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Employee wellness programs are programs aimed at encouraging employees to take preventative measures to control illnesses and unhealthy behavior in an attempt to manage the burgeoning cost of health care, reduce absenteeism and improve morale.

Wellness programs take many forms including:

  • Educational programs for managing health; Health Risk Assessments; Health Screenings; Onsite fitness facilities; Subsidized fitness programs; and Smoking cessation programs.

Employers are encouraged to adopt wellness programs, as the Center for Disease Control reports that more than 75% of an employer's health care costs and productivity losses are related to employee lifestyle choices:

  • Workplace alcohol, tobacco and other drug use costs American companies over $100 Billion each year; Job stress is estimated to cost American industries $200-$300 billion annually; Obesity health care costs totaled an estimated $117 billion in 2000 and have climbed steadily; 95% of our nation's health expenditures is committed to diagnosing and treating disease after it becomes manifest; and In 2004, tobacco use was estimated to cost the United States $193 billion, including $97 billion in lost productivity and $96 billion in direct health care expenditures.

An effective employee wellness program can result in reductions in sick leave absenteeism, employee use of health care benefits and worker's compensation claims. Employee wellness programs can also yield large dividends, resulting in a rate of return from $1.49 to $4.91 for every dollar spent. (See Kathryn Hinton, Employer By Name, Insurer By Trade: Society's Obesity Epidemic And Its Effect On Employer's Healthcare Costs, 12 Conn. Ins. L.J. 137, 153 (2005).)

Mandatory vs. Voluntary Wellness Programs

Many wellness programs focus on encouraging employees to kick unhealthy habits, as well as to develop a sustainable plan to maintain their health and wellness. More employers, however, are moving towards more aggressive wellness and disease management programs for employees. As a result, many employers are seeking legal advice on how to create more aggressive wellness programs that utilize rewards or penalties to change employee behavior. Employers should note that this does pose an increased risk of litigation. Additionally, critics of these mandatory plans charge that employers are trying to control private behavior while amassing huge amounts of personal health information, effectively regulating private behavior.

For example, firefighters in the City of Taylor, Michigan, sued the City after the Fire Department implemented a wellness program with a health appraisal component that included a mandatory blood draw used to determine cholesterol level. Firefighters sued, claiming that the blood draws violated their constitutional rights, including their Fourth and Fourteenth Amendment rights to be free from unreasonable searches and seizures. The Union also filed a grievance on behalf of the Plaintiff firefighters claiming that the blood draw violated their collective bargaining agreement. The court denied the city's motion for summary judgment and as a result of the union's grievance the fire department abandoned the blood draws.

Federal and State Laws to Consider when Designing a Wellness Program

Employers who want to reap the cost savings benefits of wellness programs must also contend with a myriad of legal issues and compliance requirements that are applicable to the development of these programs. The Internal Revenue Service, Department of Labor, and the Department of Health and Human Services have issued final regulations on wellness programs and the nondiscrimination rules under the Health Insurance Portability and Accountability Act of 1996 (HIPAA). These regulations serve as a starting point in understanding the legal issues related to wellness programs.

HIPAA prohibits discrimination in health coverage based on a health factor. The final regulations under HIPAA with respect to wellness programs clarify that employer-sponsored group health plans may not vary premiums or contributions, or provide different discounts or rebates, to similarly situated individuals as a result of a health factor. Employers whose group health plans violate HIPAA nondiscrimination regulations face potential Department of Labor civil enforcement actions.

These rules have a direct impact on wellness programs associated with group health plans that provide incentives or penalties linked to the cost of health coverage. If premiums, contributions, discounts, rebates, or other premium differential mechanisms are contingent on satisfying a standard related to a health factor in a wellness program, the wellness program must meet the following requirements:

