Wisconsin’s Recognition of Same-Sex Marriage Will Impact Employers on Multiple Fronts
Jennifer S. Mirus | 10.24.14
This article was prepared by Andrew N. DeClercq with assistance from Jennifer S. Mirus and the Labor & Employment Practice Group.
As of October 6, 2014, the State of Wisconsin has recognized the legality of same-sex marriages. This means that Wisconsin will now recognize the marriage of any same-sex couple that was legally married either before or after October 6, 2014 in a state (or country) that, at the time of the couple’s marriage, recognized same-sex marriage as legal. This includes same-sex marriages conducted in Wisconsin on or after October 6, 2014, as well as those same-sex marriages that occurred in Wisconsin in June of 2014 during the one-week period after Wisconsin’s ban on same-sex marriage was struck down by a federal district court (before the court stayed its decision).
So what does this mean for employers in Wisconsin? As a general matter, it means that employers must now treat same-sex spouses in the same manner as they treat opposite-sex spouses. This general rule will impact employers in a number of ways, the most significant of which are summarized below.
The Wisconsin Fair Employment Act (WFEA) prohibits discrimination on the basis of sexual orientation. As such, any action by an employer that discriminates against an employee because that employee is in a same-sex marriage could give rise to a discrimination claim under the WFEA. In addition, any action by an employer that treats an employee’s same-sex spouse differently than an employee’s opposite-sex spouse could also lead to a discrimination claim under the WFEA. For example, as discussed in more detail below, employers that offer spousal benefits (e.g., group health insurance) to opposite-sex spouses but not same-sex spouses could be found liable violating the WFEA. Similarly, employers that offer spousal benefits to both same-sex and opposite-sex spouses could be found liable for violating the WFEA if they treat same-sex spouses differently in regard to those benefits (e.g., by requiring proof of marriage for same-sex but not opposite-sex spouses).
Health Insurance Benefits
Any employer that offers spousal benefits under a group health plan will need to consider how Wisconsin’s recognition of same-sex marriage impacts its plan. And, while the general rule that all spouses must be treated the same generally applies, there are some wrinkles in regard to health plans that employers must consider. The nature of these wrinkles will depend on the type of health plan (e.g., insured or self-insured) and employer (e.g., public sector or private sector) at issue.
In regard to insured plans, Wisconsin insurance law requires insurers that offer dependent coverage under their group insurance policies to make spousal coverage available under those policies. Prior to Wisconsin’s recognition of same-sex marriage, this requirement did not mandate coverage of same-sex spouses, because they were not recognized as spouses under Wisconsin law. However, now that Wisconsin has recognized same-sex marriage, the spousal-coverage requirement will apply equally to both same-sex and opposite-sex spouses. As such, insurers will likely begin making coverage available to same-sex spouses under any group health insurance policy that offers spousal coverage.
Although the spousal-coverage requirement under Wisconsin law technically applies to insurers (and not employers), it is not clear whether employers that sponsor insured group health plans will be able to avoid offering spousal coverage to same-sex spouses if coverage is offered to opposite-sex spouses. As discussed in more detail below, employers that sponsor group health plans that are subject to the Employee Retirement Income Security Act (ERISA) may be able to argue that ERISA preempts (and therefore prevents the application of) any state law that would require them to offer benefits to same-sex spouses. However, ERISA does not preempt state laws that govern insurance, so it is not clear that this type of preemption argument would be successful in preventing the application of Wisconsin’s insurance law. (Federal law also requires insurers to make spousal coverage available to same-sex spouses, but only if the employer chooses to offer such coverage.)
Given Wisconsin’s recognition of same-sex marriage, insurers may be setting up special enrollment periods to permit same-sex spouses who were married prior to October 6, 2014 to enroll in coverage. Insurers will also likely begin to provide special enrollment opportunities for newly married same-sex spouses and offer to enroll same-sex spouses during the next open enrollment period. Employers with questions regarding coverage of same-sex spouses under their insured group health plans may wish to contract their consultants or insurers with any questions. For public sector employers that offer health insurance through the Department of Employee Trust Funds (ETF), additional guidance on these issues from ETF can be found here: http://etf.wi.gov/news/ht-2014-same-sex-marriage2.htm.
In regard to self-funded plans, Wisconsin’s insurance law is not applicable, so the requirement to make spousal coverage available under an insured plan discussed above does not apply. Employers with self-funded plans may nevertheless be required to provide spousal benefits to same-sex spouses by virtue of the WFEA. The analysis of this issue is different, however, depending on whether the plan is subject to the ERISA, because there is a possibility that the WFEA would be preempted (and therefore not apply) in regard to ERISA-covered plans.
