New court decision on wellness raises questions

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On September 19, 2016, Chief Judge William Griesbach of the U.S. District Court for the Eastern District of Wisconsin issued a long-awaited decision in EEOC v. Orion Energy Systems, Inc., Case No. 14-CV-1019, addressing whether an employer's wellness program violated the Americans with Disabilities Act. The Orion decision is important to employers, even outside the Eastern District of Wisconsin, as it is the first case to rule on an ADA-based challenge to an employer-sponsored wellness program since the EEOC issued its final regulations on the subject in May 2016.

The ADA — background
With limited exceptions, the ADA prohibits employers from discriminating in any way on the basis of disability. To that end, an employer may require employees to undergo physical examinations or respond to disability-related inquiries only if "job-related and consistent with business necessity" (e.g., drug and medical screenings for airline pilots, truck drivers, etc.). Employer-sponsored wellness programs often include health risk assessments (HRAs), and various other types of medical screenings, that typically are not job-related or consistent with business necessity. As a result, these programs must satisfy at least one of the ADA's two primary exceptions, namely, the "voluntary" or "safe harbor" provision.

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Voluntary exception
The ADA permits employers to conduct so-called "voluntary" medical examinations and activities (including voluntary medical histories) as part of a wellness program, provided that, among other requirements, all information about an employee's medical condition or history is (1) collected and maintained separately from employee personnel files and generally treated as a confidential medical record, (2) not used for any purpose inconsistent with the ADA and (3) with limited exceptions, obtained by the employer solely in aggregate, de-identified terms.

The EEOC enforces these ADA rules, and the agency's position historically has been unclear as to whether (or to what extent) monetary rewards or penalties could cause a wellness program not to be voluntary. The EEOC issued final regulations on the subject last May, effective for plan years beginning on or after January 1, 2017. The regulations apply to any wellness program that includes disability-related inquiries or medical examinations — e.g., under a health risk assessment/questionnaire, biometric screening, etc. — regardless of whether it is offered in connection with a group health plan or on a "stand-alone" basis.

Under the EEOC's May 2016 final regulations, a wellness program will be voluntary for ADA purposes if it is "reasonably designed to promote health or prevent disease," and all of the following requirements are met.

The employer does not require employees to participate in the program; deny or otherwise limit coverage under a group health plan for employees who do not participate; or take any adverse employment action (e.g., retaliate against, interfere with, coerce, intimidate or threaten employees with regard to participation).

The employer meets detailed employee notice requirements.

Any incentive offered under the program, whether in the form of a reward or a penalty/surcharge, does not exceed 30% of the total cost (including both employer and employee contributions) of self-only coverage under a specified medical plan, which can vary depending on how the wellness program is structured.

Employer-sponsored wellness programs also may be subject to the ADA's "reasonable accommodation" standard, which generally requires employers to make modifications, absent an undue hardship, to ensure that disabled employees can enjoy the same benefits and privileges of employment as all other employees (including, in this context, the ability to earn any financial incentives under a wellness program).

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Safe harbor exception
Separate from the voluntary exception, the ADA's safe harbor permits an employer to establish, sponsor, observe or administer a "bona fide benefit plan" based on underwriting risks, classifying risks or administering such risks, if based on or not inconsistent with state law and not used as a subterfuge to evade the ADA's purposes. Two prior cases, both of which pre-date the EEOC's May 2016 final regulations, held that the employer-sponsored wellness programs at issue satisfied the safe harbor, and thus were ADA-compliant without needing to reach the question of whether they were "voluntary." See Seff v. Broward County, 778 F. Supp. 2d 1370, 1373 (S.D. Fla. 2011), aff'd sub nom. Seff v. Broward County, Fla., 691 F.3d 1221 (11th Cir. 2012); EEOC v. Flambeau, No. 14-cv-638-bbc, 2015 WL 9593632 (W.D. Wis. Dec. 30, 2015).

