US District Court Pushes Back on DOL’s ERISA Plan Ruling Finding It Arbitrary and Capricious
As with many of the issues at stake in the upcoming Presidential election, the future of how Americans will obtain healthcare is a core issue this November. The Trump administration previously outlined its view that healthcare could be provided through Association Health Plans that consist of loosely related employer groups, including self-employed individuals. This Association Health Plan rule was then struck down by the Second Circuit Court of Appeals, which concluded the Rule was too aggressive; and exceeded the scope of the Employee Retirement Income Security Act (ERISA).
A recent US District Court case in Texas throws new fuel on the debate fire of whether healthcare coverage may be offered through ever-more expansive and creative employer sponsored arrangements; or whether ERISA should be interpreted to limit employer coverage to more traditional employer-employee structures.
In this case, Data Marketing Partnership, LP v. U.S. Dep’t of Labor, 2020 WL 5759966 (N.D. Tex. 2020), the Limited Partnership, Data Marketing Partnership (DMP), and its general partner, LP Management Services, sought to create a single health plan under ERISA by grouping together thousands of independent and unrelated internet marketers into a single massive employer plan. DMP took the position that these independent marketers were working owners of DMP and eligible to participate in the health plan. The US District Court for the Northern District of Texas overruled an earlier Department of Labor (DOL) opinion in which the DOL found that the group health plan sponsored by DMP was not a single employer welfare plan under ERISA.
The work provided by the marketers for DMP consisted of sharing web data collected from the marketers’ web browser, which was then packaged and sold by DMP. These unrelated marketers signed partnership agreements, made some decisions on how their packaged computer data could be sold, and could also elect to participate in the partnership’s group health plan.
In the view of the DOL, the work provided by these unrelated marketers for DMP and their involvement in the affairs of DMP was not sufficient to make them “working owners” and “bona fide partners” of DMP. The DOL also concluded there was no economic substance to the DMP partnership’s activities; and that a group health plan with a single employee and thousands of unrelated marketers did not fall within the intent of a single employer welfare plan under ERISA.
The Court found the DOL acted arbitrarily and capriciously in too narrowly construing the requirements of ERISA and erred in applying the DOL’s own prior guidance. The Court then concluded that the independent marketers were “working owners” and “bona fide” partners of DMP that could participate in the single employer welfare plans sponsored by DMP. The Court held:
- The marketers did not have to satisfy the DOL’s requirement to be common law employees of DMP. The fact that they were involved in the management of DMP and conferred a service on DMP in the form of data mining was sufficient for them to be “working owners”.
- DMP’s data mining activity was a bona fide business and the marketers were “bona fide” partners in that business.
- ERISA permits a single employer group health plan to consist of “one or more” employees and there is no limitation under ERISA on the number of working owners that may participate in that single employer group health plan.
While the final outcome of this case is not likely to be resolved for months (if not years), it illustrates another creative example of unrelated individuals finding a way to form a single employer benefit plan and provide health coverage to its members. Employer groups looking for an alternative structure to the Association Health Plan Rule structure might look to this case as instructive in determining when unrelated individuals may group together in a common business enterprise to form a single employer group health plan through a partnership. Based on this case, the takeaways for structuring the partnership include:
- There must be some minimal shared economic activity (the more the better);
- Each working owner must have some involvement in the management of the partnership activity (the more the better); and
- There must be at least one common law employee participating in the plan (the more the better).