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After a multi-year odyssey, Marin v. Dave & Buster’s, Inc., the class action lawsuit filed in federal courts in New York’s Southern District against the entertainment and restaurant chain is finally over.
The judge in the case approved a proposed $7.425 million monetary settlement with injunctive relief in June of 2019. The settlement is substantially similar to the one previously rejected by the court.
The settlement resolves the case and provides compensation to the roughly 1,200 current and former full-time employees of Dave & Buster’s who are part of the class action lawsuit in two sub-classes; (1) those that lost hours & benefits, and (2) those that lost hours & benefits eligibility. In addition to the monetary compensation, Dave & Buster’s will be enjoined from the activity that was the central charge of the suit.
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 (MEC) to their full-time workforce 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 claim that by having their hours cut by their employer Dave & Buster’s, lost their full-time work status, denying them the opportunity to receive 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 settlement of $7.425 million.
Many organizations are facing penalty assessments from the IRS containing ESRP’s in the millions of dollars for failing to comply with the ACA. These penalty notices are presented in IRS Letter 226J and have been issued to organizations that the IRS asserts failed to comply with the ACA.
Currently the agency is issuing Letter 226J penalty assessments for the 2017 tax year. To learn how to respond to Letter 226J, click here.
While the case does not resolve the question of whether purposefully reducing an employee’s hours to avoid obligations under the ACA Employer Mandate violates Section 510 of ERISA, it serves as a cautionary tale regarding the liability exposure of an employer that seeks creative ways to circumvent their ACA Employer Mandate obligations.
For the employers anticipating a replace and repeal, 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, in addition to any added ERISA liability exposure. It likely would have been cheaper for Dave & Buster’s to attempt to follow the ACA Employer Mandate rather than try to circumvent them.
Organizations unaware of their ACA compliance status should elect to undergo an ACA Penalty Risk Assessment. Doing so will allow your organization to remedy any previous ACA compliance mistakes as well as course-correct to prevent any future mistakes from being made.
