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A Better Partnership


Feb 2019
February 26, 2019

Recent DOL Enforcement Action Highlights Risk of Not Offering Reasonable Alternative in Wellness Programs

Although wellness programs seem like they should be simple, they are subject to a number of complex legal requirements.

One requirement under HIPAA’s nondiscrimination rules is that employers that have rewards or penalties associated with a particular health factor must offer a reasonable alternative standard so that an employee who cannot meet the health factor can still earn the reward or avoid the penalty. Failing to provide such an alternative can lead to enforcement actions and even penalties under ERISA. In a recent Department of Labor (DOL) enforcement action against Dorel Juvenile Group, Inc., the DOL reached a $160,000 settlement with Dorel over its tobacco use program. 

Under Dorel’s program, employees who used tobacco were required to pay a surcharge if they enrolled in the company’s medical plan. While Dorel offered employees smoking cessation classes, completing the class didn’t necessarily avoid the surcharge; the only way to avoid the surcharge was for the employee to certify that he or she did not use tobacco. Because employees who were addicted to nicotine and could not quit using tobacco were not offered an alternative way to avoid the surcharge, the DOL filed suit against Dorel. As part of its settlement with the DOL, Dorel agreed to reimburse $145,635 directly to participants who paid the surcharge from 2013 through 2017.

The DOL also found that Dorel had breached its fiduciary duty under ERISA by failing to operate the program in the best interests of plan participants. Penalties for breach of fiduciary duty are particularly risky for employees involved in the administration of employee benefits, as they can be assessed against any individual who exercises discretion over the management of an employee benefit plan. In this particular case, the DOL did not single out any specific individual but instead chose to assess nearly $30,000 in penalties against the company for the breach of fiduciary duty, which it then agreed to reduce to $14,563.50 as part of the settlement.

Whether you are putting in place a new wellness program or making changes to an existing program, the Employee Benefits Practice Group at Warner Norcross + Judd can work with you to ensure that your wellness program will meet all legal requirements.

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