How cutting employee hours due to health reform may infringe federal law

Countless employers and their advisers are considering a health care reform strategy of cutting employees' weekly hours to less than 30 hours to try to avoid dealing with coverage requirements under the Affordable Care Act. At first blush, this approach seems to provide cover from a variety of costs associated with the ACA by getting employees off the health plan eligibility list.

However, a potential problem exists with this strategy and it is found in the backwaters of ERISA Section 510 which refers back to ERISA Section 502. This could be fodder for attorneys depending on the motive of the employer in taking employees part time.

Let me explain, because this may be a big deal for your agency's E&O and your obligation to give good advice to employer/clients.

The poignant part of ERISA Section 510 states: "It shall be unlawful for any person to discharge, fine, suspend, expel, discipline or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan ... or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan ... "

A plan participant in an ERISA plan (health plans are ERISA plans) has a legal right to participate in the plan without undo interference.

For sure, employers can - and do - cut employees' hours for reasons of legitimate business necessity. Sometimes a cut in hours relegates a benefit plan participant to ineligibility to participate in the plan under the terms of the plan's eligibility requirements.

Now, let us look at the single motive that some employers are considering to avoid offering health benefits under the terms of the ACA. This is key to a potential ERISA Section 510 claim against an employer.

If the single motive for cutting employees hours is to avoid the purposes of the ACA, to me, that sounds like a subterfuge that interferes with a plan participant's rights to their health plan. That is one of the very prohibitions that ERISA Section 510 was written to prevent.

The bottom line is that you and your employer client may be on shaky ground using the cut-in-hours strategy to knock plan participants off the health plan eligibility list and avoid further provision of health benefits to otherwise qualified plan participants.



Penalties always get attention. A violation of the employee's rights to participate in their plan or retaliation of the sort that results in a loss of group health plan coverage for reasons already discussed can be prohibitively expensive for the employer.

First, a plan participant may start a civil action to address loss of ERISA rights or retaliation for seeking to exercise rights under the plan. Second, the DOL can assess fines for each violation against the fiduciaries of the plan.

When all is said and done, messing with employees' rights to a health plan is tricky and potentially an expensive proposition. Knowing the sleepy 510 and 502 sections of ERISA gives you something valuable to talk with your clients about as so many employers seek a strategy to avoid the full force of the ACA.

Get out and talk to your clients about this important part of benefits law.

Davidson, CEBS, is founder of Davidson Marketing Group and FutureOffice Network. He is also on the faculty at the Sheldon B. Lubar School of Business at the University of Wisconsin, Milwaukee. Reach him at

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