ERIC Files Brief Backing Dismissal of Pepsi’s Tobacco Surcharge Case

The ERISA Industry Committee filed an amicus brief with the U.S. 2nd Circuit Court of Appeals urging it to affirm the dismissal of a challenge to PepsiCo’s tobacco-surcharge wellness program, arguing that federal law requires employers to provide alternative compliance standards only for employees with qualifying medical conditions, not all tobacco users.

The brief in Noel v. PepsiCo Inc. contends that the district court correctly dismissed plaintiff Krista Noel’s claim seeking retroactive reimbursement of tobacco surcharges after she completed a smoking cessation program. According to ERIC, the Employee Retirement Income Security Act guarantees employees an annual opportunity to earn a wellness reward, but it does not require employers to refund surcharges incurred before an employee satisfies program requirements.

ERIC argues that Congress deliberately structured ERISA wellness program provisions to encourage healthier behavior while limiting mandatory alternative standards to participants for whom meeting the health standard would be medically inadvisable or unreasonably difficult due to a medical condition. The organization asserts that a 2013 federal regulation requiring broader alternatives conflicts with the statute’s plain language and should not control the outcome, particularly following the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo, which set aside so-called Chevron deference to federal agencies’ interpretations.

The trade group’s brief warns that the appeal carries implications well beyond PepsiCo, describing the case as one of dozens of lawsuits challenging tobacco-use surcharges in employer-sponsored health plans. According to ERIC, allowing such claims to proceed could expose employers to significant liability, discourage the use of smoking cessation incentives, and eventually increase healthcare costs for workers and employer-sponsored health plans.

In a statement accompanying the filing, ERIC Legal Center Executive Director Doug Hinson said smoking cessation programs are intended to help employees quit smoking, rather than generate retroactive refund claims. He stated that interpreting ERISA to require reimbursement after employees complete cessation programs would undermine the effectiveness of employer wellness initiatives and discourage companies from offering them.

The appeal follows a broader wave of litigation targeting employer tobacco-surcharge programs.

In a separate case before the 8th Circuit Court of Appeals, ERIC and the American Benefits Council recently urged appellate review of a class certification order involving Compass Group USA, arguing that similar lawsuits could reshape the administration of employer wellness programs nationwide. Industry groups estimate that at least 75 tobacco-surcharge class actions are pending across the country.

The 2nd Circuit hears appeals from federal district courts in Connecticut, New York and Vermont, while the 8th Circuit has jurisdiction over federal district courts in Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota and South Dakota.