In Prince v. Sears Holding Corp., the United States Court of Appeals for the Fourth Circuit (the “Fourth Circuit” or the “court”) sets forth a test that should assist sponsors of employee benefit plans covered by the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) in identifying when participants’ state law claims may be removed to the federal courts.  The Fourth Circuit offers a clear explanation of complete preemption under Section 502(a) of ERISA and the test to determine if Section 502(a) completely preempts a state law claim.

Summary of the Facts

This case involves a claim for benefits under an employer-sponsored life insurance plan covered by ERISA. In November 2010, Billy E. Prince (“Prince”) submitted an application to enroll his spouse in the life insurance program sponsored by Sears, his employer.  In May 2011, Sears sent an acknowledgement letter to Prince and began withholding premiums from his pay.  However, in 2012, Sears advised Prince that his spouse’s coverage never became effective because a completed evidence of insurability questionnaire had not been submitted for her.

Prince’s spouse died in May 2014. When Sears denied his claim for benefits, Prince filed a complaint in the Circuit Court of Marion County, West Virginia.  The complaint asserted “constructive fraud/negligent misrepresentation” and “intentional/reckless infliction of emotional distress”.

Sears removed the suit to a United States district court in West Virginia and asked the court to dismiss the complaint, arguing that ERISA completely preempted the state law claims. Prince opposed the motion and moved to remand the case.  The district court held that ERISA completely preempted Prince’s claims and then denied Prince’s motion to remand and dismissed the complaint without prejudice.  Prince filed an appeal with the Fourth Circuit.

The Court’s Analysis

In its opinion, the Fourth Circuit first examined the removal statute and explained that any civil action brought in a State court of which the U.S. district courts have original jurisdiction may be removed to federal court.  The court further explained that when a federal statute completely preempts state law causes of action (referred to as complete preemption), a state law complaint is converted into one stating a federal claim and defendants may remove preempted state law claims to a federal court, regardless of any state-law label that the plaintiff may have used..

The court stated that Section 502(a) of ERISA completely preempts a state law claim when the following three-prong test is met:

  • The plaintiff has standing under Section 502(a) to pursue its claim;
  • The plaintiff’s claim falls within the scope of an ERISA provision that the plaintiff can enforce via Section 502(a); and
  • The claim is not capable of resolution without an interpretation of the contract governed by federal law, i.e., an employee benefit plan covered by ERISA.

The Fourth Circuit found that all prongs of the test for complete preemption were satisfied. With respect to the first prong, Prince conceded that he had standing under Section 502(a), which states that a civil action may be brought by a participant to recover benefits due under a plan, to enforce his rights under the plan or to clarify his rights to future benefits under the plan.  The court determined that Prince satisfied the second prong and  rejected Prince’s argument that ERISA 502(a) did not apply because his claims relied on actions by Sears prior to the denial of benefits.  The court easily concluded that the third prong of the test was satisfied because resolution of Prince’s claim required interpretation of the ERISA life insurance plan maintained by Sears.

Take-Away for Plan Sponsors

The Prince case serves as reminder to plan sponsors that, under the complete preemption doctrine, Section 502(a) of ERISA may allow them to convert claims filed in state court relating to ERISA benefit plans to federal claims and then remove such claims to a federal court.  Since a plaintiff cannot avoid removal by seeking money damages, use of the complete preemption doctrine should provide a valuable tool for plan sponsors in responding to claims under their ERISA plans.

The top story on Employment Law This Week – San Francisco and New York state break new ground on paid parental leave.

Starting in 2017, businesses with more than 50 employees in San Francisco will be required to give new parents six weeks off, fully paid. San Francisco is the first city in the U.S. to require full salary for new mothers and fathers during their time off. Meanwhile, New York state has passed the most comprehensive paid parental leave policy in the country. New York state’s legislation mandates 12 weeks of partially paid leave for all new parents by 2021.

View the episode below and learn more about the New York legislation in an EBG Act Now Advisory or the San Francisco legislation in an earlier blog post.

Employment Law This Week – Epstein Becker Green’s new video program – has a story about an effort to unite retailers against a restrictive scheduling law in Washington, D.C.

The National Retail Federation issued a letter urging the city council in D.C. to abandon new scheduling legislation for retailers and restaurants. The proposed law would require businesses to post schedules three weeks in advance, with heavy penalties if they make any changes to the posted schedule. The NRF argues that this legislation removes the benefit of flexibility for employees, and that it places businesses at a competitive disadvantage against similar companies in surrounding states.

See below to view the story.

On May 1, 2015, we reported on proposed regulations to the Massachusetts paid sick leave law, which becomes effective on July 1, 2015.  The regulations have not yet been adopted, and in light of the uncertainty about many provisions of the law, the Massachusetts Attorney General’s Office has issued a “Safe Harbor for Employers with Existing Paid Time Off Policies.”  Under the safe harbor, any employer with a paid time off policy in existence as of May 1, 2015, which provides employees with the right to use at least 30 hours of paid time off per year, will be deemed in compliance with the new sick leave law.  The safe harbor will expire on December 31 of this year, and as of January 1, 2016, all covered employers will be required to comply with the provisions of the new law. Our November 10, 2014 Advisory summarizes the law’s provisions and requirements.

