Fall 2024 has been a busy time for tobacco surcharge lawsuits. To date, plaintiffs have filed 10 class action lawsuits against employers who imposed a tobacco surcharge through their workplace wellness program.
For companies that seek to reduce tobacco use among employees, tobacco surcharges, when implemented successfully, can be an effective tool to motivate individuals to act who might not be interested in quitting today. Get insights on how to implement a tobacco surcharge by downloading Tobacco Surcharges: A Comprehensive Toolkit for Employers.
The lawsuits include Baker v. 7-Eleven, Inc.; Keesler v. Tractor Supply Company; Blair Artis and Jonathan Fisher v. Gardaworld Cash Services, Inc; Joseph Williams v. Target Corporation; Annette M. Cunningham and Samantha M. Dennis v. Walmart, Inc.; Deborah Waggoner v. The Carle Foundation; and Kelly Rogers; and Kathryn Disinger O’Flaherty v. Advocate Aurora Health, Inc.
Notable similarities across the lawsuits include: all were filed as class actions, all were filed in federal courts, and all were filed in September/October.
Because most of these lawsuits use the same arguments, we will discuss in detail the first 3 listed above. Note that the lawsuits currently represent only allegations against the companies. There have been no conclusions about the facts of case or the companies’ compliance with federal law.
However, if you use a tobacco surcharge at your organization, it may be a good time to review your program to make sure that it complies with federal law.
Baker v. 7-Eleven, Inc.
The plaintiffs in the 7-Eleven case allege that 7-Eleven violated the Employee Retirement and Income Security Act (ERISA) when it imposed a tobacco surcharge on employees who confirmed that they were a tobacco user when enrolling in the employer health plan.
The tobacco surcharge was the “default” charge, amounting to $14 per paycheck or $720 per year. Employees who failed to “opt-out” of the surcharge were assumed to be tobacco users and therefore had to pay the surcharge.
The plaintiffs further claim that 7-Eleven could not take advantage of the ERISA “safe harbor” that allows employer health plans to impose a tobacco surcharge of up to 50% of the total cost of coverage because 7-Eleven did not follow the wellness incentive rules for health contingent wellness programs.
Specifically, according to plaintiffs, 7-Eleven did not provide employees who completed a tobacco cessation program with the full reward if those employees completed the program after March 31, 2024. Instead, employees who completed a tobacco cessation program after March 31, 2024, did not retroactively receive reimbursement for higher premiums paid in January, February, and March of 2024. 7-Eleven only reduced their premiums going forward.
According to plaintiffs, this retention of the extra premiums paid does not satisfy the “full reward” requirement. The plaintiffs also argue that by keeping the higher premium amounts instead of returning those amounts to employees who completed the tobacco cessation program breaches ERISA fiduciary duty standards.
A second violation alleged by plaintiffs is 7-Eleven’s failure to adequately notify employees about how to avoid the tobacco surcharge in all plan materials. In particular, 7-Eleven did not provide the required notice in the plan document or summary plan description detailing how employees could avoid the tobacco surcharge for the entire plan year.
Instead, 7-Eleven notified employees of how to avoid the tobacco surcharge for only part of the plan year, which is an inaccurate description of what the ERISA wellness rules require.
Chelsea Harrison Keesler v. Tractor Supply Company
According to allegations in this suit, Tractor Supply imposed a $30 per pay period ($780 per year) tobacco surcharge on employees who declared they were a tobacco user.
Plaintiffs claim that prior to the 2023 plan year, employees could only avoid the surcharge if they had not used tobacco in the last 12 months. So, even if an employee completed Tractor Supply’s tobacco cessation program, employees would still pay the surcharge if they had used tobacco in the last 12 months.
Plaintiffs complain that the 12-month tobacco-free requirement does not meet the ERISA wellness incentive rules, which require the full reward (in this case, no surcharge) be available if an employee completes a reasonable alternative standard (tobacco cessation program).
According to the suit, starting with the 2023 plan year, employees who completed the tobacco cessation program could avoid the surcharge, but only going forward. Like the 7-Eleven case, Tractor Supply did not provide employees with the full reward by reimbursing the surcharge for the entire plan year prior to completing the cessation program.
Plus, plaintiffs allege, Tractor Supply did not notify employees that they could earn the full reward for the entire plan year by completing the cessation program.
Tractor Supply also did not notify employees that the recommendations of an individual’s personal physician would be accommodated, which is required by the wellness incentive rules under ERISA. For these reasons, plaintiffs allege that Tractor Supply violated the notice requirement under the ERISA incentive rules.
Like the 7-Eleven case, plaintiffs in the Tractor Supply case allege that by imposing the tobacco surcharge without exactly following the ERISA wellness incentive rules for health contingent programs, Tractor Supply breached their fiduciary duty under ERISA.
Blair Artis and Jonathan Fisher v. Gardaworld Cash Services, Inc.
The Gardaworld case is slightly different than the other lawsuits. In this case, plaintiffs claim that although Gardaworld may have offered a tobacco cessation program to avoid the surcharge, which amounted to an additional $100 per month, it did not offer another reasonable alternative standard for employees who could not complete the tobacco cessation program.
In other words, the Gardaworld case alleges that employers should offer more than one type of reasonable alternative standard to employees to avoid tobacco surcharges.
3 key takeaways from these tobacco surcharge lawsuits
There are at least 3 important lessons these lawsuits can teach about tobacco surcharges.
First, if you include tobacco cessation as part of your workplace wellness program, you should follow the wellness incentive rules for group health plans under ERISA to the letter. Two pain points these lawsuits identify are providing the full reward, retroactively, once a plan participant completes a reasonable alternative standard, and adequate notice about how to avoid the tobacco surcharge.
Second, the word is getting out to employees and plaintiffs’ attorneys to police workplace wellness programs for even the slightest slip in compliance.
It is attractive for plaintiffs’ attorneys to sue for ERISA violations because the law allows cases to appear in federal court, which are usually on a faster timeline for resolution than state courts. ERISA violations also permit plaintiffs’ attorneys to collect their fees from the employer/group health plan instead of their client.
Employers and group health plans have deeper pockets than most employees, so these cases can be quite lucrative. Indeed, most, if not all, of these lawsuits are against large corporations.
Third, the Gardaworld case raises an interesting claim that one reasonable alternative standard to avoid a tobacco surcharge is not enough.
The plaintiffs seem to suggest that some plan participants will not be able to satisfy a tobacco cessation program, which is the typical alternative standard employers use to avoid a tobacco surcharge.
In those cases, plaintiffs argue another reasonable alternative standard should be available to avoid the tobacco surcharge.
This argument likely stems from the preamble to the 2013 final wellness incentive rules for group health plans that states a “plan cannot cease to provide a reasonable alternative standard merely because the participant did not stop smoking after participating in a smoking cessation program. The plan must continue to offer a reasonable alternative standard whether it is the same or different (such as a new recommendation from [employee’s] personal physician or a new nicotine replacement therapy).” However, this theory has not yet been thoroughly examined.
If your workplace wellness program includes a tobacco surcharge, now might be a good time to evaluate it with competent legal counsel to determine if it fully complies with federal wellness incentive laws.
**Please Note: Nothing contained in this blog post is to be construed as legal advice. This blog post is for informational and educational purposes only. Readers are encouraged to seek legal counsel for any advice or compliance determinations needed on specific situations.**
