Reducing Hours to Avoid ACA Penalties Carries Risks

Under the Affordable Care Act (ACA), large employers are required to offer health care coverage to their full-time employees–those who work an average of 30 hours per week–or be forced to pay a penalty to the federal government. To avoid paying for this coverage, many large employers have opted to cut employees’ hours to fewer than 30. Last month, this strategy proved to be somewhat risky.

Maria Lourdes Parra Miran worked full-time for Dave & Buster’s at its Times Square location from 2006 to 2013 and received health insurance from the company during that time. In 2013, however, management decided to reduce its full-time staff at the location from more than 100 employees to about 40 to avoid the nearly $2 million charge to comply with the ACA’s employer mandate. Miran was impacted by this policy change, and her hours were reduced to an average of 17.43 per week. As a result, her full-time health benefits were terminated, and she became the lead plaintiff in a class-action suit against the company. Martin v. Dave & Buster’s, Inc. (S.D.N.Y. 2015).

In its motion to dismiss the suit, Dave & Buster’s argued that employees are not entitled to benefits that have not yet accrued, and because Miran was now a part-time employee, she was not entitled to health care coverage. However, the court found that the policy change affected Miran’s then-current benefits, and was therefore intended to interfere with them. As a result, the court denied Dave & Buster’s motion to dismiss, allowing the case to go forward.

It is important to understand that an actual ruling has not yet been made on this strategy. Nevertheless, this will be an extremely important case for employers as they work to determine the best ways to comply with the ACA. MSEC will continue to follow this case closely.