The proposed regulations to the paid sick leave law, which would clarify employer obligations under law, remain under review by the Massachusetts Attorney General and during the comment period have been subject to considerable objection.  For this reason, and because the law carries the potential for substantial penalties for non-compliance, several employers and professional organizations have urged postponement of the law’s effective date.  Notwithstanding these objections, the law’s effective date remains July 1, 2015 and employers should prepare to comply.

The AGO has also published the earned sick time notice on its website.

As we reported, last November, voters in Massachusetts approved a law granting Massachusetts employees the right to sick leave, starting on July 1, 2015.  The law provides paid sick leave for employers with 11 or more employees and unpaid sick leave for employees with 10 or fewer employees. While the law set forth the basics, many of the details, which have differentiated the various sick leave laws across the country, were not previously specified (e.g., minimum increments of use, frontloading, documentation).  The Massachusetts Attorney General’s Office (“AGO”) has set forth proposed regulations to guide employers in implementing the upcoming sick leave law.

Some of the proposed regulations include:

  • To determine an employer’s size, the number of employees at all locations will be counted, not just those employees in Massachusetts. For example, if a company has 25 employees in New York and three employees in Massachusetts, the employer will be required to provide paid sick leave to the Massachusetts employees because the employer has 11 or more employees in total.
  • Employees may use sick leave in hourly increments. However, if the employer has to hire a replacement, and does so, the employer may charge the employee for the entire missed shift.
  • If an employer decides to pay employees for their accrued, unused sick leave at the end of the calendar year, the employer need only frontload 16 hours in the following calendar year (as opposed to all 40 hours the employee will receive that year).[1]
  • An employer may choose to frontload 40 hours of sick leave per year rather than tracking accrual rates throughout the year.
  • An employer may not request documentation about an employee’s need for leave until the employee has taken 24 consecutive hours of sick leave.
    • At that point, an employee may provide documentation in the form of a doctor’s note or a written statement evidencing the need to use sick leave.[2]
    • If leave is related to domestic violence, an employee may provide alternative documentation.
    • The employee may submit any of the above documentation in any form customarily used to communicate, including via text message, e-mail, or fax.
  • Employers must provide written notice to employees at the beginning of employment as to what constitutes a “calendar year” for accrual and use purposes.
  • Employers must post the notice of the Earned Sick Time Law in the workplace and provide a copy to all employees.

The AGO will be holding six public hearings throughout the state, including one in Boston on May 18, 2015, to entertain comments to the proposed regulations. The deadline for written comments, which may be submitted by mail or electronically, is June 10.  If you would like assistance in preparing any comments, please contact us. We will provide an update upon adoption of the regulations (whether in this form, or revised after the comment period).

[1] This is more employer-friendly than the New York City Earned Sick Time Act, which requires that 40 hours be frontloaded if an employer pays out sick leave at the end of the calendar year.

[2] The AGO will create a model form for this use, but such form has not been posted yet.

My colleagues Frank C. Morris, Jr., Adam C. Solander, and August Emil Huelle co-authored a Health Care and Life Sciences Client Alert concerning the EEOC’s proposed amendments to its ADA regulations and it is a topic of interest to many of our readers.

Following is an excerpt:

On April 16, 2015, the Equal Employment Opportunity Commission (“EEOC”) released its highly anticipated proposed regulations (to be published in the Federal Register on April 20, 2015, for notice and comment) setting forth the EEOC’s interpretation of the term “voluntary” as to the disability-related inquiries and medical examination provisions of the American with Disabilities Act (“ADA”). Under the ADA, employers are generally barred from making disability-related inquiries to employees or requiring employees to undergo medical examinations. There is an exception to this prohibition, however, for disability-related inquiries and medical examinations that are “voluntary.”

Click here to read the full Health Care and Life Sciences Client Alert.

One day before the U.S. Department of Labor’s Family & Medical Leave Act (“FMLA”) same-sex spouse final rule took effect on March 27, 2015, the U.S. District Court for the Northern District of Texas ordered a preliminary injunction in Texas v. U.S., staying the application of the Final Rule for the states of Texas, Arkansas, Louisiana, and Nebraska.  This ruling directly impacts employers within the retail industry who are located or have employees living in these four states.

Background

In United States v. Windsor, the U.S. Supreme Court struck down Section 3 of the Defense of Marriage Act (“DOMA”) as unconstitutional, finding that Congress did not have the authority to limit a state’s definition of “marriage” to “only a legal union between one man and one woman as husband and wife.”  Significantly, the Windsor decision left intact Section 2 of DOMA (the “Full Faith and Credit Statute”), which provides that no state is required to recognize same-sex marriages from other states.  Further to the President’s directive to implement the Windsor decision in all relevant federal statutes, in June 2014, the DOL proposed rulemaking to update the regulatory definition of spouse under the FMLA. The Final Rule is the result of that endeavor.

