EEOC Loses Again in Wellness Litigation

Practical Law Legal Update w-003-5268 (Approx. 7 pages)

EEOC Loses Again in Wellness Litigation

by Practical Law Employee Benefits & Executive Compensation

Background

The employer in this case, the plan sponsor of a self-insured health plan, adopted several wellness-related financial incentives, including a provision requiring participants to either:

Complete a health risk assessment at the start of the plan year.
Pay 100% of the monthly premiums for plan coverage.

(See Practice Notes, Wellness Programs and Wellness Programs: EEOC Rules Under the ADA.)

Employees who completed the health risk assessment paid no premium equivalent, though they were required to pay deductibles, copayments, and out-of-pocket expenses.

The health risk assessment, which the employer characterized as a "mini-physical:"

Consisted of a health history questionnaire and biometric screen that included a blood pressure check, height, weight, and body circumference measurements, and blood draw and analysis (see Practice Note, Biometrics Litigation: An Evolving Landscape).
Did not result in the employer having access to personally identifiable information (because the questionnaire and blood samples were collected by one of the employer's vendors and sent directly to another) (see Practice Note, HIPAA Privacy Rule).
Provided the employer aggregate data in an anonymous format, from which it could see the percentage of plan participants who had specified health risks (for example, high cholesterol).

An employee in the employer's accounting department raised questions about whether information collected through the health risk assessment would remain confidential. The employee eventually opted out of the health risk assessment and therefore was subject to monthly plan premiums of over $400. The only person to opt out of the assessment, the employee:

Received a "talking to" by her supervisor regarding comments she made about the premiums being charged under the employer's arrangement.
Was told to keep her opinions about the employer's wellness program to herself, for fear that her generally negative outlook would harm employee morale.

A few weeks later, the employee sent an email that was critical of the employer's chief executive officer and the employer's policies. She was formally terminated several days later.

In the subsequent litigation, the Equal Employment Opportunity Commission (EEOC) took the position that the employer's wellness provision violated the ADA by requiring employees to complete a health risk assessment or pay full premiums. The EEOC also alleged that the employer violated the ADA's anti-retaliation provisions by:

Directing the employee not to discuss her concerns regarding the legality of the employer's wellness program (see Standard Document, ADA Failure to Accommodate and Retaliation Complaint).
Terminating her shortly after she objected to (and opted out of) the wellness program.

The employer, on the other hand, argued that:

Its wellness program was permitted under the ADA's insurance "safe harbor" provision, and, alternatively, that the program was voluntary (and therefore compliant).
The EEOC's retaliation claim must fail as a matter of law because the wellness program (that is, the reason for which the employee was allegedly terminated) was not unlawful.

Outcome

As relevant to the EEOC's allegations in this case, the ADA:

Prohibits employers from requiring medical exams.
Limits employer inquiries about individuals' disabilities (and the nature and severity of those disabilities).

Under an exception, however, employers may conduct voluntary medical exams that are part of a workplace-based employee health program.

ADA Insurance Safe Harbor Does Not Apply

The ADA also contains a safe harbor under which insurers may establish or administer a "bona fide benefit plan" that is "based on underwriting risks, classifying risks, or administering such risks" that are consistent with state law (see Legal Update, EEOC Final Wellness Program Rules Reflect Split Over ADA Insurance Safe Harbor). The employer, relying on recent court decisions, asserted that its wellness program was protected under the ADA's insurance safe harbor (see Legal Update, Broward County Wellness Program Falls Within ADA Safe Harbor: Eleventh Circuit and Practice Note, Wellness Programs: EEOC Rules Under the ADA: Some Courts Have Rejected the EEOC's Interpretation of the ADA's Insurance Safe Harbor).

In its analysis, the district court first addressed prior wellness-related decisions and recently issued EEOC final regulations providing that the ADA's insurance safe harbor does not apply to wellness programs. The district court concluded that the EEOC's final regulations represented a permissible interpretation of the ADA, were entitled to Chevron deference, and could be applied retroactively. However, the court further concluded that ADA's insurance safe harbor did not apply to the employer's wellness program, reasoning that the program was:

Not used to underwrite, classify, or administer risk.
Wholly independent of its health plan.

As a result, the court concluded that:

Applying the safe harbor to the employer's wellness program would conflict with the insurance safe harbor's purpose.
The wellness program was not exempt from the ADA under the safe harbor.

A Voluntary Wellness Program: "Sometimes Hard Choices Need to Be Made."

Under the EEOC's final regulations, medical exams and histories are voluntary (and therefore permitted) if an employer does not:

Require employees to participate.
Deny coverage under a group health plan to employees for nonparticipation.
Take any adverse action, retaliate against, or coerce employees who choose not to participate.

The court noted that, under the EEOC's regulations, an employer's wellness program is voluntary if the employer provides a financial incentive at or below 30% of the total cost of self-only coverage (see Practice Note, Wellness Programs: EEOC Rules Under the ADA: Incentive Limits). Interpreting this provision, the court considered—and rejected—the EEOC's position that it was more than a mere incentive for the employer to shift 100% of premium costs to employees who opted out of its wellness program. Rather, the district court concluded that "even a strong incentive is still no more than an incentive; it is not compulsion." The court observed that:

Employers are not required to fully pay for an employee's health coverage.
This employer's employees were given a choice, even if it was a difficult choice (that is, they could elect to complete the health risk assessment or pay full premiums).

The district court therefore granted summary judgment in the employer's favor regarding the EEOC's claim that its wellness program and health risk assessment violated the ADA.

Retaliation Claim Proceeds to Trial

Regarding the retaliation and interference claims, the court concluded that the employee's opting out of the health risk assessment was apparently protected activity for ADA purposes. However, citing conflicting evidence about who terminated the employee, for what reason, and the termination's timing, the court concluded that a fact question remained concerning the causal link between the employee's protected activity and her termination.

Noting the employee's allegation that she was told not to share her opinion about the employee's wellness program with her colleagues, the court indicated that a jury could conclude that the employer impermissibly interfered with her rights under the ADA. The court therefore concluded that the employer was not entitled to summary judgment on the EEOC's retaliation and interference claims.

Practical Impact

For both the EEOC and the employer, the results in this ADA/wellness program litigation are something of a mixed bag. On the question of whether ADA safe harbor immunity applies to medical exams under a wellness program, the EEOC may take some consolation in this court's unwillingness to adopt the holdings of the Seff and Flambeau decisions (for analysis of these decisions, see Practice Note, Wellness Programs: EEOC Rules Under the ADA). Moreover, the EEOC's retaliation claim was not thrown out and will move forward to trial.

However, the EEOC suffered another litigation defeat regarding its central challenge to this employer's wellness program financial incentives. Addressing the voluntariness of this arrangement, the court had little difficulty concluding that even a strong wellness incentive (100% of monthly premiums in this case) is not enough to render the program involuntary under the ADA. Under the EEOC's final regulations, by contrast, which govern both rewards and penalties, an employer may offer incentives up to only a maximum of 30% of the total cost of self-only coverage, including both employee and employer contributions. While it remains to be seen whether this court's analysis will be adopted elsewhere, the decision offers employers another potential line of defense in combatting EEOC wellness charges.

EEOC Loses Again in Wellness Litigation | Practical Law