer--and using the proper voice, he said.

The plan should also know the issue being addressed, in what context it is being addressed and stick to the issue, he said.

Don't “over-communicate” and address more than the relevant issue, he said. Courts are favoring the employee where there is an ambiguity, Napoli said.

In addition, identify who is receiving the communications, and make sure the group receiving the communications is well defined, since this will impact the standard of review from a court, he said.

It is also important to define terms such as “we,” “us” and “you,” he said. Napoli said he puts footnotes defining the terms of who he is addressing with every communication. Finally, if the communication plays a dual role, such as including several notices in one package, then it should be noted, he said.

Workforce Realignment and Whistle-Blower Claims

Under the ACA's employer mandate, an employer that has 50 or more full-time employees working 30 or more hours per week and doesn't offer health coverage to at least 95 percent of employees and dependents is assessed a penalty per employee if at least one full-time employee receives support in the exchange, Napoli said.

Employers that don't provide affordable coverage must pay a penalty for each full-time employee who declines coverage and receives support in the exchange, he said.

Many employers are looking at how the penalties can be avoided by reorganizing the workforce, such as reducing employee hours to below 30 per week so they are no longer full time or reclassifying the workers, Napoli said.

Risks Involved

There are risks to taking these actions, he said.

Employees could bring a discrimination claim under ERISA Section 510 alleging interference with attainment of benefits, Napoli said.

If an employer said, “I am reducing hours, because I don't want to have to pay a penalty under the ACA,” the employee could then bring an ACA whistle-blower claim, he said.

The ACA prohibits employers from taking adverse action against any employee who receives a premium tax credit or subsidy through a public marketplace, he said.

The employee could claim the employer reduced hours so the employer wouldn't get a penalty for the employee getting a subsidy, and therefore the employee could say the employer retaliated, because it thought the employee would get a subsidy.

A question for the court is whether a preemptive strike by an employer is actionable, Napoli said, because the employer reduced the hours before the employee received the subsidy. This will be played out in the courts, he said.

An employer should also consider what group is being affected by the workforce realignment, Napoli said.

“Make sure a cutback in hours doesn't impact a protected class of employees,” he said.

Napoli said to minimize risk of a claim by employees:

• maintain the attorney-client privilege during the review of employee classifications and related issues;

• determine the affected employees and their current benefit rights; and

• document legitimate business reasons for worker classification.


DOL Auditing Plans

DOL is currently auditing plans regarding compliance with coverage mandates to make sure all eligible plan participants are being included and proper limits are being imposed, Napoli said.

In the future, DOL has signaled that its audits will include worker classification and related issues, he said.

Employers that receive DOL audit notification letters should first retain counsel to advise them, Napoli said.

Then “set up the response appropriately from the get go; you want a controlled environment,” he said.

Next, develop a specific and detailed strategy--look at what is being audited, and don't inadvertently raise other issues, Napoli said. Finally, don't admit to a breach of fiduciary duty, he said.

Napoli said auditors understand that employers don't have enough information on the ACA, so they are trying to assist in compliance instead of leveling penalties.

But remember that an employee can still sue for civil penalties, he said.


To contact the reporter on this story: Andrea Ben-Yosef in Washington at

To contact the editor responsible for this story: Phil Kushin at