Court's 'punt' leaves unanswered wellness, ADA questions
On Jan. 25, the 7th Circuit Court of Appeals issued its much-anticipated decision in EEOC v. Flambeau, addressing whether an employer's wellness program violated the Americans with Disabilities Act (ADA). The 7th Circuit's opinion – which follows closely on the heels of the Eastern District of Wisconsin's decision in EEOC v. Orion Energy Systems, Inc. – represents the first appellate court decision in this hotly-contested area since the EEOC issued final regulations on the subject last May.
The court case has big implications for employers, with key takeaways they need to keep in mind regarding their wellness programs.
By way of review, the ADA generally prohibits employers from discriminating in any way on the basis of disability. Specifically related to wellness programs, the ADA has been interpreted to prevent employers from requiring employees to undergo physical examinations or respond to disability-related inquiries that are not "job-related" or "consistent with business necessity" (which generally is not the case for most typical employer-sponsored wellness programs). There are two main exceptions to this ADA prohibition: The "safe harbor" exception, which broadly exempts certain "bona fide" benefit plans that are aimed at underwriting or classifying risks (and meet other requirements), and the "voluntary" exception, which covers certain wellness programs that comply with the detailed requirements under the EEOC's May 2016 ADA regulations. These exceptions are described more fully here.
The current case law and EEOC guidance is conflicting as to whether the insurance safe harbor exception can ever apply to wellness programs. The only appellate court to reach the merits of this issue – Seff v. Broward County, 691 F.3d 1221 (11th Cir. 2012) – held that the insurance safe harbor indeed covered the employer's wellness program, which consisted of a biometric screening, confidential health risk assessment questionnaire, and $20 per-pay-period surcharge for employees who failed or refused to participate. However, the Seff decision pre-dated the EEOC's May 2016 ADA regulations, which essentially purported to overturn that case, in clarifying that the insurance safe harbor could never apply to employer-sponsored wellness programs. As described more fully in our September 2016 alert, the U.S. District Court for the Eastern District of Wisconsin in Orion -- the first District Court case to be issued since the May 2016 ADA regulations – recently upheld the EEOC's interpretation, thereby prohibiting the insurance safe harbor from covering any employer-sponsored wellness programs.
Employers and other stakeholders had been eagerly awaiting the 7th Circuit's decision in Flambeau. Similar to the 11th Circuit in Seff, the U.S. District Court for the Western District of Wisconsin had held in late 2015 -- prior to the EEOC's May 2016 ADA regulations – that the employer's wellness program in Flambeau fell within the ADA's insurance safe harbor. The hope was that the 7th Circuit might provide employers with some additional clarity, as the first appellate court opinion to be published after the EEOC's May 2016 ADA regulations. The fact that the Orion case also arose out of the 7th Circuit made the case all the more notable.
Unfortunately, while the 7th Circuit upheld the Western District of Wisconsin's dismissal of Flambeau, the court did not reach the merits of any of the parties' arguments under the ADA. Rather, the dismissal was affirmed on grounds that the case was now moot, and there was no relief that could be granted to the parties. The employer had previously discontinued the wellness program, for reasons unrelated to the litigation; the employee had resigned from his job with Flambeau several years ago (before the lawsuit was even filed); and the EEOC did not demonstrate that the employee had suffered any compensatory damages or emotional distress, or that the employer had acted with sufficient malice or reckless disregard to support an award of punitive damages. As a result, the 7th Circuit essentially "punted" in Flambeau, thereby shedding little (if any) additional light on the subject of wellness programs under the ADA. The Flambeau decision did seem to leave open the possibility that the insurance safe harbor might apply to at least some wellness programs, in noting that the applicability of the insurance safe harbor in this context is an "open question" that "remain[s] open even today." Again, however, the 11th Circuit's 2012 decision in Seff remains the only appellate court opinion to address the issue directly; for the time being, that decision is at odds with the May 2016 ADA regulations, as well as the District Court decision in Orion.
To date, no published court decisions have interpreted or applied the EEOC's May 2016 ADA regulations on "voluntary" wellness programs, and no appellate court decisions have addressed the EEOC's clarification that the insurance safe harbor can never apply to an employer-sponsored wellness programs. At this time, employers would be well-advised not to rely on the insurance safe harbor, but rather to ensure that any wellness programs entailing health risk assessments, screenings, or other examinations or health-related inquiries comply with the EEOC's detailed regulations on voluntary wellness programs.
Adding yet another wrinkle of uncertainty, the fate of the EEOC's May 2016 final regulations is not entirely clear. In a suit filed last October in the U.S. District Court for the District of Columbia – AARP v. EEOC, Case No. 16-cv-2113 (D. D.C. 2016) – AARP is seeking to invalidate the EEOC's May 2016 ADA regulations. Specifically, AARP argues that the regulations enable employers to utilize substantial and coercive wellness program incentives and penalties in order to pressure employees into divulging confidential medical or genetic information "likely to facilitate illegal workplace discrimination." In AARP's view, the EEOC acted arbitrarily and capriciously in issuing the May 2016 ADA regulations, which run counter to congressional intent, and conflict with prior agency guidance that imposed more stringent standards for wellness programs to be deemed voluntary. In a decision issued on December 29, 2016, the District Court denied AARP's motion for a preliminary injunction, which would have blocked the ADA regulations from taking effect a mere three days later. Importantly, the decision held that AARP had standing to proceed in the case, but the District Court refused to take the "extraordinary" action of enjoining the regulations temporarily, at the eleventh hour, until all the issues could be fully briefed and argued.
Moreover, it may be noteworthy that the May 2016 ADA regulations were issued under the Obama administration – and specifically during the administration's last year – potentially making them ripe for review, revision, or perhaps even withdrawal and republication by the Trump administration. And as noted here, legislation introduced in the previous Congress – the Preserving Employee Wellness Programs Act (S. 620 / H.R. 1189) – would have simplified and streamlined the ADA analysis for wellness programs and the interaction with the wellness program nondiscrimination rules under the Patient Protection and Affordable Care Act (ACA) and the Health Insurance Portability and Accountability Act of 1996 (HIPAA). The bill effectively would have guaranteed ADA compliance for any wellness program incentive that satisfied the ACA and HIPAA nondiscrimination rules, effective retroactive to March 23, 2010. It is not yet known whether similar legislation will be introduced in the current Congress.
The bottom line is that notwithstanding the recent flurry of case law, there remain more questions than answers for employers with regard to ADA compliance for wellness programs. Employers need to stay on top of the ever-changing case law, guidance, and legislative developments, and exercise caution in designing and operating their wellness programs in the meantime.
The information in this legal alert is for educational purposes only and should not be taken as specific legal advice. The article was originally published on Miller & Chevalier’s Web site here.