The wellness program in Seff included a biometric screening and confidential HRA questionnaire and a $20 health plan surcharge (per pay period) for individuals who did not participate. In Flambeau, the employer-sponsored wellness program consisted of a biometric screening — which measured height, weight and blood pressure, and included a blood draw, among other elements — and an HRA that solicited information about an employee's medical history, diet, mental and social health and job satisfaction. The employer initially gave employees a $600 credit for completing the program, but in subsequent years removed the credit and simply made an employee's completion of the program a condition of obtaining coverage under the employer's self-funded group health plan.

The Flambeau decision, out of the Western District of Wisconsin, generally followed the Eleventh Circuit Court of Appeals' broad interpretation of the ADA safe harbor in Seff. Both decisions held that the respective wellness programs satisfied the safe harbor and thus were not problematic under the ADA.

The EEOC has not acquiesced to the Seff and Flambeau decisions; quite the contrary. The Flambeau case currently is on appeal to the Seventh Circuit, where oral arguments were held on September 15, 2016. (A jurisdictional issue could prevent that appeal from being decided on its merits, however.) The EEOC's May 2016 final regulations, issued after the Seff and Flambeau decisions, state expressly that the safe harbor does not apply to wellness programs. The agency repeatedly has confirmed its position that Seff and Flambeau were decided incorrectly, and believes that the portion of the May 2016 final regulations confirming the safe harbor's inapplicability to wellness programs should not only apply retroactively, but receive "substantial deference" under the U.S. Supreme Court's decisions in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) and United States v. Mead Corp., 533 U.S. 218 (2001).

EEOC v. Orion
The wellness program in Orion, which applied to all employees who enrolled in the employer's medical coverage, consisted of three components.

A "smoker surcharge" totaling $80 per month (for self-only coverage) for each employee who failed to certify that he or she was a non-smoker.

An "exercise surcharge" totaling $50 per month for each employee who failed to exercise 16 times per month on a specified machine in the employer's fitness center.

An HRA consisting of a health history questionnaire and a biometric screening (i.e., blood pressure, height, weight, body circumference and blood draw and analysis). Any employee who refused or otherwise failed to complete the HRA at the beginning of the year would be required to pay the full monthly "premium equivalent" amount for medical coverage, totaling $414.43, $744.16, or $1,130.83 depending on the employee's level of coverage. (The employer would have covered the full premium cost for an employee who completed the HRA, by contrast.)

An Orion employee had raised questions about the wellness program, including whether medical information collected via the HRA would be kept confidential, and the manner in which the "premium equivalent" amounts were calculated. The employee was the only individual to opt out of the HRA and be charged the full monthly premium equivalent amount. The employee eventually was terminated, after she allegedly had been warned to "keep her opinions about the new wellness program to herself," and distributed an e-mail criticizing and challenging the company's CEO. The EEOC brought suit in federal court, alleging that the wellness program violated the ADA because it entailed disability-related inquiries and medical examinations, was not "voluntary," and could not be saved by the ADA's safe harbor. The EEOC also raised retaliation and interference claims against the employer, in connection with the warnings she allegedly received, and her eventual termination.

On September 19, 2016, Judge Griesbach issued the district court's decision, which can be described as somewhat of a mixed result for employers and the EEOC, with the EEOC getting the better end of the deal from a precedential standpoint. Undoubtedly in the EEOC's win column, the court strayed from the Seff and Flambeau cases and held that the ADA safe harbor did not apply to the wellness program, on two seemingly independent grounds. First, the court allowed the EEOC's May 2016 final regulations to apply retroactively, in part, to the extent that they "clarify" the safe harbor's inapplicability to wellness programs that entail disability-related inquiries or medical examinations. Second, the court expressly declined to follow Seff and Flambeau, even without regard to the May 2016 final regulations. The court instead agreed with the EEOC's argument, which prior case law had rejected, that the ADA safe harbor was written to protect the basic underwriting and risk operations of insurance companies, and was not intended to apply to employer-sponsored wellness programs. To hold otherwise, in the court's view, effectively would render the ADA's voluntary exception moot.

