Demanding Employee Wellness Exams is Discrimination 15:53, October 3, 2016

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Demanding Employee Wellness Exams is Discrimination

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In early 2016 federal courts were saying that despite a general legal prohibition on asking employees medical questions or conducting screenings, companies that made such screenings a prerequisite for enrolling in employee wellness programs fell under an exception to the disability discrimination laws. But now it seems the tide is turning.

The Equal Employment Opportunity Commission’s (EEOC) recent regulations and a federal court ruling clarify that unless these questionnaires and screenings are voluntary, they probably violate the disability discrimination laws. This is important because most large firms and close to half of smaller firms offer employee wellness programs.

But the EEOC has made no secret of its objection, on disability discrimination grounds, to medical screening and questions that are often a part of these programs. On May 17, 2016, the EEOC published regulations clarifying that the Americans with Disabilities Act (ADA) does not exempt employee wellness programs from the prohibition on medical exams and inquiries.

In an early indication of how the new regulations may play out in the courts, a federal court in Wisconsin has ruled that there’s no ADA exception for medical screenings done as part of employee wellness programs, and that complaining about such exams is a legally protected activity.

New court case tests new regulations

In the case, Orion Energy Systems, Inc. had an employee wellness program that included a health risk assessment (HRA) that Orion characterized as a “mini-physical” involving a health history questionnaire and biometric screen. The results were anonymized through third parties and provided to Orion in aggregate format to help the company identify and address common health issues. Employees who opted out of the HRA would be required to pay the entire amount of their insurance premiums for the following year. Orion paid the premiums for employees who completed the HRA.

Wendy Schobert, an employee in the accounting department, elected not to participate in the HRA due to privacy and cost concerns. She also warned her co-workers that she thought the premiums were excessive in light of the amount Orion was paying third-party administrators. She also complained about other spending decisions. Orion terminated her employment shortly after that.

The EEOC then sued on Schobert’s behalf for disability discrimination and for retaliation against Schobert for engaging in a protected activity.

The ADA prohibits most employee medical exams

Under the ADA, employers must not conduct medical examinations or inquire about an employee’s medical history unless doing so is job-related and consistent with a business necessity. But there is an exception for voluntary medical exams or inquiries that are part of a wellness program. The new regulations add that exams and inquiries are “voluntary” if the employee can refuse without losing health coverage or facing any kind of retaliation or coercion. Incentives are considered voluntary if they do not exceed 30% of the total cost for self-only coverage.

The EEOC argued that even though the new regulations defining the term “voluntary” would apply in 2017 (and not to Orion’s plan that was in effect prior to that time), the HRA was not voluntary because employees who opted out of the program were required to pay 100% of the premium (which the EEOC characterized as a “penalty”). The Court disagreed with the EEOC, holding that Orion’s offer to pay employee premiums in exchange for completing the HRA was a voluntary incentive.

Wellness programs are not covered by the ADA’s “insurance safe harbor”

The ADA has a “safe harbor” provision that generally allows health insurers to require medical exams as part of the process of underwriting, classifying, or administering risk. Orion argued that case law established a precedent that employer-sponsored wellness plans fall within the safe harbor, and that Orion could therefore require the HRA.

However, the Court disagreed. Orion’s plan did not fall within the safe harbor because: 1.) the EEOC had issued regulations that made the safe harbor provision inapplicable to wellness programs; 2.) the company’s wellness program had been adopted separately from its health benefit plan; and 3.) HRAs required under the wellness plan were not used to underwrite, classify, or administer the benefit plan’s risks. “The implementation of a wellness program usually occurs after the insurance company establishes the premium and is one step removed from basic underwriting,” wrote the Court.

Orion argued that the EEOC had no power to change substantive law as interpreted by the previous case law. But the Court ruled that the EEOC, by enacting the regulation that placed wellness programs outside the safe harbor provision, was acting within its power to clear up an ambiguity in the law as Congress wrote it. The Court also stated that previous cases had been wrongly decided and that the safe harbor provision did not apply to Orion’s wellness program regardless of the EEOC regulation.

Complaining is probably protected

Orion argued that since the program was legal, Schobert’s complaint about the program was not protected; hence, her termination could not have been in retaliation for complaining about an illegal activity. The Court held, however, that Schobert had a right to opt out of the program and to encourage her co-workers to exercise that right. So Orion could not legally retaliate against her for either of these acts. The Court concluded that a jury would have to decide whether retaliation had in fact occurred. [EEOC v. Orion Energy Systems, Inc., (USDC EDWI 2016) no. 14-CV-1019]

The EEOC issued the following statement in response to the Court’s ruling:

Although we disagree with the court’s holding that participation in the wellness plan here was voluntary, we are pleased with the court’s solid reasoning that the safe harbor concept does not apply here. It establishes that there is no easy out for employers from ADA scrutiny – they must make sure that their plans comply with that law.

Implications for employers

Despite the risks involved in applying any complex system to the workplace, companies that take that extra effort to understand and comply with the current regulations may find that their employees are more healthy and engaged. For example, Gallup polls from 2011 and 2013 indicate a positive correlation between employee engagement in their work (e.g., performance outcomes) and better health. However, it’s unclear whether better health leads to more engagement or vice versa.

To avoid discrimination and employee resistance, employers with wellness programs should carefully consider whether any medical questioning or screening element of the program is truly voluntary. This is not just a legal matter. A 2014 Gallup poll found that only 24% of employees participate in their organization’s wellness program. One implication is that organizations need to gauge their workplace climate to find out what would encourage their employees to participate, then accordingly build or modify the program.

Every organization needs to keep up with changes to federal and state discrimination law, regardless of whether they have an employee wellness program in place. Compliance training is one way employers can incorporate ADA-compliant employment practices. LawRoom’s Intersections: Harassment Prevention Training course provides a strong start in combating workplace discrimination in all its forms. If you’re unsure about how to do it, this case study on Namely, an HR-compliance startup that combined growth and culture with training, provides an inside look.

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Steve Treagus
Stephen Treagus, JD's, previous practice as an attorney specializing in employment litigation exposed him to the rough-and-tumble world of employment relationships gone awry. Today, this experience informs his articles and courses, helping employers avoid costly litigation and get employment law right. Stephen earned his JD from John F. Kennedy University School of Law and his BA from Sonoma State University.

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