In response to the Affordable Care Act, many employers are considering cutting some of their employees’ hours to something less than 30 per week. That would make the employees no longer “full time employees” under the ACA definition. There is no “shared responsibility assessable payment” for part-time employees, even if you have hundreds of them, so getting as much of the work done with “29ers” as possible makes some sense.
But the 29-hour strategy might not be a cure-all: it could expose the employer to claims under Section 510 of the Employee Retirement Income Security Act of 1974.
The relevant part of Section 510 says:
It shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary . . . for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan, this subchapter, or the Welfare and Pension Plans Disclosure Act.
The prototypical Section 510 case is one in which the employer fires an employee right before the employee’s rights in a pension plan become “vested.” The employee seeks to show in court that the termination was a scheme to prevent those un-vested contributions from becoming vested. But the “prototypical Section 510 case” is hardly the only kind. Creative lawyers can always be counted on to push the envelope and test the outer limits of any legal theory.
Nobody knows whether or how courts will apply Section 510 to an employer who reduces employees’ hours to avoid the § 4980H penalty. Our view from here is that Section 510 lawsuits challenging the 29-hour strategy are not likely to succeed on their merits, but the theory may be plausible enough to require some hard legal work to get to a final ruling. And both affected employees and the U.S. Secretary of Labor have authority to bring civil enforcement suits under ERISA Section 502, so it’s safe to assume that test cases will be filed by one or both of them.
One way to reduce the risk of Section 510 litigation might be to apply the 29-hour workweek only to new hires, leaving existing employees at their current workweeks. Or, just wait until somebody else gets sued and let them be the test case.