In hearing a recent federal challenge to an employer’s wellness incentive program, a court rejected the company’s contention that the Americans with Disabilities Act’s (ADA) safe harbor for benefits administration should apply.
However, the court dismissed the U.S. Equal Employment Opportunity Commission’s (EEOC) claim that Orion Energy Systems Inc.’s incentive violated the ADA, even though it required nonparticipating employees to pay their entire health insurance premium. In an additional twist, though, the court let the EEOC proceed on its related retaliation and interference claims. The case is EEOC v. Orion Energy Systems, Inc., No. 14-CV-1019 (E.D. Wis., 2016).
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Background
In 2009, Orion implemented a wellness program that included a health risk assessment (HRA) and biometric screening. One employee refused to participate; she openly questioned whether the medical information gathered would be kept confidential. As a result, she was required to pay her full health premium costs of more than $400 per month. Because she had been outspoken on the subject, her supervisors also met with her to express concerns about her “negativity.”
The employee was terminated shortly thereafter, after criticizing management on a different matter. She then filed a complaint with the EEOC, which sued Orion in U.S. District Court in Green Bay, Wisconsin, claiming that its wellness program violated the ADA as involuntary and that the company had retaliated against the employee in violation of the ADA.
In general, the ADA prohibits covered employers from requiring medical examinations or making disability-related inquiries of an employee, unless the examination or inquiry is job-related and consistent with business necessity. The law includes an exception for “voluntary” wellness programs, but until very recently the EEOC had not specified what this meant in terms of permissible incentives. The commission ultimately issued final regulations on the subject in May 2016, well after the events at issue in this case.
Safe Harbor
In addition to the ADA provision that allows certain wellness-related inquiries, the act includes a broad exemption for “establishing, sponsoring, observing, or administering the terms of a bona fide benefit plan that are based on underwriting risks, classifying risks, or administering such risks.” EEOC has insisted this provision does not apply to wellness programs, but a few courts have disagreed.
Most recently, in EEOC v. Flambeau, Inc., 131 F. Supp. 3d 849 (W.D. Wis. Dec. 31, 2015), an employer denied health coverage outright to employees who refused to take an HRA and biometric screening, but the court found that this qualified for the safe harbor because it was a “term” of the benefit plan, and the company used the results to estimate the cost of insurance, set premiums, evaluate the need for stop-loss insurance and adjust copays. (This case is now under appeal.)
Effect of Recent Rule
In its recent final rule, the EEOC stated that this safe harbor does not apply to wellness programs, even if it is part of an employer’s health plan. In the current litigation, the commission argued that because this part of the rule merely “clarified” the prior regulations, it should apply retroactively to Orion’s conduct and be granted the deference that courts give an agency’s reasonable interpretation of a statute.
Orion argued that the EEOC lacked authority to interpret the ADA safe harbor provision. However, the court found that Congress’ directive to issue regulations on ADA Title I (employment discrimination and inquiries) did not foreclose the EEOC from interpreting the safe
“Congress’ intention to either limit or expand the EEOC’s regulatory authority is ambiguous,” and the EEOC is entitled to deference in interpreting the scope of its own authority, Judge William Griesbach wrote in the court’s opinion:
Specifically, publishing a regulation clarifying that the safe harbor provision in Title IV does not apply to medical examinations and inquiries taken in connection with a health program regulated in Title I is not beyond the scope of the EEOC’s delegated authority.
Next, Orion contended that even if the EEOC had this interpretive authority, its reading was contrary to the statute. However, the court found the ADA unclear on whether the safe harbor applied to wellness exams and inquiries, and the EEOC reasonable in determining “that the ADA does not reflect any intention to allow the safe harbor provision to limit Title I’s protections against involuntary medical
Orion also argued that EEOC could not apply this interpretation retroactively because it altered the substantive law on the issue. However, the court again disagreed, finding the rule is consistent with the commission’s prior positions on the safe harbor provision.
An agency rule also may be deemed to change existing law if it contradicts a federal appellate ruling on the issue. However, the 11th U.S. Circuit Court of Appeals’—which covers Alabama, Florida, and Georgia—seemingly contrary decision in Seff v. Broward County (991 F.3d 1221 (2012)) was not such a ruling, the Orion court found, because the only issue raised on appeal was whether the wellness program was a plan “term”—not whether the safe harbor provision should apply to wellness programs at all.
“Accordingly, the EEOC’s regulation is a permissible interpretation of the statute and can be applied retroactively,” Griesbach concluded.
Court Rejects Seff, Flambeau
The court then went a step further and decided that even absent the EEOC’s new regulations, the safe harbor would not apply, despite the earlier rulings in Flambeau and Seff. “Based on the safe harbor’s purpose as well as the language and structure of the ADA, I decline to adopt the holdings of Seff and Flambeau,” Griesbach wrote. “The broad reading of 42 U.S.C. §12201(c) in these decisions is at odds with the statute’s intended purpose.”
The ADA’s safe harbor was created to protect insurers’ basic business operations, whereas “wellness programs are unrelated to basic underwriting and risk classification,” and are usually not implemented until after the insurer has set the premium, Griesbach explained. “Here, the wellness program was not used to underwrite, classify, or administer risk. Orion adopted the wellness program in 2009 separately from the terms of its health benefit plan and did not amend its health benefits summary plan to include the wellness initiative.”
Extending the safe harbor to employer wellness programs with only a tenuous relationship to insurance, as the Flambeau court did,
By applying the safe harbor provision to employer wellness programs, the ADA would not prevent employers from requiring medical examinations as a condition to participate in its wellness program so long as the exams pertain tangentially to health benefits. As such, the statute providing an exception for voluntary medical inquiries is mere surplusage.
For the foregoing reasons, the court ruled that Orion’s wellness initiative was not exempt from the ADA under the safe harbor provision.
What did the court have to say about the “voluntariness” of the wellness program? And what was its logic behind allowing the EEOC proceed on its related retaliation and interference claims? Read about these aspects of the court’s ruling, as well as its implications for employers going forward, in part 2 of this article.
 David A. Slaughter, JD, is a Senior Legal Editor for BLR’s Thompson HR products, focusing on benefits compliance. Before coming to BLR, he served as editor of Thompson Information Services’ (TIS) HIPAA guides, along with other writing and editing duties related to TIS’ HR/benefits offerings. Mr. Slaughter received his law degree from the University of Virginia and his B.A. from Dartmouth College. He is an associate member of the Virginia State Bar.
Questions? Comments? Contact David at dslaughter@blr.com for more information on this topic |