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July 03, 2018
Nevada High Court Decides Exactly What Benefits Let Employer Pay Lower-Tier Wage

By Jeremy Thompson

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For more than two years, we’ve reported on litigation surrounding Nevada’s minimum wage, which is unique in many ways. The state’s Minimum Wage Amendment (MWA) was established by constitutional amendment. Under the MWA, if an employer provides health benefits, an employee earning minimum wage may be paid one dollar an hour less than the upper-tier minimum wage if the premium he is charged for the benefits doesn’t exceed 10 percent of his gross taxable income from the employer. The current rate is $7.25 for lower-tier employees and $8.25 for higher-tier workers.

Until now, no authority had defined the level or kind of “health benefits” the employer must provide to qualify for the lower-tier rate. The Nevada Supreme Court, however, has now decided that an employer must “prove a benefit in the form of health insurance at least equivalent to the one dollar per hour in wages the employee would have otherwise received.”

 

Key Terms Defined

 

As we reported in our May and November 2016 newsletter issues, Nevada employees have alleged a variety of claims under the MWA. On October 27, 2016, employers won their first major victory when the supreme court decided that the term “provide,” as it’s used in the MWA, means “offer,” not “enroll.” That was a significant distinction with major economic ramifications for Nevada employers whose payrolls include minimum-wage employees. At the time, the court also delivered an employer-friendly verdict and agreed with the lower court that the applicable statute of limitations for MWA claims is two years instead of the four years employees were seeking. That, however, wasn’t the end of the story.

“To provide.” In its latest ruling, the supreme court further clarified what it means “to provide” health benefits under the MWA. The court held that an employer may pay the lower-tier minimum wage if it “offers or makes qualifying health insurance available” to an employee and his or her dependents at a total cost to the employee for premiums not exceeding 10 percent of the individual’s gross taxable income, even if he or she doesn’t enroll in the employer’s plan.

 “Qualifying health insurance.” The supreme court also defined “qualifying health insurance,” that is, the type of health benefits employers must provide to their employees to pay the lower rate. The employees alleged their employers paid the lower-tier minimum wage without providing sufficient health benefits as required by the MWA. In the district court, the employees argued that the health insurance offered by the employers didn’t comply with Nevada Revised Statutes (NRS) Chapters 608, 689A, and 689B.

NRS Chapter 608 requires an employer that offers health benefits to provide insurance that complies with NRS Chapters 689A and 689B, which call for coverage for everything from erectile dysfunction drugs and hormone replacement therapy to the treatment of the physiological effects from drug and alcohol. The district court agreed with the employees: Because the employers’ plans didn’t cover every treatment specified in NRS Chapters 689A and 689B, they couldn’t pay their employees the MWA’s low-tier wage. The employers challenged the decision and asked the supreme court to determine the meaning of “health benefits” and “health insurance” under the Act.

 

Governor’s Veto Discussed

 

The supreme court granted the employers’ petition and found that the district court had erred. The high court noted that articulating the standard for when an employer offering health benefits can pay the lower-tier minimum wage is an issue of statewide importance. The court also cited numerous pending lawsuits in state and federal courts wherein employees had sued their employers for failing to provide “gold-standard” health benefits. Governor Brian Sandoval’s veto of Assembly Bill (A.B.) 175, which was recently passed legislation attempting to answer this exact question, also was discussed.

In his veto, Sandoval expressed concern that A.B. 175 would require health insurance (1) exceeding the cost of paying an additional one dollar per hour in wages and (2) creating an incentive for employers to stop offering health insurance altogether. Also, the veto warned of possible negative consequences for Nevada’s workers and small businesses, such as receiving fewer hours of work, decreasing the number of available jobs, and resulting in a higher cost of providing health insurance. The vetoed legislation, the significance of the issue, and the impact on Nevada employers and employees warranted the court’s consideration of the employers’ petition.

 

Zeroing in on Cost Issue

 

The supreme court indicated that the real issue in the case wasn’t the types of benefits provided and whether they are health or some other category of benefits. Instead, the issue was whether there was some minimum quality or substance of health insurance that an employer must provide to pay the lower-tier minimum wage under the MWA. The dilemma:

  • To provide just any one of those benefits would allow an employer to quality for the lower-tier wage with the creation of the most meager health insurance plan.
  • Requiring employers to provide all conceivable health coverage benefits would saddle them with costs much greater than the one dollar per hour of wages saved under the lower tier.

Following that interpretation would disincentivize employers from providing health insurance in lieu of paying an extra dollar per hour in wages, which would decrease the MWA’s significance.  To give effect to the entirety of the MWA’s two-tiered approach, the court determined that the qualifying health benefits must lie somewhere between those two extremes.

According to the court, nothing in the MWA’s text or purpose suggests that voters intended to create one tier that was inherently more or less valuable than the other. The two tiers, however, are different means to the same end–the upper-tier minimum wage fights poverty by providing higher wages while the lower-tier fights poverty in the form of a lower wage with the addition of health benefits. Given that the two tiers are designed to further the same purpose, the court concluded common sense dictates that an employer paying the lower-tier minimum wage must offer health benefits that, at the very least, fill the one-dollar gap in value between the $7.25 lower-tier and the $8.25 upper-tier minimum wages. Thus, “health benefits” must mean the equivalent of one extra dollar per hour in wages to the employee but offered in the form of health insurance as opposed to dollars.  

The court further reasoned it was unlikely that voters considered and intended to incorporate the entirety of Nevada’s statutory scheme regarding health insurance into the meaning of “health benefits” in the MWA. Instead, the simplest meaning of “health benefits” is a benefit in the form of health insurance at least equivalent to an additional one dollar per hour in wages. That definition ensures employees receive equal benefits under either tier of the MWA in furtherance of fighting poverty.

Accordingly, the court found that a Nevada employer is qualified to pay the lower-tier minimum wage to an employee if the employer offers a benefit to the employee in the form of health insurance of a value greater than or equal to the wage of an additional dollar per hour and covers “the employee and the employee’s dependents at a total cost to the employee for premiums of not more than ten percent of the employee’s gross taxable income from the employer.”  Further, the employer has the burden of showing it provided the employee with the benefit. MDC Restaurant v. The Eighth Judicial District Court.

 

Bottom Line

 

It appears we have reached the end of the MWA’s litigation saga, though there may still be a question about what would be included in the “cost” of offered health insurance. Nevertheless, the court handed a major victory to Nevada employers. Had the employees prevailed, Nevada employers that pay their employees the lower-tier minimum wage but don’t provide the entirety of coverage detailed in NRS Chapters 689A and 689B would have been facing hundreds of thousands of dollars in damage claims for wage loss and attorneys’ fees. The court’s ruling is significant and will bring major relief to employers with minimum-wage employees. 

The author, a contributor to the Nevada Employment Law Letter, can be reached at jthompson@clarkhill.com.

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