Court vacates incentive portions of EEOC wellness regs, delays effective date until 2019

Determining that the balancing test had shifted in favor of vacatur, a federal district court in the District of Columbia granted the AARP’s motion to amend its earlier decision to remand the EEOC’s wellness rules for reconsideration without vacatur. However, in order to minimize the potential for disruption to employers, the court delayed the effective date of the vacatur order until January 1, 2019, giving the EEOC time to promulgate new rules.

Wellness regs.

The EEOC’s regulations under the ADA and GINA provide that the use of a penalty or incentive of up to 30 percent of the cost of self-only coverage does not render “involuntary” a wellness program (either participatory or health-contingent) that seeks the disclosure of ADA- or GINA-protected information. In August 2017, the court granted AARP’s motion for summary judgment on its Administrative Procedure Act challenge to the regulations, concluding that the regulations are arbitrary and capricious. The EEOC failed to adequately explain its decision to construe the term “voluntary” in the ADA and GINA to permit the 30 percent incentive level, the court said. Yet, the court noted that its “serious concerns” about the EEOC’s reasoning were outweighed by the “disruptive consequences” likely to result from vacatur. Thus, it remanded the rules to the EEOC for reconsideration without vacatur.

Motion to amend.

Citing the need to avoid manifest injustice, the AARP filed a motion to alter or amend the earlier judgment in the case. Specifically, AARP asked that the court either vacate the wellness rules but stay the mandate until 2018 or, in the alternative, issue an injunction against enforcement of the rules effective in 2018. Noting that neither side had earlier addressed the legal framework to determine whether vacatur was appropriate, the court concluded there was good reason to reexamine the prior holding.

Reexamination appropriate.

First, the Administrative Procedure Act contemplates vacatur as the usual remedy when an agency fails to provide sufficient reasoning for its regulations. The court was persuaded by AARP’s argument that remand without vacatur would continue the harm its members are experiencing while new regulations were being formulated. Next, AARP’s motion allowed the parties to inform the court of their positions on the remedial question. Finally, the initial order made clear that the remedial decision could be reexamined as the circumstances of the case evolved. The court had expressed concern about the potential for confusion if vacatur was ordered in the middle of the 2017 plan year after employers had been relying on the rules for eight months.

EEOC’s lack of reasoning.

The decision to vacate depends on the seriousness of an order’s deficiencies and the disruptive consequences that an interim change may cause. Here, in drafting its rules, the EEOC failed to take into account statutory concerns or numerous comments condemning the 30 percent incentive level as coercive. The court concluded that the lack of a reasoned explanation was a serious failing that weighed in favor of vacatur.

Disruption concerns dissipate.

Previously, the court reasoned that the disruption vacating the rules would cause outweighed the EEOC’s failure of reasoning. In order to have time to design their wellness plans, employers need to know the regulatory incentive structure effective for the coming year. AARP argued that stakeholders would be able to adjust to a vacatur of the rules for 2018. The court concluded that vacatur was not a realistic option for early 2018, however, the balancing test shifts toward vacatur further into the future.

In addition, almost all of the EEOC’s arguments against vacatur in the near future subside over time. Any harm that employers and employees would face by the court vacating the rules right before the 2018 wellness plans go into effect would disappear with a later effective date. The court found that employers would have time to develop their 2019 wellness plans with knowledge that the rules were vacated.

Moreover, the court concluded that it was far from clear that the EEOC would view a 30 percent incentive level as sufficiently voluntary upon reevaluation of the evidence presented to it. Thus, because the agency’s determination may be different on remand, the significance of the disruption prong of the vacatur test was reduced.

Manifest injustice.

Lastly, the court determined that the AARP could show prejudice from the decision to remand without vacatur because its members could continue to be pressured to divulge private medical data as long as the current rules remain in place. Consequently, due to this prejudice and the balance of equities weighing in favor of vacatur in 2019, the court concluded that it would constitute a manifest injustice to keep the challenged rules in place beyond 2018.

The court vacated the challenged incentive portions of the ADA and GINA rules, however, delayed the effective date of the vacatur order until January 1, 2019. In addition, the court encouraged the EEOC to move up its rulemaking timeline so that new rules can be applied well before its current estimate of 2021.

SOURCE: AARP v. EEOC (D.D.C.), No. 16-2113 (JDB), December 20, 2017.
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