Employers sponsoring wellness programs including tobacco surcharges have faced a growing wave of ERISA class action litigation over the past several years. These lawsuits primarily challenge whether such programs comply with ACA and HIPAA wellness program regulations, particularly the requirement to provide a “full reward” and properly disclose a reasonable alternative standard.
Until recently, these cases largely remained at the pleading stage without meaningful judicial guidance on the merits. However, several recent federal district court decisions now provide the first substantive rulings on these issues. Notably, each court dismissed the plaintiffs’ claims in full, signaling a trend that is generally favorable to employers. That said, this remains an actively litigated area, with dozens of similar lawsuits pending nationwide. Employers should continue to monitor developments and ensure compliance with applicable wellness program rules.
(For additional background on wellness program requirements, see our prior e-Alert: Holy Smokes: Is Your Tobacco Surcharge Program Compliant?)
Recent District Court Decisions
Three recent cases, Plesha v. Ascension Health Alliance (E.D. Mo.), Greene v. Progressive Corp. (N.D. Ohio) and Noel v. PepsiCo, Inc. (S.D.N.Y.), addressed nearly identical claims and reached consistent outcomes. Across all three decisions, courts rejected plaintiffs’ core theories and dismissed the cases for failure to state a claim.
“Full Reward” Does Not Require Retroactive Refunds
Plaintiffs consistently argued that ERISA requires employers to retroactively reimburse tobacco surcharges once a tobacco user satisfies a reasonable alternative standard such as completing a smoking cessation program. All three courts rejected this interpretation. Instead, the courts held that:
- The “reward” in these programs is typically the avoidance of a surcharge, not a rebate.
- Providing the reward on a prospective basis, by removing the surcharge going forward, satisfies legal requirements.
- Neither the statute nor the regulations clearly require retroactive reimbursement of previously paid surcharges.
Disclosure Claims Fail Where Summary Plan Description Language is Sufficient
Plaintiffs also alleged that employers failed to adequately disclose the availability of a reasonable alternative standard, as required under wellness program regulations. These claims were uniformly dismissed. The courts found that:
- Use of disclosure language substantially similar to the Department of Labor’s model notice is sufficient.
- Where the SPD includes the required disclosure, generalized allegations that other plan materials are deficient are too vague to state a claim.
- In some cases, disclosure claims failed entirely because they were derivative of the failed “full reward” theory.
Additionally, courts reinforced that the regulations do not require disclosure of every detail of the alternative standard in all materials, particularly where materials do not describe the program’s terms in detail.
Tobacco Surcharge Design is a Settlor Function (Not Fiduciary)
Plaintiffs in all three cases asserted that employers breached ERISA fiduciary duties by imposing and retaining tobacco surcharges. Again, all courts rejected these claims. The courts consistently held that:
- Designing and adopting a wellness program, including surcharge structures, is a settlor function, not a fiduciary act.
- Implementing the plan in accordance with its terms does not convert settlor decisions into fiduciary conduct.
- Plaintiffs failed to allege harm to the plan itself, which is required for fiduciary breach claims.
Practical Takeaways for Employers
While these recent court decisions represent a meaningful shift toward employer-favorable outcomes, this area remains unsettled. Many similar lawsuits are still pending, and additional appellate guidance may further shape the legal landscape. For now, however, these decisions provide persuasive authority (and binding authority in their respective jurisdictions) to defend tobacco surcharge programs that:
- Provide a reasonable alternative standard,
- Include appropriate disclosures, and
- Apply surcharges in a prospective (rather than retroactive) manner.
Despite these favorable rulings, Warner Norcross + Judd currently recommends that employers not located within the applicable jurisdictions of these decisions consider providing retroactive reimbursement of tobacco surcharges upon completion of a cessation program until more uniform guidance (e.g., appellate-level decisions) is established. This approach may help reduce exposure to ongoing and future litigation in this area.
Warner Norcross + Judd Has You Covered
If you would like assistance reviewing your wellness program or tobacco surcharge design for compliance, please contact Stephanie Grant, De’Andre Robbins or your Warner attorney.
