PepsiCo Hit with Class Action Suit Over Alleged Health Insurance Surcharges for Tobacco Users

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PepsiCo faces a proposed class action lawsuit over its alleged imposition of punitive health insurance surcharges on employees who use tobacco products, alleging the workers have been “unfairly target[ed]” based on their health status.

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The 20-page lawsuit against PepsiCo and its healthcare plan administration committee alleges the apparent tobacco surcharges unfairly force certain employees and their spouses/domestic partners to pay higher health insurance premiums based on a “health-related factor,” in violation of the anti-discrimination provisions of the federal Employee Retirement Income Security Act (ERISA).

Though tobacco surcharges have become more prevalent in recent years, the suit says, ERISA regulations prohibit employers from charging extra fees based on tobacco use unless those fees are part of a compliant wellness program that offers a “reasonable alternative standard” to participants for whom it is difficult to meet the initial health requirement. In other words, participants must have an opportunity to avoid surcharges by participating in wellness programs, such as smoking cessation programs, that “genuinely promote health, not merely serve as a revenue generator,” the filing says.

The lawsuit summarizes that the PepsiCo Employee Health Care Program Plan has unlawfully failed to offer the requisite reasonable alternative standard in accordance with ERISA. Even if such a standard existed, the filing adds, PepsiCo has nevertheless neglected to adequately inform employees of its availability, which would allow them to circumvent the alleged tobacco surcharge for an entire year.

“The surcharge has imposed an additional financial burden on [the plaintiff] and other similarly situated employees, despite Pepsi’s failure to comply with the legal requirements for wellness programs under ERISA,” the complaint says.

According to the class action suit, PepsiCo in 2023 charged an annual nicotine surcharge of $900. Tobacco products subject to the charge include e-cigarettes, vaporizers, cigars and smokeless tobacco, the case says.

Though Pepsi offers what’s called the “Ex Program” as part of its wellness initiative, 2023 benefit plan documents do not sufficiently explain the process by which employees and their spouses/domestic partners can avoid or remove the surcharge retroactively, the lawsuit claims.

According to the case, only certain participants who completed the program between May and November 2023 were eligible to remove the tobacco surcharge completely, which violates ERISA’s requirement that participants who satisfy the alternative standard receive the “full reward,” i.e., the removal of the surcharge for the entire year.

“Because the Plan fails to provide a compliant reasonable alternative standard that allows participants to receive the ‘full reward’— avoiding the surcharge for the entire plan year — Defendant’s wellness program fails to provide reasonable alternative standards and fails to comply with the requirement to make available the ‘full reward’ to participants. In other words, while Defendants offer a quit-tobacco program, only certain employees who complete it can avoid the surcharge for the full year while others are left with no retroactive reimbursement. On these bases, the Plan violates ERISA’s anti-discrimination provisions.”

The PepsiCo tobacco surcharge lawsuit looks to cover all United States residents who, during the applicable statute of limitations period, paid a tobacco surcharge that was not fully reimbursed in connection with their participation in a health or welfare plan offered by PepsiCo.

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