Even though material aspects of Affordable Care Act (ACA ) compliance have been delayed, employers are still scrambling to understand and prepare for compliance with the new regulatory scheme. Early on, compliance has been something of a numbers game because the “play or pay” mandate is limited to employers with 50 or more full-time employees. (For the ACA’s purposes, “full-time” means employees who work 30 or more hours per week or 130 hours per month. Part-time employees are counted toward the 50-employee threshold based on their fraction of full-time status.) 
Already, several ACA avoidance strategies, including layoffs, downsizing, moving employees from full- to part-time status, and replacing employees with a contract workforce, have made headlines. It’s unclear how much of this is actually happening versus just being reported, but I’d be willing to bet that most employers at or above the 50-employee threshold have at least thought about using strategies to avoid the ACA’s requirements. I thought you would be interested in hearing about the potential risks of those strategies.
Numbers game
First, if you’ve thought about replacing employees with independent contractors (who do not count toward the 50-employee threshold and are not eligible for benefits under ACA-mandated plans), proceed with caution. The IRS is well aware of the ACA-driven incentive to reclassify workers and is reportedly intensifying its efforts to root out independent contractor misclassification.
Remember, a true independent contractor is economically independent from you and does not work under your close control. Merely labeling a worker as an independent contractor is not enough. You must conduct a thorough analysis and use the IRS’s 20-factor test to make sure your classifications will hold up. Be mindful that the consequences of misclassification may become even more severe with the ACA in the mix. Under the ACA, if you are found to have misclassified workers, you could be liable for “failure to offer” and “insufficient coverage” penalties for thousands of dollars per misclassified worker in addition to back payroll taxes, back wages, and overtime.
For example, assume you have 45 employees and do not provide coverage under the ACA. But you also have a sales team of 15 “independent contractors.” If the IRS determines that you misclassified the salespeople, you could be assessed a shared responsibility excise tax of up to $60,000 in addition to back payroll taxes and penalties. Obviously, that’s not a happy scenario.
Workforce restructuring and discrimination claims
Any type of restructuring (e.g., position eliminations, layoffs, or change from full- to part-time status) that deliberately targets or disproportionately affects protected groups may lead to liability for violating state and federal antidiscrimination statutes. Damages from discrimination claims may include back wages, compensatory damages, liquidated damages, and attorneys’ fees.
Remember, you do not have to intentionally discriminate against a protected group to be hit with a class action lawsuit following restructuring. Claims may be based on an unintentional disparate impact on protected groups. The best way to avoid those claims is to conduct a careful, documented analysis before engaging in any type of restructuring, focusing on positions and business considerations rather than employees. Assess the results of the proposed restructuring to see if older workers or other protected groups will be disproportionately affected. Be sure you can provide strong documentation of the business or economic reasons certain positions or work groups will be targeted.
Obtaining releases from affected workers also reduces risk, but be sure releases contain the necessary wording to release all claims under state and federal laws. Remember, special wording and notices are required to release federal age discrimination claims.
ACA-specific claims possible
Even if a restructuring is nondiscriminatory, you still may have a problem if the restructuring is for the sole purpose of avoiding the ACA’s obligations. That’s because the ACA contains an antiretaliation provision that states that “no employer shall discharge or discriminate against any employee with respect to his or her compensation, terms, conditions or other privileges of employment” because the employee has received a benefit under the Act. The U.S. Department of Labor (DOL) has issued guidance stating that employees’ hours or pay may not be reduced because employees receive a subsidy to purchase insurance via a public health insurance exchange. As for whether the guidance would apply to a prospective reduction in hours or terminations to avoid ACA coverage, that remains an open question.
In addition, Section 510 of the Employee Retirement Income Security Act (ERISA) makes it unlawful for employers to interfere with employees’ right to present or future benefits, so ERISA interference claims resulting from restructuring are possible as well.
The bottom line is, if you seek to make changes to your organization to avoid ACA requirements, seek expert advice. Stay tuned for the latest developments in the constantly shifting world of ACA compliance.
Kara E. Shea is an attorney with Butler Snow, practicing in the Nashville, Tennessee, office. She can be reached at kara.shea@butlersnow.com.