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Employers must consider whistleblower provisions under the Affordable Care Act and ERISA Section 510 as they make employment decisions in response to the ACA.

Navigating health reform

Affordable Care Act’s Whistleblower Provisions Complicate Employer Decisions

  • Kelly Davis
  • 1/29/2014

Since the Affordable Care Act (ACA) was passed in March 2010, the primary focus has been on the financial impact of employer shared responsibility penalties, the individual mandate, and available tax credits. Not much attention has been given to how certain benefit decisions may violate provisions of the ACA and the Employee Retirement Income Security Act of 1974 (ERISA).

ERISA did not previously require employers to offer welfare benefits to their employees. However, with the passing of the ACA, an employer’s obligations regarding health care coverage under ERISA has drastically changed, and now includes providing for quality, affordable health care for employees.

Employers evaluate options

The ACA’s employer shared responsibility mandate final regulations released February 10, 2014, subject large employers (those with 100 or more full-time employees and equivalents) to penalties for not offering health care coverage to their full-time employees and dependents starting January 1, 2015. Employers with 50 - 99 full-time employees will have until 2016 to comply.

There are also penalties for offering unaffordable coverage in 2015 that does not meet required minimum essential benefits. So naturally, employers are evaluating costs, plan coverage, and options such as reducing employee hours or the number of full-time employees.

To ensure compliance with ERISA, the U.S. Department of Labor (DOL) has been issuing regulations and notices, along with FAQs, tools, and aids. Compliance with all provisions is required, however, the ACA’s whistleblower provisions and ERISA Section 510 are particularly important to employers as they make decisions regarding an employee’s full-time status.

Whistleblower provisions

The ACA prohibits employers from taking adverse actions against employees with respect to compensation, terms, conditions, or other privileges of employment, because they received a premium tax credit or subsidy through the health insurance marketplace.

Employees are also protected if they object to, or refuse to perform any activity believed to be an ACA violation, or if the employee provides information to the employer or federal and state government concerning a violation.

For example, employers who reduce an employee’s hours to less than 30 hours per week (so the employee is no longer full-time and becomes ineligible for the employer sponsored coverage) may be violating ACA’s whistleblower provisions.

Similarly, an employer that gives an employee the option to waive the employer provided health coverage in exchange for a cash payment to help purchase individual insurance through the marketplace may violate not only the whistleblower provisions, but also the cafeteria plan rules under Internal Revenue Code Section 125 and ERISA Section 510. Whistleblower provisions and protections may not be waived.

Violations of the whistleblower provisions may result in reinstatement, back pay with interest, special damages (such as for emotional distress), and legal fees assessed on the employer. Further, employees that avoid making a whistleblower violation claim may violate the provisions of ERISA.

ERISA generally requires that employers do not interfere with employee benefits, and protects an employee’s right to both present and future benefit entitlements. Specifically, there shall be no discrimination, retaliation, or adverse employment action — such as termination or discipline — directed at employees for exercising their right to benefits available under the terms of the employer’s governing plan. These ERISA provisions may apply to workforce realignment decisions, in particular, the reduction of hours.

Proceed with caution

Employers seeking to realign their workforces should consult legal professionals and carefully consider how employment decisions related to the ACA may impact an employee’s right to present or future benefits. ERISA violations can be costly and disruptive.