The class action lawsuit filed in federal courts in New York’s Southern District against entertainment and restaurant chain Dave & Buster’s is continuing after the judge in the case rejected a proposed $7.425 million settlement. The reason? According to the court order denying the motion to preliminarily approve of the settlement, the court stated that the proposed settlement was inconsistent with the complaint, which did not seek monetary compensation, and it failed to provide damages calculations or other evidence to sufficiently show that the settlement was fair and reasonable. The settlement, if approved, would have resolved the case and provided benefits to the 1,200 current and former full-time employees of Dave and Buster’s who are part of the class action lawsuit.
The class action lawsuit charges Dave & Buster’s with reducing employees’ hours to avoid the Affordable Care Act’s (ACA) employer mandate, which requires employers with at least 50 full-time or full-time equivalent employees (called Applicable Large Employers or ALEs) to either offer minimum essential coverage to their full-time employees and their dependents and make the coverage “affordable” and provide “minimum value” to the full-time employees, or potentially make an employer shared responsibility payment (ESRP) to the IRS. Employees who work a minimum of 30 hours per week are considered to be “full time” under the ACA.
The plaintiffs in the case, Marin v. Dave & Buster’s, Inc., claim that by having their hours cut by Dave & Buster’s, these employees lost their full-time work status, denying them the opportunity to get healthcare benefits. The plaintiffs claim that this is in direct violation of Section 510 of The Employee Retirement Income Security Act of 1974 (ERISA), which prevents employers from intentionally taking actions that might abridge or impair an employee from collecting benefits. The plaintiffs alleged that management advised during at least two separate meetings that the ACA employer mandate would present an added cost to the company in excess of $2 million. That exposure now pales in comparison to the rejected settlement of $7.425 million.
Many organizations are now facing notices that contain ESRP’s in the millions of dollars, penalties assessed by the IRS for their failing to comply with the ACA. These IRS notices, Letter 226J, have been issued to organizations that the IRS asserts failed to comply with the ACA in their information filings to the IRS for the 2015 tax year. (To learn how to respond to Letter 226J, click here.)
While the case continues, it serves as a cautionary tale for other employers that are attempting to avoid the ACA’s employer mandate. All signs point to the ACA employer mandate remaining in place and that those organizations that try to circumvent it will be facing ESRPs that range from tens of thousands to millions of dollars. As the case continues to progress, it looks more and more that regardless of the outcome, it might have been cheaper for Dave & Buster’s to follow healthcare and benefit laws rather than try to circumvent them.