In the win column for the employer, the court granted summary judgment on the alternative theory that the wellness program satisfied the ADA's voluntary exception. Specifically, the employer did not (1) require employees to participate in the wellness program as a condition of their employment, (2) deny coverage under any group health or (3) take any adverse action, retaliate against or coerce any employee who simply chose not to participate. An employee could always opt out of the program and pay the full premium equivalent amount for coverage under the medical plan (as the employee in Orion chose to do); although the penalty for doing so was steep, it did not amount to compulsion. But as explained below, even if upheld on appeal, the potential application of this portion of the holding to other employers may be significantly limited.

The court also ruled in the EEOC's favor in denying the employer's motion for summary judgment on the retaliation and interference claims. There were questions of fact regarding who decided to terminate the employee, the reason she was terminated, and the timing of her termination. As such, a fact question remained as to whether there was any causal link between the employee's termination and her "protected" activity (i.e., opting out of the wellness program and/or expressing concern about the confidentiality of medical information collected thereunder).

As the first ADA-related wellness program decision since the EEOC's May 2016 final regulations, the Orion case is very relevant to employers as well as group health insurers. If the case is appealed to the Seventh Circuit (where the Flambeau decision currently is pending), and the inapplicability of the ADA safe harbor to wellness programs is upheld, then Orion could create a circuit split on the issue, call into question both the Eleventh Circuit's decision in Seff and the district court's decision in Flambeau and potentially be ripe for Supreme Court review.

It is also important to emphasize that Orion did not actually interpret or apply the EEOC's May 2016 final regulations on voluntary wellness programs; and if it had, the program at issue likely would not have failed, in light of the regulations' 30% limit on incentives. The May 2016 final regulations were issued after the facts at issue in Orion had occurred and, unlike the “clarification” regarding the ADA safe harbor, the EEOC did not even attempt to apply them retroactively. Therefore, although the employer in Orion succeeded on its motion for summary judgment as to the voluntary nature of the wellness program, the precedential impact of that victory is likely to be very limited and inapplicable to any wellness programs in effect for plan years beginning on or after January 1, 2017.

Of course, the Orion decision is not controlling law outside the Eastern District of Wisconsin, Flambeau is not binding outside the Western District of Wisconsin and Seff does not control outside the Eleventh Circuit. The EEOC's May 2016 final regulations, however, apply to all employer-sponsored wellness programs throughout the country, effective beginning January 1, 2017 (and again, in the view of the EEOC and Orion court, are effective retroactively to the extent that they confirm the ADA safe harbor's inapplicability to wellness programs). Employers are well-advised to stay on top of the developing case law which clearly seems to be in a state of flux at this time.

There may be additional legislative developments in this area as well. Companion legislation pending in the Senate and House of Representatives would simplify the ADA analysis for wellness programs, and the interaction with the wellness program nondiscrimination rules under the Patient Protection and Affordable Care Act (ACA) and the Health Insurance Portability and Accountability Act of 1996 (HIPAA). The Preserving Employee Wellness Programs Act (S. 620/H.R. 1189), introduced in March 2015, effectively would guarantee ADA compliance for any wellness program incentive (or surcharge) that satisfies the ACA and HIPAA nondiscrimination rules effective retroactive to March 23, 2010. The legislation's future is unclear at this time, particularly in light of the upcoming election.

Finally, employers should be mindful that the ADA is merely the tip of iceberg for wellness program compliance. Employer-sponsored wellness programs can (and often do) implicate a complex web of legal issues and requirements, in addition to the ADA, including the nondiscrimination and excise tax rules under the ACA and HIPAA; the Genetic Information and Nondiscrimination Act of 2008 (GINA); federal income and employment tax provisions; the ACA's employer shared responsibility (or "pay-or-play") excise tax rules; HIPAA privacy, security, and breach notification requirements; nondiscrimination standards under ACA § 1557; the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA); the Employee Retirement Income Security Act of 1974 (ERISA); Title VII of the Civil Rights Act; the Age Discrimination in Employment Act (ADEA); the Fair Labor Standards Act (FLSA); the rules pertaining to "grandfathered" plans under the ACA; and, in some cases, state laws. It is critical that employers fully vet their wellness programs under all applicable federal and state laws, no matter how minimal or innocuous they may seem — and involve and coordinate with their legal, HR, tax and other personnel as necessary — to avoid any potential foot-faults.

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