Are You Ready for Obergefell?

In Obergefell v. Hodges, the Supreme Court held that the U.S. Constitution requires all states to license and recognize same-sex marriages. This 5-4 decision, issued on June 26, 2015, obviously has received a great deal of attention and scrutiny. But how does it impact employers’ human resources policies, their benefit plans, and the kinds of employment practices liability claims that might stem from it?

As a threshold matter, it is important to take note of the employers to which the ruling applies. The Obergefell ruling applies to the various states and their instrumentalities, but it technically does not apply to private employers.

Additionally, Title VII of the Civil Rights Act technically does not expressly prohibit private employers from discriminating against employees based on sexual orientation or gender identity. The Obergefell decision does not broaden Title VII’s protections.

This does not mean that private employers can simply ignore the Obergefell ruling and go about their business, however.

Employers by now are aware that lesbian, gay, bisexual, and transgender (LGBT) stereotyping still may give rise to gender discrimination claims. While Title VII presently does not prohibit sexual orientation discrimination as such, for over 25 years, it has been interpreted to prohibit discrimination against employees because they act or dress in the manner of the opposite sex. This principle already has been extended by some courts and the Equal Employment Opportunity Commission (EEOC) to “gender identification,” as well. Further extensions of this interpretation seem inevitable in light of Obergefell and the current political climate.

It was just in March 2015 that new U.S. Department of Labor (DOL) regulations went into effect that redefined the term “spouse” for purposes of the Family and Medical Leave Act (FMLA). Under those regulations, “spouse” was defined to include individuals within same-sex marriages. The Obergefell decision validates these regulations, and the FMLA now clearly applies to same-sex spouses and same-sex parents caring for their children.

The Obergefell ruling also likely will further spur the EEOC to challenge employers in regard to such issues. It is well-known that the EEOC had issued internal guidance directing its investigators to accept and pursue charges of discrimination based on sexual orientation as a form of sex discrimination.

Obergefell seems to validate another federal initiative, as well. Federal Executive Order 11246 currently is being used to prohibit discrimination by government contractors on the basis of sexual orientation and gender identity through the Office of Federal Contract Compliance Programs’ interpretive rules of Executive Order 13672 – Prohibiting Discrimination Based on Sexual Orientation and Gender Identity by Contractors and Subcontractors.

In addition, there currently is proposed legislation at the federal level, referred to as the Employment Non-Discrimination Act, which would specifically bring LGBT individuals within the protected classes of the civil rights laws for private employers. That proposed legislation may be impacted by the decision. The possibility that the act will become law at some point in the future may be increased by the Supreme Court’s decision. At the same time, it has been quite a while since the act was originally proposed, and it still has not made its way into law.

It is worth noting, of course, that these issues do not arise just under federal law. Various state and local laws have been enacted over the years to specifically bar employers in those jurisdictions from discriminating against employees based on sexual orientation. Therefore, such laws also can form the basis for discrimination claims.

All of this, including the Obergefell decision, must be taken into account when analyzing human resources policies and the risks associated with potential employment practices liability claims. This does not necessarily mean, however, that the human resources policies of all private sector employers must be revised immediately to expressly cover sexual orientation. While employers may or may not want to make those changes, for now the most important thing is to avoid discrimination claims in this area.

From a practical perspective, sexual orientation discrimination claims carry huge risks. Irreparable harm caused by adverse publicity and the possibility of being made the next “test case” are just a few of the risks for an employer—and its insurer. As a result, employers are best advised to take the same precautions that they would take in dealing with a minority or member of another protected class when dealing with this issue. This is true even though discrimination based on sexual orientation technically still is not illegal under Title VII, even in light of Obergefell.

Employer-sponsored health and welfare plans also must be analyzed in light of Obergefell. As background, the Supreme Court’s 2013 Windsor decision required federal laws like the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code to treat same-sex and opposite-sex spouses the same. Qualified retirement plans are governed by both ERISA and the Internal Revenue Code, so the Obergefell ruling will have little impact on qualified retirement plans.

The Obergefell ruling technically does not require employers to offer health coverage. In fact, health care reform specifically provides that employers need not offer health coverage to spouses. Thus, it is up to the employer whether or not to offer health coverage. However, all insured group health plans have to comply with state insurance laws, and as previously mentioned, all states have to recognize same-sex marriages under Obergefell. Therefore, employers sponsoring fully insured group health plans will have to check with their insurance companies to determine if the applicable state law requires the carrier to provide health plans that offer spousal coverage. If that is the case, then an employer with a fully insured health plan will have to treat same-sex and opposite-sex spouses the same under the fully insured group health plan.

If the employer is sponsoring a self-funded group health plan, ERISA preempts state law, so the employer has more flexibility when setting the plan’s eligibility requirements. Many self-funded health plans simply define “spouse” based on state law. So, if an employer is not inclined to add same-sex spouses to the list of those covered, that would turn on the self-funded health plan’s definition of “spouse” and whether the plan defines “spouse” by simply referencing state law.

That notwithstanding, employers with self-funded health plans may be on shaky ground if they continue to exclude same-sex spouses. Based on the above, this may be an area that the EEOC could target, as well.

Even so, the Obergefell ruling actually makes plan administration easier. Each state and municipality has its own tax laws, and all state and city tax laws must treat same-sex and opposite-sex married couples the same, as do federal tax laws. As a result, the tax treatment of employee benefits will now be uniform across all levels of government.

Interestingly, the Obergefell ruling has no impact on the treatment of domestic partners. That is, the ruling only applies to same-sex individuals who are legally married. It does not address same-sex or opposite-sex domestic partners. Thus, some employers that currently provide benefits for same-sex, unmarried domestic partners may deem provision of such to the “unmarried partner” no longer appropriate. Those partners may, of course, now marry in all 50 states. No clear expression of the law on this point currently exists. This decision is too new to fully understand all of its ramifications, and each employer should carefully monitor developments.

Actions to Take Now

In light of the Obergefell decision, employers should do all of the following as part of their risk management efforts:

• Review their HR policies, practices, and benefit programs.
• Modify their FMLA policies to ensure coverage for same-sex married couples (but not necessarily unmarried domestic partners).
• Reinterpret their COBRA benefit continuation coverage provisions.
• Treat all married couples equally with respect to leave policies, retirement plans, and other employer-sponsored benefit programs.
• Modify any policies or plans that specifically reference “opposite-sex marriage.”
• If state insurance laws require employers to provide spousal coverage, be sure that same-sex and opposite-sex spouses are treated the same.
• Review their pension plan’s spousal entitlement to joint and survivor annuities, and 401(k) plan default beneficiary programs.
• Update personnel/payroll records, including W-4 withholdings.
• Watch for further developments, and consult with labor and employment law counsel as needed.  

King v. Burwell

Obergefell wasn’t the only decision announced during the week of June 22, 2015, that might affect employers. The Supreme Court also announced the King v. Burwell decision, which was a case that involved premium subsidies under health care reform. The takeaway in King is that employers must realize that the Affordable Care Act is the law of the land, and that they must comply with the rules as currently written.

This is because of the basis for the court’s decision. If the court had simply ruled that it was within the Internal Revenue Service’s (IRS) authority to issue regulations that say premium subsidies are available to everyone, the law’s future would have remained uncertain. Under that reasoning, the IRS, under a different administration, could change its position.

However, the court’s decision was based on what it perceived was Congress’ intent, and only Congress can change the rules. In other words, it will literally take an “act of Congress” to modify the rules governing the premium subsidies.