ERISA Class Actions Target Employer Tobacco Surcharges in Health Plans
Employers face a spike in ERISA class actions over tobacco surcharges in health plans.
Why it matters: Benefits and in-house counsel must track the uptick in tobacco surcharge litigation to assess exposure and ensure compliance. Multi-million dollar settlements highlight significant financial risk and insurance coverage challenges.
- Over 50 similar lawsuits have been filed against employers for tobacco surcharge practices.
- Recent cases target major employers like JPMorgan Chase, Macy's, and Amgen over alleged ERISA violations.
- An ERISA class action against Bally's was recently dismissed by a Rhode Island federal court—the first full dismissal in this trend.
- A $4.7 million settlement was reached in a tobacco surcharge case that advanced past dismissal.
Employers are increasingly being sued under ERISA for imposing tobacco surcharges as part of workplace wellness initiatives. These surcharges—permitted under the Affordable Care Act to be up to 50% more than non-tobacco users' premiums—are triggering litigation focused on whether employees are properly notified of alternatives and whether programs comply with federal benefits law.
- More than 50 class-action lawsuits have been filed nationwide challenging these surcharges and program compliance with ERISA.
- The first complete dismissal in this wave came in Williams v. Bally's Management Group LLC, offering employers some favorable precedent.
- Major corporations are high-profile targets: JPMorgan Chase is being sued over an $80-per-month surcharge, and Amgen Inc. faces claims involving a $150 monthly tobacco fee.
- The U.S. Department of Labor filed suit against Macy's for allegedly failing to offer a lawful reasonable alternative to its surcharge.
- Legal outcomes so far are mixed; while some claims have been dismissed, at least one case ended in a $4.7 million settlement after surviving dismissal.
Recent decisions shed light on defenses available to employers. As Daniel Cohen notes, "Employers facing similar tobacco premium surcharge lawsuits now have favorable precedent from three federal districts." Still, the threat of substantial financial exposure remains, especially where programs may lack required alternative options or sufficient notice.
By the numbers:
- Over 50 — Number of tobacco surcharge ERISA lawsuits filed nationwide.
- $4.7 million — Settlement in a surcharge class action that survived dismissal.
- 50% — Maximum allowed surcharge over non-tobacco premiums under the ACA.
Yes, but: Court victories for employers do not eliminate risk, as successful claims have resulted in costly settlements.
What's next: Watch for further court opinions and potential regulatory actions that could clarify employer obligations under ERISA.