Employers Should Be Careful Charging Smokers Extra for Health Coverage

Written on December 18, 2025.

Tag(s): Human Resources (HR), Employee Handbook, Administrative Law, December 2025 Newsletter

Federal law allows employer-sponsored health plans to charge smokers a penalty, but the plan will violate the Employee Retirement Income Security Act (ERISA) if those workers are not given a reasonable alternative to avoid paying the fee.

One such alternative is participating in a smoker cessation program that complies with certain legal requirements. Dozens of employers have been sued in recent years over their smoker penalties, resulting in a number of expensive class-wide settlements. A recent district court ruling offers employers some hope in such situations. Williams v. Bally’s Mgmt. Grp., LLC, 2025 BL 395336 (D.R.I., 11/4/25).

In this ruling, the employer wasn’t required to retroactively reimburse the tobacco penalties paid by workers who later completed a quit-smoking program. The court read the Department of Labor (DOL) regulations as only requiring such a reward if the smoker satisfied the alternative standard. The court refused to follow DOL’s interpretation of the regulations. The court also addressed whether the company’s disclosures about their tobacco penalty program were sufficient, including whether they tracked the DOL’s sample language.