Employer Violated Title VII by Revoking Health Coverage for Employee's Same-Sex Spouse

Practical Law Legal Update w-036-5341 (Approx. 6 pages)

Employer Violated Title VII by Revoking Health Coverage for Employee's Same-Sex Spouse

by Practical Law Employee Benefits & Executive Compensation

Misstatements Regarding Same-Sex Benefits Coverage in Hiring Context

The employee-plaintiff in this case—a gay, cisgender man married to another man—obtained health coverage through his employer, a Catholic social services agency. During the hiring process, a recruiter informed the employee (incorrectly, the employer later argued) that the employer's health plan covered all dependents. The employee successfully enrolled his spouse in the employer's health plan in June 2016. Several months later, however, a dependent audit performed by the plan's administrator flagged the same sex spouse's coverage. As a result, the employer's human resources executive intervened to correct what it viewed as a coverage error. Consistent with the employer's religious belief that marriage is a union between a man and a woman, the HR executive informed the employee that:

The employer's plan prohibited dependent coverage for same-sex spouses.
The employer had mistakenly approved enrollment for the employee's same sex spouse.
The spouse's coverage would be terminated at the end of the month (though the employer actually permitted the coverage to continue for several additional months).

To address the impending loss of spousal coverage under the plan's exclusion for same-sex spouses, the employer later proposed to:

Move the employee's spouse to a COBRA-like alternative (see COBRA Toolkit).
Extend the COBRA-like coverage period to 36 months.
Provide the employee a $5,000 raise or adjustment to cover out-of-pocket expenses.

In another meeting, a second HR executive confirmed that the employer had amended its plan documents to explain more clearly that the employer did not cover same-sex spouses. The HR executive also allegedly stated that:

The situation would not "turn out well" if the employee continued to pursue health coverage for his same-sex spouse.
The employer would not want to continue paying an employee who sued the employer over health coverage for a same-sex spouse.

The employer terminated coverage for the employee's same-sex spouse in October 2017.

After filing a discrimination charge with the Equal Opportunity Employment Commission (EEOC), the employee sued the employer in district court for violations of Title VII of the Civil Rights Act of 1964 (Title VII) and state law. The parties asked the court to rule on their claims without a trial.

Court Had Subject Matter Jurisdiction

Addressing a threshold issue, the court rejected the employer's argument that the "church autonomy" doctrine prevented the court from having jurisdiction over the case. Under this doctrine, churches are allowed to decide matters of church governance, faith, and doctrine, without government interference. In the court's view, this doctrine did not apply because the case involved the employer's employment benefit decisions, rather than matters of faith or doctrine.

Employer Violated Title VII's Prohibition Against Sex Discrimination

Addressing the employee's Title VII claim, the district court cited the Supreme Court's Bostock decision in concluding that when an employer discriminates against an employee based on sexual orientation, the employer "necessarily and intentionally discriminates against that individual in part because of sex" (Bostock v. Clayton County, Georgia, 140 S. Ct. 1731, 1744 (2020); see Legal Update, Supreme Court: Discrimination Based on Sexual Orientation or Transgender Status Is Sex Discrimination Under Title VII). Under Bostock, the district court added, such discrimination was sufficient to establish liability under Title VII. As a result, according to the district court, the case's outcome depended on whether the employer was exempt from Title VII or otherwise had a defense under the Religious Freedom Restoration Act (RFRA) or the First Amendment's Free Exercise Clause.

Religious Organization Exemption Did Not Apply

Relying on a religious organization exemption, the employer argued that it was exempt from Title VII based on its status as a religious organization. Under this exemption, the employer asserted, religious organizations may intentionally discriminate against applicants and employees based on their religion—for example by hiring and employing only individuals of a particular religion (42 U.S.C. § 2000e-1(a); see Practice Note, Religious Discrimination and Accommodation Under Title VII: Religious Organization Exemption). According to the employer, this exemption applied broadly to any characteristic that could be tied to the organization's religious beliefs. Rejecting this interpretation, the district court concluded that:

Under controlling circuit precedent, religious organizations are not exempt from Title VII's prohibition against discrimination based on characteristics other than religion.
The plain language of the statutory exemption indicated Congress's intent to protect religious organizations wishing to employ co-religionists.
The employer's interpretation of the statutory language would effectively exempt religious organizations from all of Title VII.

RFRA Did Not Apply to Dispute Between Private Parties

The employer also raised RFRA as a defense. Rejecting this defense, the district court reasoned that RFRA's text prohibits the government from substantially burdening an individual's exercise of religion. Accordingly, RFRA did not apply to in this case (that is, a dispute between private parties).

Court Rejected Free Exercise Defense

The employer also argued that the employee's claims violated the First Amendment's Free Exercise Clause. According to the employer, Title VII is not neutral and generally applicable because it exempts certain secular activities but not comparable religious activity. In support of its argument that Title VII treats comparable secular activity more favorably, the employer pointed to Title VII's definition of "employer," which does not include small businesses, the United States, and bona fide tax-exempt private membership clubs. In the court's view, however, these institutions were not comparable to the employer. Because Title VII is neutral and generally applicable, the court was not required to apply a strict scrutiny analysis.

Employee Failed to Establish Retaliation Claim Under Title VII

However, agreeing with the employer on the employee's Title VII retaliation claim, the district court concluded that the employee failed to show a materially adverse action against him. Even assuming the HR representative made the alleged statements suggesting the employer might retaliate, the employee was not deterred and did not suffer any adverse action. Instead, the employee had been promoted and received a raise.

Compensatory and Punitive Damages

Declining to rule on the employee's request for compensatory damages, the district court concluded that fact issues existed as to whether the employer's actions caused the employee's spouse:

To delay certain dental procedures.
To suffer emotional distress separate from his past trauma.

However, the district court agreed with the employer that punitive damages were not warranted in this case. In reaching this conclusion, the court cited:

The issue regarding the scope of Title VII's religious exemption.
The employer's attempt to reach a mutually acceptable solution with the employee.

Practical Impact

As this case illustrates, the Supreme Court's recent Bostock ruling has led to favorable rulings for employees in litigation challenging health plan exclusions of coverage for same-sex benefits under Title VII (and other related exclusions). This case also underscores the need for plan terms (and related benefits communications) to be clear and consistent regarding coverage of same-sex benefits. Otherwise, such inconsistencies can be an invitation to litigation.

For more information, see Legal Updates:

Employer Violated Title VII by Revoking Health Coverage for Employee's Same-Sex Spouse | Practical Law