Employee Challenges Wellness Incentive under State Wage-Hour Law

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A pharmacy chain is being sued over its requirement that employees undergo a “wellness exam” or pay a $600 surcharge on their health plan contribution. The lawsuit, filed in California state court as a class action, characterizes the surcharge as an illegal “wage deduction,” and contends that employees who did take the exam should have been compensated for the time and expense of doing so. The case is Watterson v. Garfield Beach CVS, LLC, No. RG14717292 (Cal. Super. Ct., filed March 13, 2014).

 

Facts of the Case

CVS cashier Roberta Watterson was required to take the wellness exam either at a CVS clinic or at her own physician’s office, or pay an additional $600 per year. She had her doctor perform the wellness exam, incurring a $25 copay, rather than have it done at the CVS “minute clinic” for $125. CVS did not pay Watterson for the time she spent getting the exam or taking the required wellness questionnaire, nor was she reimbursed for the copay or mileage of attending an off-site physician.

 

Legal Allegations

Watterson sued CVS under California’s Labor Code, alleging “failure to pay hourly wages,” “failure to indemnify” for expenses, “illegal wage deductions” and failing to provide “accurate wage statements.” The lawsuit also includes a claim of “unfair competition” under the state’s Business and Professions Code.

 

Watterson seeks certification of the lawsuit as a class action, on behalf of all hourly employees in California since 2010. The lawsuit seeks to recoup the wages and reimbursements allegedly due, plus interest, litigation costs and attorney’s fees — along with penalties for the alleged wage deductions, and statutory damages of at least $50 per employee per pay period for the allegedly inaccurate wage statements.

 

Under the federal Fair Labor Standards Act, employees must be paid the required hourly minimum wage “free and clear,” without deductions. Deductions in wages are not prohibited, but generally employers must not reduce wages below the FLSA-mandated minimum wage (currently $7.25 per hour). Insurance premiums are included in the list of permissible deductions. The statute specifies that insurance premiums are permissible if they are paid to independent insurance agencies when the employer is under no obligation to furnish insurance and derives no benefit or profit.

 

Many states and localities also have their own sets of rules about minimum wages and deductions. Employers should always make sure they are aware of any relevant state and local statutes. The California labor code, for example, has provisions similar to the federal statute that allow deductions from wages to cover insurance premiums, as well as other contributions to employee benefits.

 

Company’s Response

CVS Caremark contends the lawsuit has no merit. Employees covered by the company’s group health plan do pay a lower annual premium if they “complete a confidential annual health risk assessment and health screening,” but the plan “complies with all applicable laws,” according to a statement emailed by CVS. “Employees are also provided with many company paid wellness programs and resources at no cost to them.”

Image credit: Sura Nualpradid / FreeDigitalPhotos.net


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