Employers: Action Required to Protect Against Sexual Orientation Discrimination Lawsuits in light of Supreme Court Decision
Today the Supreme Court declared the Defense of Marriage Act unconstitutional. This case creates significant issues for all employers, but especially those in states in which same-sex marriage or civil unions are legal (which includes all of the New England states, as of August 1). Specifically, these decisions will change the way many employers apply employment policies and provide employment-related benefits, and could give rise to sexual orientation discrimination lawsuits for employers that don’t review and revise their employment and employee benefit policies accordingly.
Under the law prior to the Supreme Court decision, the Defense of Marriage Act – DOMA – provided that, for purposes of federal laws and benefits, the term “spouse” did not include same-sex spouses, even if legally married under state law. Most federal employment and benefits laws – like FMLA, COBRA, HIPAA, etc. – set floors, not ceilings, on benefits, so employers could, but were not required to, voluntarily extend those benefits to same-sex couples. However, DOMA precluded employers from extending tax benefits to same-sex spouses/parties to a civil union/domestic partners, unless those individuals otherwise qualified as tax dependents under the Internal Revenue Code. So, under the law prior to today’s decision, employers could not – even if they wanted to - allow same-sex spouses to participate in a health savings account or to make mid-year cafeteria plan changes due to changes in the same-sex marriage/domestic partnership.
Most significantly, regardless of whether a same-sex couple was legally married, had a registered civil union, or had other state-recognized domestic partnership status, DOMA prohibited employers from providing them pre-tax employment benefits unless they qualified as a tax dependent of the employee under Section 152 of the Code. [This generally involves a test related to citizenship, membership in the household, and financial dependence.] If a same-sex spouse/partner met the definition of “dependent” under Section 152 of the Code, all tax consequences are virtually identical to those of providing coverage to same-sex spouses. For those that did not qualify, however, the tax implications can be severe. Health coverage provided to the same-sex spouse/partner is not excludible from gross income. Therefore, the fair market value of the coverage, minus the amount paid by the employee for the coverage, is taxable as “wages”, and is subject to income tax withholding, FICA, and FUTA. If the employee did not include that amount in income, the consequences were even more dire: the value of the benefits received – not just the premiums - could be deemed income. [Therefore, if a same-sex spouse/partner had an organ transplant paid for by an employer health plan, which can run into hundreds of thousands of dollars, the value of that operation could be considered additional taxable compensation to the employee.]
Now that the Supreme Court has overturned DOMA, many federal laws will apply to legally-married same sex spouses. The details will emerge in the next few weeks.
However, right now, the potential for discrimination lawsuits is high. Since the Court held that treating legal same-sex marriages differently from heterosexual marriages deprives same-sex couples of the liberty of the person protected by the Fifth Amendment of the Constitution, there is a clear analogy to state anti-discrimination laws. Post-DOMA, if an employer does not extend an employment benefit to same-sex spouses/partners/families - treating same-sex couples differently from heterosexual couples for purposes of, for example, health insurance, life/ADD insurance, bereavement leave, tuition reimbursement, FMLA leave, COBRA benefits, etc. - the employer could be vulnerable to a charge of sexual orientation discrimination under applicable state law.
As a result, the Supreme Court decision is a wake-up call for employers to review their policies, practices, and forms to ensure the employer has made deliberate choices about when/how to cover same-sex employees and opposite-sex employees and their families, and that the policies, practices, and forms in place actually reflect those choices.
Some particular items to keep in mind:
Eligibility: Is requiring a certain marital status for a benefit necessary or desirable?
Documentation and Proof: Do any requirements relating to same-sex marriage/civil union/domestic partnership differ from the requirements to prove a heterosexual marriage? Are those differences reasonable, equitable, and consistent with the employer’s nondiscrimination policies?
Benefit Forms and Descriptions: Are forms and communication materials clear about coverage of same-sex couples, including the definition of “spouse”?
Claims and Appeals: Are claims procedures and the review process substantially similar for same-sex couples and heterosexual couples of the same status (married, registered civil union/domestic partnership, unmarried domestic partners)?
Consistency: Are decisions on these issues consistent with employer policy and local law in all locations?