Important Development in Dave & Buster’s Lawsuit Regarding Whether Cutting Employee Work Hours Violates ERISA
February 22, 2016
By Hrishi Shah
In a case of first impression that is being closely watched by plaintiffs’ attorneys and large employers alike, a federal judge recently ruled against a motion brought by Dave & Buster’s, the restaurant chain, to dismiss a proposed class action lawsuit (Marin v. Dave & Buster’s, Inc., S.D.N.Y., No. 1:15-cv-03608) alleging that the company impermissibly reduced workers’ hours to avoid its obligations under the Affordable Care Act’s employer mandate. The ACA’s employer mandate generally requires large employers to offer affordable and minimum value health coverage to its full-time employees (defined as employees who regularly work an average of at least 30 hours per week). Employers are generally not required to offer coverage to employees working an average of less than 30 hours per week.
As we wrote in a prior alert, the lawsuit, which was filed in the Southern District of New York by a large proposed class of current and former Dave & Buster’s employees, alleges that the company reduced employee work hours to prevent employees from attaining full-time status (and therefore eligibility for health coverage) in violation of Section 510 of ERISA. Section 510 prohibits employers and plan sponsors from interfering with an employee’s attainment of benefits. Maria De Lourdes Parra Marin, the named plaintiff, alleged that she regularly worked over 30 hours at Dave & Buster’s Times Square location until mid-2013, when her hours (and those of hundreds of other employees) were reduced, allegedly to prevent her from maintaining full-time status, thereby causing her to lose health coverage eligibility under the company’s group health plan.
In its ruling against Dave & Buster’s motion to dismiss the lawsuit, the court ruled that the plaintiffs had sufficiently pleaded that the company had acted with an “unlawful purpose” in its adverse action against them, as is required to support a claim under ERISA Section 510. The court cited to numerous statements from the company’s management regarding the need to reduce full-time staffing to limit financial exposure under the ACA. In support of its motion to dismiss, Dave & Buster’s argued that an employee has no entitlement to “benefits not yet accrued,” and must show more than a “lost opportunity to accrue additional benefits” to sustain a claim under ERISA Section 510; it was not possible to violate Section 510, the company argued, by preventing employees from becoming eligible for future benefits. The court rejected this argument, ruling that the company’s actions had affected the plaintiffs’ current benefits, as well as their attainment of future benefits.
Since the ACA employer mandate went into effect in 2014, it has been a common practice for large employers to structure employee work hours and staffing so as to manage their financial exposure under the mandate. If the plaintiffs in Marin ultimately prevail, this may significantly impact employers’ ability to implement such strategies in the future. Employers should therefore continue to monitor this case closely.