Recent guidance issued by the Department of Labor could trigger litigation over a new concern: whether private business owners with religious objections to gay marriage can be required to extend employment benefits to their employees’ same-sex spouses in states where such unions are not recognized.
The Labor Department guidance issued Sept. 18 states that the agency has adopted a “state of celebration” rule for the purpose of determining spousal eligibility under employment benefit plans governed by ERISA. Under that rule, a same-sex marriage is deemed valid for labor department purposes if the wedding ceremony took place in a state that recognizes it, regardless of where the couple presently resides.
Currently, same-sex marriage is legally recognized in 13 states and the District of Columbia. Two states, New Jersey and New Mexico, have neither banned nor sanctioned gay marriage.
Attorneys representing businesses in the 35 states that prohibit same-sex marriage either by statute or state constitutional amendment say that the new DOL guidance puts some of their clients in a tough spot. While the U.S. Supreme Court’s decision in U.S. v. Windsor prohibited the federal government from treating validly married same-sex couples differently from opposite-sex married couples, the guidance seems to extend that rule to govern actions by private businesses, they argue.
“What we got from the Department of Labor seems to go beyond the Windsor decision,” said Charles Stevens, a partner in the Milwaukee office of Michael Best & Friedrich LLP, “and create a new situation where it appears that employers have fewer choices in how they design their employee benefit plans.”
But a legal challenge to federal agency rules interpreting the court’s ruling will not be easy to win, particularly given the fact that the Internal Revenue Service had already issued a ruling adopting the state of celebration rule, and pension and welfare benefit plans offered by private-sector employers are governed by the Internal Revenue Code. Fighting the labor department would mean fighting the IRS too, which has never been an easy proposition.
“Might an employer challenge the IRS guidance? I suppose so,” said Roberta Chevlowe, senior counsel in the labor & employment law department of Proskauer Rose LLP in New York. “But I think it would be an uphill battle. … I wouldn’t counsel a client to take on that argument.”
The DOL guidance states the adoption of the “state of celebration” rule in one paragraph, and then takes several more paragraphs to explain the agency’s reasoning in choosing that approach over a “state of domicile” rule, which would base coverage on the state in which an employee resides.
The DOL’s rule “can be applied with certainty by stakeholders, including employers, plan administrators, participants, and beneficiaries,” the guidance states. “A rule for employee benefit plans based on state of domicile would raise significant challenges for employers that operate or have employees (or former employees) in more than one state or whose employees move to another state while entitled to benefits. Furthermore, substantial financial and administrative burdens would be placed on those employers, as well as the administrators of employee benefit plans. For example, the need for and validity of spousal elections, consents, and notices could change each time an employee, former employee, or spouse moved to a state with different marriage recognition rules.”
The notice also said that future guidance will be issued by the department’s Employee Benefits Security Administration to address specific provisions of ERISA and its regulations.
Stevens agreed that treating all validly married spouses the same with respect to spousal benefits is a practical move.
“The best and easiest approach [for employers] is to offer benefits to both same-sex and opposite sex spouses,” he said. However, “the question arises when you are serving as an advocate for a deeply religious client who does not want” to do that.
The real issue with the guidance is what it doesn’t say, Stevens said. While the guidance does not on its face prohibit employers from extending benefits from pensions and other employment benefit plans only to opposite-sex spouses, it strongly suggests that doing so could land the employer in hot water. That makes advising a business owner who has a religious objection to giving benefits to same-sex spouses difficult.
“The question is, if an employer is operating in a state [that] recognizes only opposite-sex marriage, and that employer and that employer attempts to craft a benefit plan to offer benefits to only opposite-sex spouses, and an employee sues and it winds up in federal court, how would the federal court interpret the guidance?” Stevens said. “It’s mushy.”
The situation would be different if the guidance had dealt only with agency actions, such as stating that the DOL would interpret certain mandates like the use of qualified domestic relations orders to apply to validly wed same-sex couples. But the guidance focuses on the actions of private employers and administrators, not federal officials.
“I think we now have a situation,” Stevens said, “where a federal court judge would be inclined to believe that an employer offering benefits to any spouse somehow is required by federal law to offer it to all spouses, and the DOL guidance provides a great argument for that finding.
“Although if you carefully review the DOL guidance it doesn’t say that. But it makes itself amenable to that interpretation.”
He noted the labor department already acknowledges employers’ ability to have religious objections to ERISA provisions. The law contains a “church plan” exemption, which excludes churches and other religious organizations from certain requirements.
Chevlowe said a legal challenge to the rule would be a tough sell because neither the guidance nor ERISA require employers to do anything.
“The DOL guidance does not force an employer to provide benefits to same same-sex spouses,” Chevlowe said. “It only says, ‘If you provide it, here is how we define the term.’”
Health care challenge may pave way
A separate legal challenge headed to the Supreme Court could serve as a blueprint for lawyers seeking to test the employer benefit plan rule.
Petitions for certiorari have been filed in cases aimed at the federal health care law provision requiring most employers’ health plans to provide contraception coverage without a co-pay or deduction. The challenges were brought by private employers who are not covered by the Affordable Care Act’s religious employer exemption, but who claim that the requirement to provide contraception coverage violates the business owners’ religious beliefs.
Legal experts say that these contraception mandate cases, which the court is expected to agree to hear and take up as early as this term, could prove to be important to same-sex marriage litigation. The challenges share many common issues, such as whether the laws are mandates that require employers to take actions they deem religiously objectionable and whether private companies can have religious beliefs and bring legal claims based on those convictions.
“This is this term’s big gay rights case,” said Pamela Harris, a professor at Georgetown University Law Center and former Supreme Court litigator at O’Melveny & Myers LLP in Washington. “People will be watching this case not only for what it means for the health care law and contraception, but also for what it means about gay marriage down the line.”