Pilot Program at Olive Garden and Red Lobster Ends

Red LobsterDarden, the parent company of Olive Garden and Red Lobster has decided to end its pilot program. The program cut worker’s hours down to 28 hours. The purpose was so Darden could refuse to offer workers an employer sponsored health plan. Public outcry seems to have influenced the company’s decision to end the pilot program.

In October of 2012, Darden Restaurants, the parent company of Olive Garden, Red Lobster, (and others), announced that they would be implementing a pilot program. The pilot program would take place in some, but not all, restaurants.

The “select number” of restaurants that were part of the pilot program were going to make some changes. They would no longer offer full-time work schedules to employees. They were going to cap employees at 28 hours a week. That number of hours (or less) would officially designate workers as part-time.

The purpose of the pilot program was so that Darden could get around some of the requirements in the Affordable Care Act. A worker must get 30 hours (or more) per week in order to be considered as full-time. In 2014, companies who have more than 50 employees will be required to provide health insurance to all the workers that are full-time (or that get 30 hours or more per week).

A company that fails to provide full time workers with an affordable health insurance plan will be fined $3,000 per full time employee who is not covered by health insurance. There are no regulations in the Affordable Care Act that require companies to offer employer sponsored health insurance to part-time workers. In short, Darden found what it may have considered to be an easy way to avoid compliance with that portion of the Affordable Care Act.

What happened next? Things didn’t go very well for Darden. The company issued a news release in which it has revised its earnings projections downward.

Darden listed a couple of reasons why it was lowering its earning projections. The company purchased Yard House, USA Inc.. Clarence Otis, Darden’s Chairman and Chief Executive Officer said that he felt that their promotions didn’t “resonate” with consumers as much as the ones offered by competitors.

The most striking part of the news release, though, is the following quote from Clarence Otis. He said:

“Our outlook for the year also reflects the potential impact, though difficult to measure, of recent negative media coverage that focused on Darden within the full-service segment and how we might accommodate healthcare reform.”

In other words, the public outcry that occurred in response to Darden’s choice to cut hours in an effort to get around the part of the Affordable Care Act that requires companies to offer health insurance to full time workers was not insignificant. Other companies who are considering the same tactics as Darden should take notice.

Image by Chelsea Oakes on Flickr