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July 2013

Impact of the DOMA Decision on Employers

On June 26, 2013, the U.S. Supreme Court issued its monumental and long-awaited decision in Windsor v. United States, No. 12-307.  The Court ruled 5-4 that the section of the Defense of Marriage Act (DOMA) requiring federal laws to ignore same-sex marriages legally entered into under applicable state law is unconstitutional.  This decision raises many questions that have no immediate answer, and ultimately will be resolved through further litigation or new legislation/regulations.  Regardless, the Windsor decision already is having a substantial impact on the operation and treatment of employment taxes and employer benefit programs.

One issue facing employers – particularly those with operations or employees located in more than one state – is the definition of same-sex spousal relationships.  While same-sex marriage is legal in 13 states and the District of Columbia, the majority of states prohibit it.  Moreover, some states provide full marriage equality to same-sex relationships, civil unions or domestic partnerships, while others do not provide all of the privileges of marriage to those couples.  Following Windsor, in states that recognize same-sex marriages, couples may receive the benefit of  tax-free treatment of health care coverage, access to pre-tax treatment under an employer’s §125 plan, COBRA coverage, eligibility for HIPAA special enrollment rights, and the right to pension survivorship. For example, employers in those states are no longer required to impute income to employees whose same-sex spouses are covered under the employee’s health insurance.

However, how do employers handle same-sex couples that reside or work in a state where same-sex marriage is not recognized?  Windsor did not address §2 of DOMA, which allows one state to refuse to recognize same-sex marriages entered into in another state. And while many agencies and departments look to the laws of the state in which an individual resides to determine whether a marriage is valid, others base such a determination on the laws of the state where the marriage was performed. The Internal Revenue Service (IRS) is expected to issue guidance on the definition of “spouse,” and thus hopefully will resolve at least some of the uncertainty that exists.

Windsor also impacts a range of employee benefit programs. Since a “spouse” under DOMA meant only a spouse of the opposite sex, employers could define that term in their ERISA-covered benefit plans to exclude same-sex spouses.  Employers who did so now are trying to determine what changes they need to make.  Unfortunately, it is unknown whether the federal government will provide spousal standing only to "marriages" (i.e. those that are labeled as such - whether it be between a man/woman or same sex), or whether it also will provide spousal standing to other relationships, such as civil unions or domestic partnerships.  The IRS guidance hopefully will clarify this as well as other ERISA-related questions. 

Finally, following Windsor, employers covered under the federal Family and Medical Leave Act (FMLA) must allow certain qualifying employees leave to care for a sick same-sex spouse.  Specifically, the FMLA regulations define spouse as “a husband or wife as defined or recognized under State law for purposes of marriage in the State where the employee resides, including common law marriage in States where it is recognized.”  29 C.F.R. 825.122(a).  Accordingly, unless or until the Department of Labor directs otherwise, employers must be cognizant of the laws of the states in which their employees reside, so as not to run afoul of those laws that permit same-sex marriage.

To ensure compliance with the new changes, employers should review insurance policies to determine how same-sex spouses are treated or defined; decide how to treat federally-recognized same-sex spouses and nonfederally-recognized same-sex relationships (civil unions, domestic partnerships); review plan documents, employee handbooks, benefit notices, and policy manuals; and determine whether notifications need to be sent for pending COBRA elections. 
For additional information on this decision or on any other employment issue, please contact any member of Gordon & Rees’s Employment or Labor Practice Groups.

Employment Law

Employment Law