  • Total rewards for all wellness programs within the health plan must not exceed 20 percent of the cost of employee-only coverage (including employer plus employee cost) under the plan. If the reward is also available to dependents, the total rewards must not exceed 20 percent of the cost of the coverage category in which the employee and dependents are enrolled. Rewards to be counted in the 20 percent include premium discounts or rebates, waivers of all or part of a cost-sharing mechanism, and the value of benefits that would not otherwise be provided. Program must be reasonably designed to promote good health or prevent disease. The preamble to the final regulations indicates that this should be an easy standard to satisfy; for example, participation in a course of aromatherapy could be considered reasonable. All individuals eligible for the program must have an opportunity to qualify for the reward(s) at least once a year. Program rewards must be available to all similarly situated individuals, and a reasonable alternative standard must be available to achieve the reward to any person who could not otherwise obtain the reward because of a health condition or for whom it would be medically inadvisable to attempt to satisfy the reward. Health plan must disclose the reasonable alternative standard in all materials describing the terms of the wellness program. The alternative standard must be available to any individual for whom it is unreasonably difficult due to a medical condition to satisfy the otherwise applicable standard or if it is medically inadvisable to attempt to satisfy the otherwise applicable standard.
    • For example, if you have a wellness program that waives the annual deductible for the following year for participants who have a BMI between 19 and 26 all plans and materials describing the program should include the following statement: "If it is unreasonably difficult due to a medical condition for you to achieve a body mass index (BMI) between 19 and 26 (or if it is medically inadvisable for you to achieve this BMI) this year, your deductible will be waived if you are able to reduce (or if below 19, increase) your BMI by at least a point. If it is unreasonably difficult due to a medical condition or medically inadvisable for you to meet this alternate standard, we will work with you to develop another way to have your deductible waived, such as a walking program or dietary regimen."

If none of the conditions for obtaining a reward or conversely a penalty under a wellness program are based on an individual satisfying a standard that is related to a health factor (or if a wellness program does not provide a reward), the wellness program is deemed to comply with the nondiscrimination rules.

Additionally, some other laws to consider include the Employment Retirement Income Security Act (ERISA), Americans with Disabilities Act (ADA), the Age Discrimination in Employment Act ("ADEA"), Title VII of the Civil Rights Act, State "Lifestyle Discrimination Laws" and even Collective Bargaining Agreements.

One such example of a case where an ERISA claim was brought as the result of an employer's wellness program involved an individual who had received a conditional offer of employment, pending the results of a drug screening test. In December 2005, The Scotts Company ("Scotts") instituted a nicotine-free policy prohibiting the smoking of tobacco products by its employees. The ban includes tobacco use testing for new employees and random testing on existing employees. Testing positive for the presence of nicotine was grounds for termination. Scotts' stated purpose for this policy was to save money on medical insurance costs and to promote healthy lifestyles among its employees.

Scott Rodrigues filed suit in federal court in Massachusetts after being fired for testing positive for nicotine in violation of Scotts' nicotine-free policy prohibiting the smoking of tobacco products by its employees whether in the workplace or at home. Rodrigues alleged that the company's policy violated his rights under Massachusetts Privacy Statutes. Massachusetts, like a number of other states, has enacted a statute to protect the privacy interest of its citizens. Under Massachusetts law an employer's legitimate business interest in obtaining an employee's private health information must be balanced against the employee's interest in keeping the information private.

Rodrigues also alleged that the company's policy violated ERISA because it discriminated by imposing a penalty (termination) on employees who did not quit smoking. Rodrigues claimed that in terminating his employment because he was a smoker, Scotts "interfered with the attainment of a right" to which he would have become entitled - participation in Scotts' employees benefits plan - if he had remained employed.

The case was ultimately dismissed, with the court holding that "Rodrigues does not have a protected privacy interest in the fact that he is a smoker because he has never attempted to keep that fact private," and "A person such as Rodrigues, who has only a contingent offer of employment, does not have an expectation of benefits under the potential employer's ERISA plan that Section 510 protects."

For a detailed discussion of various state laws impacting wellness programs, see the Appendix of the Employee Wellness Programs InfoPAK. For examples of ACC member company wellness initiatives, see Section IX.


In light of the demonstrated benefits of Employee Wellness programs, it comes as no surprise that more and more companies are turning to these programs to save costs and to improve employee health and morale. However, the implementation of such programs also poses legal risks to employers. Employers should, therefore, seek the advice of legal counsel as soon as they begin to consider implementing an employee wellness program in order to minimize the likelihood of legal challenges by taking steps such as: retaining an independent third party to administer and collect/analyze all medical information in order to avoid ADA obstacles and comply with privacy regulations; providing accommodations for individuals with disabilities to enable them to participate in wellness programs; framing incentives as rewards, not penalties; complying with applicable state lifestyle or disability discrimination laws; and bargaining with the union to extend the program to represented employees.

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The information in any resource collected in this virtual library should not be construed as legal advice or legal opinion on specific facts and should not be considered representative of the views of its authors, its sponsors, and/or ACC. These resources are not intended as a definitive statement on the subject addressed. Rather, they are intended to serve as a tool providing practical advice and references for the busy in-house practitioner and other readers.

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