Publication

In June 2013, in U.S. v. Windsor, No. 12-307, 570 U.S.______, 133 S. Ct. 2675 (2013), the Supreme Court struck down the provision in the Defense of Marriage Act (“DOMA”) that defined marriage as limited to a union between a man and a woman.  This provision of DOMA affected more than a thousand federal laws.  Therefore the Windsor decision unquestionably has a wide-reaching impact.  The Windsor decision affects only those same-sex couples that are legally married, and does not address whether there is a constitutional right to same-sex marriage.  Currently, there are 17 states where same-sex couples may marry, and four other states allow civil unions or domestic partnerships.  This article will focus on three key areas impacting employers as a result of Windsor:  (1) the coverage of the Family and Medical Leave Act (“FMLA”), (2) the availability of employee benefits to same-sex spouses, (3) the tax treatment of employee benefits for employees in same-sex marriages.

Coverage of the Family and Medical Leave Act

The FMLA entitles employees of covered employers to take unpaid, job-protected leave for certain family and medical reasons, with continuation of group health insurance coverage.  The U.S. Department of Labor issued a Fact Sheet in August 2013 clarifying the coverage of the FMLA.^[1]  For example, an employee is allowed to take leave to care for a spouse, son, daughter, or parent who has a serious health condition.  The Fact Sheet defines spouse to include same-sex spouses:

Spouse means 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 and same-sex marriage.

However, FMLA leave to take care of a spouse is limited to individuals who have entered into a same-sex marriage recognized in the state where the employee resides, also known as the “state of residence” rule.  If the employee entered into a valid marriage in another state, but lives in a state that does not recognize such a marriage, then the FMLA coverage does not extend to that employee.  An employee may also be entitled to leave to care for a child with a serious health condition, even if the employee has no biological or legal relationship with the child.  This could include the child of a same-sex spouse if the employee has not legally adopted the child.  An employee may take leave if he or she stands in loco parentis to a child, meaning that the employee has day-to-day responsibilities to care for or financially support the child.  Leave to take care of a child is not dependent on the legality of a same-sex marriage relationship.

Availability of Employee Benefits

In September 2013, the U.S. Department of Labor issued Technical Release No. 2013-04 regarding guidance on the definition of “spouse” and “marriage” under ERISA and certain IRS Code sections.^[2]  The release defines “spouse” and “marriage” as follows:

…[T]he term “spouse” will be read to refer to any individuals who are lawfully married under any state law, including individuals married to a person of the same sex who were legally married in a state that recognizes such marriages, but who are domiciled in a state that does not recognize such marriages.  Similarly, the term “marriage” will be read to include a same-sex marriage that is legally recognized as a marriage under any state law.

The recognition of a same-sex marriage in this circumstance is based on the state in which the marriage is celebrated, not the state in which the couple resides, also known as a “state of celebration” rule.  The DOL explains that a rule for employee benefit plans based on the state of residence would be challenging for employers that operate or have employees in more than one state, or whose employees move to different states while entitled to benefits.  The DOL notes that these problems can be avoided by adopting a rule recognizing marriages that are valid in the state in which they were celebrated, and a consistent rule also promotes uniform requirements for employee benefit plans.

Tax Treatment of Employee Benefits

In September 2013, the Internal Revenue Service issued Revenue Ruling 2013-17 to answer some of the questions raised by the Windsor decision.^[3]  This Ruling stated three primary holdings limited to federal tax purposes:

1. For federal tax purposes, the terms “spouse,” “husband and wife,” “husband,” and “wife” include an individual married to a person of the same sex if the individuals are lawfully married under state law, and the term “marriage” includes such a marriage between individuals of the same sex.

2. For federal tax purposes, the IRS recognizes a marriage of same-sex individuals that was validly entered into in a state whose laws authorize the marriage of two individuals of the same sex even if the married couple is domiciled in a state that does not recognize the validity of same-sex marriages.

3. For federal tax purposes, the terms “spouse,” “husband and wife,” “husband,” and “wife” do not include individuals who have entered into a registered domestic partnership, civil union, or other similar formal relationship recognized under state law that is not denominated as a marriage under the laws of that state, and the term “marriage” does not include such formal relationships.

In addition, previously, DOMA had raised the cost of health care for same-sex couples by taxing health benefits provided by employers to their employees’ same-sex spouses.  After the decision in Windsor, the IRS is now applying a “state of celebration” rule.  If a same-sex couple has entered into a valid marriage (even if they live in a state that does not recognize their marriage), they may file taxes as a married couple and take the benefits (or penalties) that go along with that decision.  For example, if an employee elected to provide health care coverage for a same-sex spouse on an after-tax basis under a group health plan sponsored by an employer, an affected taxpayer may now treat the amounts that were paid by the employee for the coverage of the same-sex spouse on an after-tax basis as pre-tax salary reduction amounts.

Further Challenges for Employers

Despite the federal government providing some clarity regarding employee benefits and FMLA leave, employers continue to face challenges in properly responding to the change in marriage status for their employees.  State laws regarding the legality of same-sex marriage are in transition, and state authorities may not always provide clear guidance.  There is pending litigation regarding same-sex marriage in a dozen states.  For example, in Utah, same-sex marriages were performed for a brief period until they were stayed to allow for a decision in a pending District Court appeal.  The couples who were married during that brief period are considered married for purposes of the federal government, but their status under state law remains unclear, as does their continued status under different federal laws.

In addition, some federal laws look to a same-sex couple’s state of residence, rather than the state where their marriage was celebrated, to determine whether the same-sex couple is entitled to marriage-type benefits.  The “state of celebration” rule versus the “state of residence” rule will also mean that certain individuals in legally recognized same-sex marriages may be entitled to some federal benefits, but not others, if their state of residence does not recognize same-sex marriages. 

Further, the DOMA provision permitting a state to refuse to recognize valid same-sex marriages from other states still stands.  Same-sex marriage benefits will continue to evolve and be a hot topic in employment law as states continue to enact different laws regarding same-sex marriage.