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Recent Court Cases Impacting Employee Benefits (Benefit Minute)

Tina Bull • Sep 27th, 2017

This issue of the Benefit Minute summarizes recent judicial activity which may affect employers and their benefit plans.

Parental Leave

The Equal Employment Opportunity Commission (EEOC) has been involved in several recent lawsuits regarding unequal provision of parental leave benefits by employers.  EEOC guidance under both pregnancy discrimination and unlawful disparate treatment of workers with caregiving responsibility states that employers’ parental leave programs (whether paid or unpaid) cannot be provided on more favorable terms to female employees than male employees.

EB Employee Issues

In EEOC v. Estee Lauder, the EEOC claims that the cosmetic company’s paid parental leave policy discriminates against male employees.  The policy grants “primary caregivers” six week of paid parental leave for child bonding and flexible return to work benefits, but only provides “secondary caregivers” two weeks of paid leave.  It is alleged that the company generally restricts male employees to receiving the “secondary caregiver” paid leave.  The outcome of the lawsuit is still to be determined.

In a similar situation, a male employee of JP Morgan filed a charge with the EEOC when he was denied 16 weeks of paid parental leave as the “primary caregiver.”  Company policy states that a male employee receives only 2 weeks of paid leave without proof that the mother of the child is medically incapable of taking care of the child or has returned to work.  Female employees are presumed to be the “primary caregiver.”  This charge is still in the early stages.

EEOC guidance suggests that employers should divide parental leave into two separate categories:

  1. Leave for female employees who have medical conditions related to pregnancy and childbirth.
  2. Leave for child bonding available to similarly situated female and male employees on the same terms.

Employers should consider these two categories when crafting parental leave policies to avoid exposure to claims of disparate treatment of male and female employees.

Leave of Absence as an ADA Accommodation

The EEOC has issued guidance stating that an employer must consider granting an extended unpaid leave of absence with a reasonably certain return-to-work date as a reasonable accommodation under the American with Disabilities Act (ADA).  This requirement applies even if the employer does not offer unpaid leaves of absence, the employee is not eligible for leave under the employer’s policy or the employee has already exhausted protected leave available under the Family and Medical Leave Act (FMLA).

In Severson v. Heartland Woodcraft, the Seventh Circuit Court of Appeals concluded that a multi-month leave of absence is beyond the scope of an ADA reasonable accommodation, thereby permitting the employer to terminate an employee who was unable to return to work at the end of FMLA leave.  The court stated that a reasonable accommodation is limited to measures that enable an employee to work, and an employee who needs a long-term medical leave is unable to work and thus is not ADA-protected.  The court noted that brief periods of leave to treat a disabling condition may be required under the ADA.

The EEOC opposes the position taken by the court and will likely maintain its position that a long-term medical leave of definite duration may qualify as a reasonable accommodation.  Employers should continue to engage in ADA’s interactive process to best determine how to accommodate a disabled employee.

HIPAA Wellness Program

In Acosta v. Macy’s, the Department of Labor (DOL) alleges  that Macy’s tobacco cessation wellness program, which assessed a monthly surcharge to tobacco users enrolled in the health plan, did not comply with the wellness program requirements of the Health Insurance Portability and Accountability Act (HIPAA).  Specifically, over the course of several years, the program:

  • Did not allow a reasonable alternative standard to avoid the surcharge. A plan participant must have been tobacco-free for at least six months to avoid the surcharge.  There was no opportunity for an individual who participated in a smoking cessation program but did not actually obtain tobacco-free status to avoid the surcharge.
  • Did not provide notice of a reasonable alternative standard since there was not one.
  • Did not waive the surcharge for the entire plan year. The surcharge was not waived retroactively when a participant subsequently certified tobacco-free status.

The DOL claims that Macy’s violation of these HIPAA wellness requirements resulted in a breach of ERISA’s exclusive benefit rule and a failure to perform its duties in accordance with the governing documents.  The DOL has also alleged that these actions resulted in prohibited transactions which benefited Macy’s at the expense of plan participants.  The DOL has asked the court to order Macy’s to reimburse (with interest) all participants who paid the tobacco surcharge since the wellness program was improperly administered.  In addition, the DOL has the authority to assess civil penalties against any party that breached its fiduciary responsibility, and IRS excise tax penalties may also apply.

EEOC Wellness Program Rules

In final regulations issued in May 2016, the EEOC stated that a wellness program subject to ADA or the Genetic Information Nondiscrimination Act (GINA) meets the voluntary wellness program exception as long as the incentive does not exceed 30% of the cost of employee-only coverage (lowest-cost plan option).  In AARP v. EEOC, the court found that the EEOC acted arbitrarily in setting the 30% limitation and sent the regulations back to the EEOC for reconsideration and justification.  The judge rejected AARP’s request to vacate the regulations (saying such an action would significantly disrupt existing wellness programs), so they remain in effect for now.

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About the Author: Tina Bull, VP of Compliance Services for the Employee Benefits practice, is responsible for managing and overseeing all activities of the Compliance Services Department. She advises and assists clients with respect to health/welfare plan design, administration and communication, with focus on current benefit laws and regulations. Tina’s areas of expertise include: Internal Revenue Code and ERISA requirements for health and welfare benefit plans; Internal Revenue Code Section 125 cafeteria plan implementation and administration; COBRA administrative requirements; HIPAA administrative simplification, privacy and security compliance and benefit taxation issues. In addition to conducting internal training for employee benefits staff, she has spoken at numerous seminars on regulatory compliance issues.