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A recent lawsuit involving Macy’s Inc. and the U.S. Department of Labor (DOL) is bringing attention to the way companies structure their wellness programs—particularly those that impose penalties on employees who smoke. This case highlights the potential risks for employers who charge higher health premiums to smokers and raises questions about how courts will interpret wellness plan regulations following the Supreme Court’s Loper Bright decision.
The Macy’s Lawsuit and ERISA’s Wellness Program Rules
The DOL’s lawsuit against Macy’s claims that the retailer’s wellness plan violates the Employee Retirement Income Security Act (ERISA) by charging smokers higher premiums without offering a reasonable alternative to avoid the penalty. Specifically, Macy’s imposes a surcharge of $35 to $45 per month for employees who smoke, but the penalty is not fully waived for those who attempt but fail to quit smoking, even after participating in a smoking cessation program.
ERISA prohibits health plans from charging different premiums based on health-related factors, such as tobacco use, but allows exceptions for wellness programs that promote health. According to DOL regulations, surcharges for smokers are permitted if the wellness plan offers a reasonable alternative—like a smoking cessation program—that fully waives the penalty, even if the employee is unsuccessful in quitting.
Loper Bright’s Impact
The recent Loper Bright Enterprises v. Raimondo decision has introduced a new layer of complexity to wellness program disputes. The Supreme Court’s ruling in Loper Bright rejected the Chevron deference doctrine, which for decades allowed courts to defer to federal agencies’ interpretations of ambiguous statutes. Instead, courts must now apply the “best read” of a statute.
Macy’s argues that this decision is relevant to its case, claiming that under the “best read” of ERISA, smokers must actually quit smoking to avoid the penalties. Macy’s contends that the DOL’s interpretation of ERISA—which requires penalties to be waived for anyone who participates in a smoking cessation program, regardless of success—should no longer be followed now that courts are not required to defer to agencies’ interpretations.
However, the DOL has argued that Loper Bright is not applicable in this case. The Department contends that the dispute is not about statutory interpretation but about the application of the DOL’s wellness program regulation. Macy’s, the DOL claims, is misrepresenting the issue as a statutory one when it is really about following established regulations, which clearly require surcharges to be waived based on participation in a cessation program, regardless of success.
Why This Matters for Employers
This case is just one of many recent challenges to wellness programs that penalize tobacco use. Companies like Walmart, Bass Pro Group, and others have also faced lawsuits over similar issues. As courts reconsider the boundaries of agency interpretation in light of Loper Bright, employers should be cautious in the way they design wellness programs, especially those that impose financial penalties based on employee health behaviors.
Employer Action Items
With these legal challenges in mind, employers should take steps to ensure compliance and mitigate potential risks.
- Review wellness program policies for compliance
Conduct a thorough review of wellness programs, particularly those with penalties for tobacco use. Ensure that any surcharges or penalties comply with ERISA and DOL wellness program regulations, which require offering reasonable alternatives to avoid penalties.
- Understand the “reasonable alternative” requirement
The DOL requires that wellness programs with financial penalties, such as smoker surcharges, provide a reasonable alternative to avoid the penalty. For tobacco use, this means offering a smoking cessation program that waives the penalty regardless of the employee’s success in quitting.
- Update wellness program documentation
Ensure that your wellness program documentation is clear and compliant. Include details about the availability of reasonable alternatives to avoid penalties, and make sure employees understand their options.
This information has been prepared for UBA by Fisher & Phillips LLP. It is general information and provided for educational purposes only. It is not intended to provide legal advice. You should not act on this information without consulting legal counsel or other knowledgeable advisors.
