Novel Health Plan Surcharge Suit Tests Covid Vaccine Policies

A seemingly novel lawsuit over a company’s insurance surcharge for workers who refuse the Covid-19 vaccine shows the potential legal risks that come with attaching financial consequences to employee health choices.

Two security guards filed a proposed class action against GardaWorld Cash Services Inc. in a North Carolina federal court on Sept. 16, arguing the surcharge violates the Employee Retirement Income Security Act’s discrimination provisions. GardaWorld’s unusual policy is grounded in longstanding federal regulations governing workplace wellness programs, though other companies largely abandoned vaccine incentives and mandates after the pandemic’s peak.

A lot of companies implemented similar incentives during the worst of the pandemic, but this could be the first lawsuit testing the policy. Delta Air Lines Inc. imposed a $200 monthly surcharge on the premiums of its unvaccinated employees, but ended the policy in the spring of 2022.

“I think this was one area where there was a lot of emphasis—as we all saw with the vaccine—and there was also a lot of resistance,” said Joseph Lazzarotti, who fielded similar requests from clients as a principal with Jackson Lewis P.C.

Lawsuits against similar smoking surcharges are more common instead, and are also being challenged by GardaWorld employees Blair Artis and Jonathan Fisher.

The company adds an extra $100 to monthly health insurance premiums for unvaccinated workers, according to the complaint filed in the US District Court for the Western District of North Carolina.

ERISA prohibits employers from charging different insurance premiums for any “health status-related factor,” but the Affordable Care Act in 2010 made an exception for “programs of health promotion and disease prevention.” Artis and Fisher are challenging the company policy for not providing a “reasonable alternative” required by a 2013 rule (RIN: 1210-AB55) and October 2021 guidance from the departments of Labor, Health and Human Services, and the Treasury.

The rule says that to qualify for an exception wellness programs must offer rewards to employees at least once per year, cap the award at a certain percentage of health insurance costs, be reasonably designed to promote health and prevent disease, make the program and reasonable alternatives to all “similarly situated individuals,” and disclose the awards and alternative in all plan materials.

Reasonable Alternatives

Alternatives to smoking surcharges, which have been challenged in a spate of recent suits, often include tobacco cessation programs. GardaWorld employees dismissed this solution as a reasonable alternative in their complaint, calling it insufficient in part because the company does not reimburse employees after they complete the program.

The Department of Labor is suing Macy’s in a seven-year-old case over the department store’s smoking cessation program for similar reasons.

A reasonable alternative in wellness programs for those who have refused the vaccine often included masking or testing protocols during the pandemic, Lazzarotti said.

“I don’t know if that was satisfied in this case or not, but there’s a lot of ways to satisfy a reasonable alternative,” he said.

The workers’ underlying argument is shaky given that ERISA’s nondiscrimination provisions around “health factors” are rooted in medical and disability discrimination, according to Kathleen Anderson, a partner with Barnes & Thornburg LLP who represents employers in similar smoking discrimination cases.

“I smoke and therefore I’m disabled? I don’t follow,” she said. “I say no to a vaccine, and therefore I should be protected because it might have a disability-related reason? I don’t follow that either.”

But alternatives don’t have to be conditioned on a health reason, Lazzarotti said.

“You can also have a reasonable alternative that is ‘participate in more training,’ regardless of whether there’s a medical reason,” he said.

The legal path is unclear for employees to successfully obtain disability exemptions from a vaccine mandate under ERISA.

But it would likely parallel courts’ evaluations of workers’ reasonable accommodation requests under the Americans With Disabilities Act, according to Stacey Lee, a health law professor with Johns Hopkins University Carey Business School.

“In this context, plaintiffs would likely need to demonstrate two key elements: first, that they have a qualifying disability preventing them from receiving the vaccine, and second, that the employer failed to provide reasonable accommodations in light of this disability,” Lee said.

Counterpoints

Surcharges can lead to more infringement on worker lifestyle choices, argued Jenin Younes, who has challenged vaccine mandates as litigation counsel with the New Civil Liberties Alliance.

“This kind of thing can set a disturbing precedent, I think, where employers can suddenly start to police the health choices or lifestyle choices of their employees,” she said. “If you can penalize people for smoking, then why not eating junk food or being obese or all sorts of other things that cause health problems?”

The 2013 rule itself could be vulnerable in the wake of the US Supreme Court’s decision in Loper Bright Enterprises v. Raimondo, which overturned the Chevron doctrine of deferring to reasonable agency interpretations where laws are ambiguous or silent.

But the rule’s foundation is stronger than many other agency actions that are open to Loper Bright threats, benefits lawyers said.

“It doesn’t mean it can’t be argued, but it’s not a stretch to say that a vaccine falls within a ‘health factor,’” Lazzarotti said.

The courts will still need to analyze the underlying reasons why the GardaWorld employees refuse the vaccine, which Anderson said might not pass muster under the statute.

“People have a myriad of reasons that they don’t want to be vaccinated and not all of those reasons are grounded in a disability,” she said.

The GardaWorld plaintiffs didn’t cite religious objections to the vaccine in their complaint, but employees can raise sincerely-held religious beliefs to avoid Covid-19 shot requirements. That’s an option under Title VII of the 1964 Civil Rights Act as long as their choice doesn’t create an “undue burden” on their employer, according to US Equal Employment Opportunity Commission guidance.

Choosing between Title VII and ERISA for a religious claim creates a “strategic dilemma” for plaintiffs, said Lee.

“Although ERISA offers a broad framework to challenge both nicotine and vaccine surcharges simultaneously, pursuing a claim under Title VII could be more effective for plaintiffs with religious objections to vaccination,” she said. “It allows for a more targeted argument on the grounds of religious accommodation.”

But federal agencies do not appear to have provided specific guidance on how religious or other non-disability objections to vaccine-related plan surcharges would fare under benefits laws.

An attorney for Artis and Fisher did not respond to requests for comment on the GardaWorld suit.

Artis and Fisher are represented by Siri & Glimstad LLP.

The case is Artis v. GardaWorld Cash Servs., Inc., W.D.N.C., No. 3:24-cv-00837.