In regard to plans that are not subject to ERISA, such as governmental plans sponsored by public sector employers, ERISA preemption is not a factor and employers sponsoring these plans are therefore likely required to offer coverage to same-sex spouses, because denying coverage would likely constitute a violation of the WFEA’s prohibition on discrimination on the basis of sexual orientation. Prior to Wisconsin’s recognition of same-sex marriage, these plans had been able to avoid the requirement of offering benefits to same-sex spouses on the basis of a decision from the Wisconsin Court of Appeals, which held that it was not a violation of the WFEA for an employer to offer coverage to opposite-sex spouses but not same-sex spouses. In the wake of Wisconsin’s recognition of same-sex marriage, however, that decision is likely no longer good law. The decision was based on the court’s conclusion that the employer in the case was not really denying spousal benefits to employees with same-sex spouses, but rather imposing a requirement on all employees that in order to receive spousal benefits, the employee must be legally married under Wisconsin law. According to the court, because the requirement of a legal marriage applied equally to both heterosexual and homosexual employees, it was not discriminatory (even though Wisconsin recognized only opposite-sex marriage at that time). Now that Wisconsin has recognized same-sex marriage, the court’s reasoning in this case no longer permits an employer to refuse to offer coverage to a same-sex spouse, because a same-sex spouse would now be party to a legal marriage under Wisconsin law. Therefore, to comply with the WFEA’s prohibition of sexual-orientation discrimination, employers with non-ERISA self-funded group health plans are likely required to offer coverage to same-sex spouses if they offer coverage to opposite-sex spouses. The WFEA does not, however, require that coverage be offered to same-sex domestic partners if domestic partner coverage is not offered to opposite-sex couples (see the discussion of domestic partner benefits below for additional information).
In regard to self-funded plans that are subject to ERISA, such as most plans sponsored by private sector employers, the analysis is a bit more complicated. ERISA generally preempts state laws that relate to ERISA-covered employee benefit plans. And the U.S. Supreme Court has held that ERISA can preempt state anti-discrimination laws, such as the WFEA. In particular, ERISA may preempt a state anti-discrimination law where that law would dictate what benefits an ERISA plan is required to offer. For example, if the WFEA’s prohibition on discrimination on the basis of sexual orientation were interpreted to require an employer that sponsors an ERISA-covered health plan to offer benefits to same-sex spouses, ERISA would arguably preempt that requirement. The Supreme Court has held, however, that there is no ERISA preemption if the state law at issue offers protections that are the same as those offered under Title VII of the Civil Rights Act of 1964 (Title VII), the federal anti-discrimination law. Unlike the WFEA, Title VII does not expressly prohibit discrimination on the basis of sexual orientation. This would suggest, therefore, that ERISA should preempt the WFEA’s prohibition on sexual-orientation discrimination to the extent it is applied to an ERISA group health plan. And, in fact, a number of courts have reached this very conclusion in regard to anti-discrimination laws similar to the WFEA. At the same time, however, other courts have recently found that an employer might violate Title VII’s prohibition on sex discrimination if the employer offers benefits to opposite-sex spouses but not same-sex spouses. (The theory in these cases is that it is sex discrimination to, for example, permit a woman to marry a man and receive spousal benefits but to deny spousal benefits when a man marries a man.) These recent cases indicate that an employer that sponsors a self-funded ERISA-covered group health plan may not be able to rely on ERISA preemption to avoid offering benefits to same-sex spouses.
ERISA may also apply to insured plans. However, as noted above, the preemption analysis for these plans is different. While the same preemption rule discussed above in regard to the WFEA applies to insured plans, ERISA preemption does not apply to Wisconsin’s insurance law. Therefore, despite ERISA’s potential preemption of the WFEA, ERISA would not preempt the requirement that Wisconsin insurers issuing policies that provide dependent benefits make coverage available to same-sex spouses under those policies.
ERISA preemption is a complex and developing area of the law, and the issues discussed above have not been decisively addressed by the Wisconsin courts or the federal courts that have jurisdiction over Wisconsin, so employers with ERISA-covered health plans may wish to consult with legal counsel regarding these issues.
Finally, as a general matter, after determining how Wisconsin’s recognition of same-sex marriage will impact their group health plans, employers should review their plan documents and summary plan descriptions (SPDs) to determine whether any amendments should be made (e.g., if a plan defines “spouse” in a manner that would exclude a same-sex spouse, an amendment may be necessary).
Taxation of Health Coverage for Same-Sex Spouses
Prior to Wisconsin’s recognition of same-sex marriage, many employers voluntarily chose to offer spousal benefits to same-sex spouses under their group health plans. Until June of 2013, when the Supreme Court issued its decision in United States v. Windsor recognizing same-sex marriages for purposes of federal law, spousal benefits for same-sex spouses were (unlike spousal benefits for opposite-sex spouses) subject to both state and federal income taxes. As such, employers that offered health benefits to same-sex spouses were required to impute income to account for the taxation of those benefits under state and federal law. After the Windsor decision, the federal income tax rules changed, but the Wisconsin rules did not. Employers offering health benefits to same-sex spouses therefore no longer had to impute income for federal income tax purposes but still had to impute income for Wisconsin income tax purposes.
