In 2013, the Supreme Court, in United States v. Windsor, struck down Section 3 of the Defense of Marriage Act (“DOMA”) which defined marriage, for Federal purposes, as between one man and one woman. The Windsor ruling resulted in numerous Federal benefits for same-sex couples who were legally married in a jurisdiction that performed same-sex marriages. However, at that time, the Supreme Court declined to address whether states could define marriage as between one man and one woman. This allowed states to continue to ban same-sex marriage, which caused confusion among employers with respect to the interplay between complying with Federal law and complying with the laws of the states in which they operated.
Over the course of the last two years, many states have either passed laws permitting same-sex marriage or have been forced by various courts to perform and recognize same-sex marriages. This movement toward nationwide legalization of same-sex marriage was confronted head-on by the United States Supreme Court in Obergefell v. Hodges. On June 26, 2015, the Supreme Court answered the question it refused to answer in 2013 – whether a state can ban the performance of same-sex marriages and refuse to recognize same-sex marriages performed in other jurisdictions. In response, the Supreme Court held that the “Fourteenth Amendment requires a State to license a marriage between two people of the same sex and to recognize a marriage between two people of the same sex when their marriage was lawfully licensed and performed out-of-State.”
The Obergefell ruling provides more clarity for employers on the issue of employee benefits for same-sex spouses. While the ruling will simplify employee benefit matters going forward, it may initially require employers to unwind years of treating same-sex spouses differently and it may require employers to think differently about the benefits they provide.
State Tax Issues
While states have not yet fully reacted to the ruling, and some may be slow to react (or even attempt to not implement the ruling), Obergefell very likely means that states can no longer tax benefits provided by an employer to same-sex spouses if they do not tax benefits provided to opposite-sex spouses. Accordingly, employers may have to address payroll systems or practices that tax employees on the state level for the benefits received by a same-sex spouse.
Domestic Partner Benefits
Employers may want to consider the continued need for same-sex domestic partner benefits. Because same-sex couples were previously unable to marry in many jurisdictions, many employers offered same-sex domestic partner benefits in an attempt to treat same-sex couples the same as opposite-sex couples, or as close as possible. However, now that same-sex couples can marry in all 50 states, there may no longer be a need for same-sex domestic partner benefits. In fact, in an odd twist, it could be viewed as discriminatory to provide domestic partner benefits to same-sex couples and not to opposite-sex couples. As a result, employers may want to review their domestic partner benefit policies, while noting that some states may have laws that require employers to offer domestic partner benefits to same-sex couples.
Can Employers Still Treat Same-Sex and Opposite Sex Couples Differently?
While the Supreme Court ruled that states must perform and recognize same-sex marriages, it did not hold that employers could not treat same-sex and opposite-sex couples differently for some purposes. It is clear that same-sex spouses must be treated the same as opposite-sex spouses with respect to qualified plans, as a result of the Windsor ruling and IRS guidance following Windsor. However, a question still remains as to whether employers can limit health and welfare benefits to opposite-sex spouses. As we discussed in a previous legal alert, there is no federal law that requires employers to offer health or welfare benefits to spouses, and that still appears to be the case after Obergefell.
Nevertheless, most employers will likely conclude, for administrative reasons, that it is easier to treat all employees and spouses the same rather than operate a plan with two separate benefit schemes. One reason to do so is that many states and cities have laws that prohibit employers from discriminating based on sexual orientation, gender identity or marital status. There are arguments that such anti-discrimination laws are preempted by the Employee Retirement Income Security Act of 1974, as amended, but preemption can be hard to predict. Additionally, following Obergefell, courts may be more likely to find that discrimination based on sexual orientation is a violation of Title VII of the Civil Rights Act of 1964. Providing uniform benefits to all employees and their spouses obviates the need to make such arguments.
Additionally, employers should be aware that their fully-insured health and welfare plans may now automatically cover same-sex spouses. Employers may wish to check with their insurers to determine if, given the Obergefell ruling, coverage for same-sex spouses is now required by their health and welfare policies.
As the Obergefell ruling takes effect throughout the country, there may be the need for guidance from the states and the Federal government, but employers may wish to start thinking about any employee benefit issues immediately. If you would like to read the entire Obergefell opinion, click here.