United States: Health And Welfare Benefits For Same-Sex Spouses After Obergefell: A New Mandate For Employers?

Last Updated: July 22 2015
Article by Andrew Elbon and Craig Oliver

After last month's decision by the U.S. Supreme Court in Obergefell v. Hodges, employee benefit plan sponsors may wonder whether Obergefell affirmatively imposes an obligation for employers to provide health, life, disability, or other welfare benefit coverage for the same-sex spouses of their eligible employees. In brief, while no decision of the Supreme Court or any other change in applicable law to date would require employers who sponsor health and welfare plans to cover any spouse of an eligible employee, an employer whose plan covers opposite-sex spouses but excludes same-sex spouses may find itself on the wrong end of a discrimination lawsuit. Recent events and pronouncements by the Equal Employment Opportunity Commission may lend credence to the probable success of such litigation.

Background: The Windsor Decision and IRS Guidance for Retirement Plans

In the wake of the Supreme Court's 2013 decision in U.S. v. Windsor, which struck down certain provisions of the Defense of Marriage Act, the Internal Revenue Service (IRS) issued guidance on the tax consequences of providing health and other coverage under employer-sponsored plans to the same-sex spouses of eligible employees. The IRS also advised that the protections afforded spouses under certain employer-sponsored retirement plans (including 401(k) and pension plans) must be extended to same-sex spouses. For example, after Windsor, the IRS required that a 401(k) plan extend the automatic survivor-benefit rights of any spouse under the Internal Revenue Code to the same-sex spouses of employees married in states or jurisdictions that license same-sex marriage, regardless of whether the state in which the employer is located recognizes such marriage. Many employer-sponsored retirement plans had to be amended to ensure compliance with this new guidance.

Of course, after Obergefell, all states must recognize same-sex marriage. But while the IRS required retirement plans after Windsor to recognize participants' same-sex spouses for purposes of certain spousal rights, and both the IRS and the Department of Labor issued limited guidance on the effect of Windsor on employee welfare benefit plans, there was still no requirement post-Windsor under any IRS or Department of Labor guidance applicable to the design of health and welfare plans. In other words, post-Windsor, employers were still seemingly free not to cover the same-sex spouses of their employees under group health and other welfare plans. (Indeed, under the Affordable Care Act, employers are under no obligation to cover any spouse of an eligible employee.)

Obergefell

Last month in Obergefell, the Supreme Court held that states must license a marriage between two people of the same sex and must recognize a marriage between two people of the same sex when their marriage was lawfully licensed and performed in another state. Going beyond Windsor, the Supreme Court found that the fundamental right to marry under the Fourteenth Amendment to the United States Constitution compelled such a ruling. Obergefell did not specifically address the tax or employee benefits implications of the holding.

Health and Welfare Benefits Post-Obergefell: The Risk of Employment Discrimination Claims

Obergefell was not an employee benefits decision, and it did not expressly address or change the Internal Revenue Code, ERISA, or other law governing the design and operation of employer-sponsored benefit plans. Indeed, employers may look to Obergefell and find nothing there that would impose a new mandate relative to spousal coverage under any employee benefit plan. However, Obergefell does recognize the fundamental right of same-sex partners to marry, and as such it would appear to go a long way toward confirming the rights of same-sex couples to the benefits and privileges of marriage, including in the employment context.

Recent pronouncements from the Equal Employment Opportunity Commission (EEOC), the federal agency charged with investigating allegations of employment discrimination under Title VII of the Civil Rights Act, support this position. Among other things, Title VII prohibits employers from discriminating against any individual with respect to his "terms, conditions, or privileges of employment" because of such individual's sex. Courts have interpreted "terms, conditions, or privileges of employment" to include employee benefits.

Although Title VII does not specifically address discrimination based upon sexual orientation, the EEOC and certain courts have effectively prohibited it in some instances by classifying actions as "sex stereotyping" prohibited by Title VII. The EEOC, in fact, has published on its website its mission to "prevent employment discrimination of lesbian, gay, bisexual, or transgender workers." In discussing prohibited discrimination based on "sex stereotyping," the EEOC's website includes as examples of prohibited employer conduct the denial of employment opportunities based on a male employee's plans to marry a man and a female employee's dating relationship with a woman.

As recently as July 15, post-Obergefell, the EEOC reaffirmed its position that discrimination based upon sexual orientation is unlawful discrimination "based on sex" under Title VII, when it reversed a previous decision of the agency that had dismissed a complaint of unlawful discrimination by an air traffic controller who claimed he was not hired for a managerial position because of his sexual orientation. (The EEOC's appellate decision ruled that the previous decision of the agency had wrongly decided the claim was time-barred.) According to the EEOC's appellate decision, "the question is not whether sexual orientation is explicitly listed in Title VII as a prohibited basis for employment actions. It is not." Instead, according to a 3-2 majority opinion of the Commission, the question is "whether the [employer] has 'relied on sex-based considerations' or 'take[n] gender into account' when taking the challenged employment action." In answering this question in the affirmative, the majority opined that sexual orientation discrimination "necessarily entails treating an employee less favorably because of the employee's sex." Unknown v. Anthony Foxx, EEOC Appeal No. 0120133080.

EEOC decisions are not binding upon courts, but many courts view them as persuasive authority. In light of the above, if a private sector employer decided to offer health insurance benefits to opposite-sex spouses but not same-sex spouses, it seems very likely the EEOC would take the position that such a practice is unlawful sex discrimination under Title VII.

It seems equally likely this issue will be tackled by courts in the near future. On July 14, an employee of Wal-Mart filed a purported class action in federal court in Massachusetts, alleging that prior to January 1, 2014, Wal-Mart violated Title VII and Massachusetts state law by offering health insurance benefits to spouses of the opposite sex but denying such benefits to same-sex spouses. (Wal-Mart reportedly began offering benefits to same-sex spouses in January 2014.) We expect similar cases will be filed against other employers.

Conclusion

Despite the fact that neither the IRS nor the Department of Labor has taken the position in light of recent Supreme Court decisions that employee benefit plans must cover same-sex spouses, employers would do well to heed recent developments at the EEOC and in the courts. Employers should consider whether it is prudent to expand coverage under health and welfare benefit plans to include the same-sex spouses of eligible employees. Regardless, employers should stay alert for possible future developments. There will almost certainly be more to come in this fast-moving area.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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