On procedural grounds, a federal appeals court rejected a lawsuit from the U.S. Equal Employment Opportunity Commission (EEOC) against an employer that had conditioned health coverage on participation in a wellness program.

The case was moot, or damages were unavailable, because the company had discontinued the program and the employee-plaintiff had not actually been harmed, the 7thU.S. Circuit Court of Appeals decided in EEOC v. Flambeau, Inc., No. 16-1402 (7th Cir., Jan. 25, 2017). The court discussed the parties’ dueling interpretations of the Americans with Disabilities Act (ADA) in a certain level of detail but did not pick a winner.

Background

In general, the ADA prohibits covered employers from requiring medical examinations or making disability-related inquiries of an employee, unless the examination or inquiry is job-related and consistent with business necessity. The law includes an exception for “voluntary” wellness programs, but the EEOC has maintained that overly punitive incentives render such a program involuntary.

A separate provision of the ADA establishes a broad exemption for “establishing, sponsoring, observing or administering the terms of a bona fide benefit plan that are based on underwriting risks, classifying risks, or administering such risks.”

Flambeau, Inc., decided to offer health coverage only to employees who completed a health risk assessment (HRA) and biometric screening. After employee, Dale Arnold, complained to the EEOC, the commission filed suit, alleging that the HRA and screening violated the ADA because the wellness program was not really voluntary.

Flambeau countered that the ADA’s benefit plan exemption applied, and the federal district court agreed. The company’s wellness program was a “term” of the benefit plan, and the company used the results to estimate the cost of insurance, set premiums, evaluate the need for stop-loss insurance, and adjust copays, the court found. The EEOC appealed the decision to the 7th Circuit.

7th Circuit’s Opinion

In considering the EEOC’s appeal, the 7th Circuit acknowledged the “ambitious positions” the parties had staked out on the statutory dispute, but declined to resolve it because “the relief the EEOC seeks is either unavailable or moot.” Flambeau discontinued its mandatory testing program for cost reasons in 2014, and Arnold resigned that year as well.

The court found that the EEOC’s petition for an injunction was moot because Flambeau had ended the disputed program and, because its reasons were unrelated to the lawsuit, was unlikely to resume it.

The court also rejected EEOC’s claims that Arnold was entitled to compensatory, emotional-distress, and punitive damages. He never had to pay the medical expenses he incurred while uninsured and did not provide adequate evidence of distress, and the EEOC had not shown the type of “reckless indifference” to his rights that would support a punitives award, the court found.

The ongoing “legal uncertainty” regarding wellness programs distinguishes this case from others in which courts approved punitive damages for “well-understood violations of the ADA and other antidiscrimination laws,” Judge David Hamilton wrote in the court’s opinion. Few courts have so far considered the ADA safe harbor’s application to wellness programs, and the facts at issue in this case also predated the detailed wellness program regulations that the EEOC finalized in May 2016, he noted.

The 7th Circuit therefore affirmed the district court’s summary judgment in Flambeau’s favor. “The genuine statutory issues should be decided by a court in a case where the answers will matter to the parties,” Hamilton concluded.