by Timothy P. Brechtel and Ricardo X. Carlo
As if you didn’t have enough to worry about as healthcare reform heads toward full implementation in 2014, the new whistleblower protection provisions of the Affordable Care Act (ACA) may present a trap for unsuspecting employers looking to cut costs by tweaking their workforces. Under ACA Section 1558, an employer cannot retaliate against any potential, current, or former employee for engaging in a “protected” activity, including exercising his rights under the ACA. Additionally, actions such as reducing hours or laying off employees, if taken in response to penalties imposed under the Act’s “play or pay” rules, could be deemed retaliation and result in serious employer liability. 
A primer on ACA whistleblower protection
On February 27, the U.S. Department of Labor (DOL) issued an interim final regulation and a request for comments regarding procedures governing whistleblower complaints. Under the ACA, the term “protected activity” encompasses a wide range of activities―for example, reporting a violation of the Act, assisting or participating in an investigation of such a violation, or receiving a federal subsidy or tax credit to purchase insurance from a health exchange. Specific examples of protected activities in which employees might engage include obtaining subsidized exchange-based health insurance coverage that triggers a “play or pay” penalty or objecting to an employer’s failure to provide free preventive services through its health plan.
If an adverse employment action taken against an employee is at least in part the result of engaging in protected activity, then whistleblower protections apply. Adverse or retaliatory action may include any of the following:
- Reducing pay or hours;
- Firing or laying off;
- Blacklisting;
- Demoting;
- Denying overtime or promotions;
- Disciplining;
- Denying benefits;
- Failing to hire or rehire; and
- Intimidating.
The new whistleblower regulations outline the procedures for appeals, litigation, filing complaints, and conducting investigations and hearings. Employees have 180 days from the date of an alleged violation to file an oral or written complaint with the DOL. To proceed with a complaint, an employee need only assert that the protected activity was a contributing factor (i.e., alone or in combination with other factors) that in some way affected the outcome of the employer’s decision to take adverse or retaliatory action. Thus, an employee doesn’t have a very difficult burden of proof at the complaint stage.
If the employee satisfies the initial burden of proof, the employer must then demonstrate through clear and convincing evidence (a relatively high burden of proof when compared to the employee’s burden) that it would have taken the same action even if the employee hadn’t engaged in protected activity. If the DOL investigates and determines a violation has occurred, it may order any of the following remedies: reinstatement, back wages, restoration of benefits, compensatory damages, and/or reasonable costs and attorneys’ fees.
However, if the DOL determines the complaint was frivolous or filed in bad faith, the employer’s recovery is limited to attorneys’ fees not to exceed $1,000. The amount of recovery is at the discretion of the DOL. Additionally, if the complaint isn’t resolved at the agency level, litigation is possible.
Unintended consequences
The ACA’s “play or pay” rules generally apply to employers with at least 50 full-time (or full-time equivalent) employees beginning in 2014. If an employer doesn’t offer minimum essential coverage (MEC) to substantially all full-time employees (and their dependents), then it is subject to a penalty tax of $2,000 per year for each full-time employee (minus the first 30) if at least one full-time employee obtains federal tax credits or subsidies to purchase health coverage through a federal or state exchange. Penalties also may be imposed if an employer offers MEC but the coverage doesn’t provide “minimum value” or is unaffordable. The penalty is $3,000 per full-time employee for whom coverage is not affordable and who receives a credit or subsidy in connection with exchange coverage.
Importantly, the employer will pay no penalty if no employees obtain a tax credit or subsidy in connection with exchange coverage. Since full- time employee status and the number of employees are key factors in determining the penalties, the ACA can be seen as incentivizing employers to limit their number of full-time employees to reduce or avoid “play or pay” penalties. Employees whose jobs are eliminated or whose hours are reduced at least in part because the employer is assessed a “play or pay” penalty may turn to the whistleblower provisions described above.
Does timing matter?
The statutory language prohibits an employer from (among other actions) discriminating against any employee “because the employee . . . has received a credit . . . or a subsidy” via a health insurance exchange. To the extent workforce changes are made before the “play or pay” penalties take effect in 2014, it would seem difficult to show cause and effect between an employer’s actions and an employee’s exercise of his protected rights. Employees cannot enter exchanges―and no credits or subsidies will be paid―until 2014 or later. Nevertheless, employers probably should expect and be prepared to deal with employee complaints filed with the DOL regardless of the timing of their actions or the merits of a complaint. The stakes are likely to rise beginning in 2014.
Bottom line
If you decide to change an employee’s terms of employment, especially in 2014 or later, you should be prepared to explain the reasons for doing so, particularly in the case of employees who may be receiving federal subsidies or tax credits or who otherwise may have engaged in ACA- protected activity (such as complaining to the DOL or seeking to enforce rights under the Act). Advance planning and proper documentation likely will be your best weapons to defeat potential retaliation claims.
Timothy P. Brechtel is a partner in the tax and estate section of Jones Walker’s New Orleans office. He can be contacted at tbrechtel@joneswalker.com.
Ricardo X. Carlo is an associate in the tax and estate section of Jones Walker’s New Orleans office. He can be contacted at rcarlo@joneswalker.com.