A version of the wellness program narrative that seems simple on paper involves the company charging smokers a little more each month, providing them with a way to stop, and rewarding those who do. In the majority of employee handbooks, this type of policy is accepted without criticism. However, a former server from Forsyth, Georgia, is now arguing in federal court that certain crucial details were omitted from that story at Waffle House.
On June 23, Corkeitha Hicks, a Forsyth Waffle House employee, submitted a proposed class-action lawsuit to the U.S. District Court for the Middle District of Georgia. As part of their health insurance enrollment, Waffle House allegedly unlawfully charged tobacco-using employees an additional $92 per month, or about $23 from each weekly paycheck, according to the complaint. That amounts to $1,104 deducted from a server’s pay over the course of a full year. That’s a significant amount at a chain of restaurants where tip margins are already narrow.
The lawsuit focuses on what Waffle House referred to as its wellness program, which is a smoking cessation service offered by Optum under the name “Quit for Life.” Employers may charge tobacco users more for health coverage under the Employee Retirement Income Security Act, but only if they combine the surcharge with a wellness program that meets the requirements. The program must provide employees with a legitimate means of avoiding the charge—a “reasonable alternative standard,” as the law puts it. Hicks claims that Waffle House’s implementation of that standard had a catch that effectively prevented many employees from meeting it.
Employees could receive a refund of their surcharges for the entire plan year if they finished the cessation program by September 30. Did anyone finish after that date? They could avoid further fees, but they would not receive any reimbursement for the money they had already paid. According to the complaint, this is a clear violation of ERISA, which mandates that workers receive the full benefit, or reward, as soon as they meet an alternative standard, regardless of the time of year. It’s a small distinction, but in benefits law, small distinctions are often very important.
A second issue that is more difficult to ignore is brought up by the complaint. Hicks claims that there was absolutely no mention of the tobacco surcharge in Waffle House’s enrollment guides and plan documents. There was no disclosure, no information on how to avoid it, and no indication that an employee’s alternative path could be influenced by a personal doctor’s recommendation. This information must be included in all plan materials that describe the surcharge, according to federal regulations. That’s not a technicality if it’s true. For employees who might not have realized they had options, it’s a basic informational failure.
The financial allegation that lies beneath the benefits compliance argument is what makes the lawsuit more difficult to ignore. According to the complaint, Waffle House deposited the surcharge money into its own general accounts rather than a trust specifically for the health plan, earning interest and thereby lowering its own contributions to employee benefits. According to the lawsuit, this constitutes a breach of fiduciary duty under ERISA and self-dealing. That characterization changes the story, regardless of whether it is upheld in court. It’s one thing for a business to promote healthier choices through a wellness program. It’s another matter entirely when a business allegedly collects more than $5 million in surcharge funds and then hoards them.
In 25 states, Waffle House has more than 2,000 locations. Any employee who paid the tobacco surcharge at any time during the previous six years would be included in the potential class. Even before accounting for the disgorgement of profits and legal fees that the complaint also seeks, the math on that is substantial.
How Waffle House will react to the allegations is still unknown. At the time of filing, the chain had not released a public statement. However, the lawsuit is part of a recent trend of similar ERISA challenges against employer wellness programs, in which the technical design of a surcharge program becomes the central issue. Employers seem to have long believed that these programs are legally unbreakable as long as there is a cessation option in the documentation. If this case moves forward, it implies that the standard might be higher.
