California Labor and Employment Defense Blog

Is Cutting Employee Hours to Avoid Benefit Coverage Illegal Under ERISA?

Companies that offer health insurance or other employee benefits typically set some sort of minimum threshold for triggering coverage -- for example, being employed for more than 20 or 30 hours per week.  ERISA is very clear in allowing employers almost unlimited discretion to write their benefit plans in order to exclude part-time employees (or any other category of worker) in this fashion.

But ERISA is equally clear in precluding an employer from making employment decisions for the specific purpose of preventing an employee from obtaining or keeping coverage.  In particular,  ERISA Section 510 provides that

It shall be unlawful for any person to . . . 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 . . .”

In these recessionary times, employers may keep their costs down by deliberately reducing employees from full-time to part-time status, or by refusing to give employees the additional hours necessary to trigger benefit coverage.  Employers should be aware, however, that to the extent work assignment decisions are motivated by benefit costs they may be illegal under ERISA section 510.   

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Shawn - September 19, 2009 9:43 AM

Good points, thanks for the post.

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