After Wisconsin’s recognition of same-sex marriage, however, the rule under Wisconsin law has changed. Spousal health benefits provided to legally married same-sex spouses are no longer subject to Wisconsin income tax. Therefore, employers will no longer be required to impute income in regard to such benefits. For purposes of Wisconsin (and federal) law, a same-sex couple will be treated as married for the entire year if they are married on December 31 of the year. This means that no imputation of income will be required for any same-sex spousal coverage for 2014, if the couple is legally married as of December 31, 2014. The Wisconsin Department of Revenue (DOR) has also indicated that same-sex couples who have paid Wisconsin income tax on employer-provided health benefits in the past may (but are not required to) file amended tax returns. The DOR has provided helpful guidance on these issues, which can be found here: http://www.revenue.wi.gov/faqs/ise/samesex.html.
Employers will need to carefully attend to the payroll implications of these new rules. In particular, there may be circumstances that will require an employer to reconcile an employee’s payroll deductions from earlier in the year to properly complete an employee’s Form W‑2. For example, if a same-sex couple was legally married in another state prior to October 6, 2014 and had been receiving spousal or domestic partner health benefits, the employer may have been imputing income to the employee and making payroll deductions for purposes of Wisconsin income tax. After October 6, however, this practice is no longer proper, because the couple is considered legally married for purposes of Wisconsin income tax. The employer, therefore, would need to reconcile the payroll deductions made for this employee so that the employee’s Form W‑2 does not reflect any imputed income related to the spousal benefit. Similarly, if a same-sex couple is currently unmarried and receiving domestic partner benefits for which state and federal income is imputed, and the couple gets married before the end of the year, the employer would need to reconcile the payroll deductions for the employee (including Social Security and Medicare tax and state and federal income tax withholding), because the couple will be treated as legally married for the entire year if they are married as of December 31.
Other Employee Benefits
As with benefits under a group health insurance plan, if an employer offers any other types of spousal benefits, those benefits likely must now be provided to same-sex spouses on the same terms that they are provided to opposite-sex spouses. For ERISA-covered benefits plans, there may be a preemption argument that might permit an employer to avoid this general requirement, but the same issues discussed above in regard to ERISA preemption as it relates to employer-sponsored group health plans would apply.
Now that Wisconsin has recognized same-sex marriage, employers will be required to treat both same-sex and opposite-sex spouses in the same manner for purposes of leave under both the Wisconsin Family and Medical Leave Act (WFMLA) and the federal Family and Medical Leave Act (FMLA). For example, leave for the serious health condition of a spouse will have to be made available equally for both same-sex and opposite-sex spouses. Depending on how an employer’s FMLA policy is currently drafted, the policy may need to be amended to account for this change
Domestic Partner Benefits
Wisconsin recognizes domestic partnership under two separate sets of laws. Chapter 40 of the Wisconsin Statutes includes provisions regarding domestic partnerships for purposes of the Department of Employee Trust Funds (ETF). These rules permit both same-sex and opposite-sex couples to establish a domestic partnership for purposes of benefits administered by ETF. Chapter 770 of the Wisconsin statutes includes provisions that permit same-sex couples to establish domestic partnerships for purposes of Wisconsin law. Domestic partners under Chapter 770 are eligible for a number of benefits provided for under various Wisconsin statutes (e.g., WFMLA leave), but they are not entitled to the full range of benefits available to a legally married couple. In addition to domestic partnerships under the Wisconsin statutes, many employers have also opted to offer domestic partner benefits under their benefit plans (e.g., health insurance coverage for domestic partners). In general, these domestic partner benefits are determined by the terms of the employer’s plan.
Wisconsin’s recognition of same-sex marriage does not alter Wisconsin’s law regarding domestic partners, nor does it alter the manner in which an employer is required to administer the domestic partner benefits (if any) under the terms of its benefit plans. For example, employers are still not required to offer benefits to domestic partners. In addition, if employers do offer domestic partner benefits, they are still required to impute taxable income for the value of benefits provided to a domestic partner (whether same sex or opposite sex), unless the domestic partner qualifies as a dependent of the employee. Therefore, employers must continue to differentiate between married employees and employees who are party to a domestic partnership. It is possible that some same-sex couples who were previously part of a domestic partnership may now choose to marry under Wisconsin law. In that case, after the marriage, those couples should be treated according to the rules that apply to same-sex spouses (which, as discussed above, will generally be the same rules that apply to opposite-sex spouses), and the employer should make any necessary payroll adjustments to account for the couple’s change in status.
Finally, given Wisconsin’s recognition of same-sex marriage, employers that currently offer domestic partner benefits may want to consider whether it continues to make sense to offer those benefits. This decision will depend on the facts and circumstances of each employer’s situation, such as the reason why the employer chose to offer domestic partner benefits in the first place and the administrative burden and expense of continuing to offer those benefits.
Disclaimer: This information is not intended to be legal advice. Rather, it seeks to make recipients aware of certain legal developments that affect human resource issues. Recipients who want legal advice concerning a particular matter should consult with an attorney who is given a full understanding of the relevant facts pertaining to the particular matter.