As we previously reported, the Final Rule adopts the “place of celebration” rule, thus amending prior regulations which followed the “place of residence” rule to define “spouse.”  For purposes of the FMLA, the place of residence rule determines spousal status under the laws where the couple resides, notwithstanding a valid out-of-state marriage license.   The place of celebration rule, on the other hand, determines spousal status by the jurisdiction in which the couple was married, thus expanding the availability of FMLA leave to more employees seeking leave to care for a same-sex spouse.

The Court’s Decision

Plaintiff States Texas, Arkansas, Louisiana, and Nebraska sued, arguing the DOL exceeded its authority by promulgating a Final Rule that requires them to violate Section 2 of the DOMA and their respective state laws prohibiting the recognition of same-sex marriages from other jurisdictions.  The Texas court ordered the extraordinary remedy of a preliminary injunction to stay the Final Rule pending a full determination of the issue on the merits.

The court first found that the Plaintiff States are likely to succeed on at least one of their claims, which assert that the Final Rule improperly conflicts with (1) the FMLA, which defines “spouse” as “a husband or wife, as the case may be” and which the court found was meant “to give marriage its traditional, complementarian meaning”; (2) the Full Faith and Credit Statute; and/or (3) state laws regarding marriage, which may be preempted by the Final Rule only if Congress intended to preempt the states’ definitions of marriage.

The court then held that the Final Rule would cause Plaintiff States to suffer irreparable harm because, for example, the Final Rule requires Texas agencies to recognize out-of-state same-sex marriages as valid in violation of the Texas Family Code.

Lastly, although finding the threatened injury to both parties to be serious, the court decided that the public interest weighs in favor of a preliminary injunction against the DOL.  The court found in favor of upholding “the stability and consistency of the law” so as to permit a detailed and in-depth examination of the merits.  Additionally, the court pointed out that the injunction does not prohibit employers from granting leave to those who request leave to care for a loved one, but reasoned that a preliminary injunction is required to prevent the DOL “from mandating enforcement of its Final Rule against the states” and to protect the states’ laws from federal encroachment.

What This Means for Employers

Although the stay of the Final Rule is pending a full determination of the issue on the merits, the U.S. Supreme Court’s decision in Obergefell v. Hodges likely will expedite and shape the outcome of the Texas court’s final ruling.  In Obergefell, the Supreme Court will address whether a state is constitutionally compelled under the Fourteenth Amendment to recognize as valid a same-sex marriage lawfully licensed in another jurisdiction and to license same-sex marriages.  Oral arguments in Obergefell are scheduled for Tuesday, April 28, 2015, and a final ruling is expected in late June of this year.

Before the U.S. Supreme Court decides Obergefell, however, employers in Texas, Arkansas, Louisiana and Nebraska are advised to develop a compliant strategy for implementing the FMLA—a task that may be easier said than done.  Complicating the matter is a subsequent DOL filing in Texas v. U.S. where the DOL contends that the court’s order was not intended to preclude enforcement of the Final Rule against persons other than the named Plaintiff States, and thus applies only to the state governments of the states of Texas, Arkansas, Louisiana, and Nebraska.

While covered employers are free to provide an employee with non-FMLA unpaid or paid job-protected leave to care for their same-sex partner (or for other reasons), such leave will not exhaust the employee’s FMLA leave entitlement and the employee will remain entitled to FMLA leave for covered reasons.  We recommend that covered employers that are not located and do not have employees living in one of the Plaintiff States amend their FMLA-related documents and otherwise implement policies to comport with the Final Rule, as detailed in EBG’s Act Now Advisory, DOL Extends FMLA Leave to More Same-Sex Couples.  Covered employers who are located or have employees living in one of the Plaintiff States, however, should confer with legal counsel to evaluate the impact of Texas v. U.S. and react accordingly, which may depend on the geographical scope of operations.

My colleague Lee T. Polk authored Epstein Becker Green’s recent issue of its Take 5 newsletter.   This Take 5 features five considerations suggesting the advantages of employee benefit plans as programs that are beneficial to both employers and employees.

  1. Tax Aspects of Qualified Retirement Plans Can Save Money For Both Employers and Employees
  2. The Benefits of a Contractual Claims Limitation Period
  3. The Benefits of a Contractual Venue Selection Clause
  4. The Standard of Judicial Review in the Context of Top Hat Plan Benefit Disputes
  5. Fiduciary Exception to the Attorney-Client Privilege in Plan Administration

Read the full newsletter here.

Retailers doing business in New York City should take note of a new ordinance Mayor Bill de Blasio signed into law on October 20, 2014 – The Affordable Transit Act. 

The Affordable Transit Act (the “Act”) requires employers in New York City with 20 or more full-time employees to offer pre-tax transit benefits to employees. The Act allows employees to use up to $130 in tax free money towards their transit costs, which is the current IRS limit.  Full-time employees are defined as employees working an average of 30 hours or more per week. 

Penalties for violating the Act are $100-$250 for first time violations and $250 for repeat violations.  Employers, however, have 90 days to cure the first violation before any civil penalties will be imposed and penalties will not be imposed on any employer more than once in any 30-day period.

Employers are exempt from the Act if a collective bargaining agreement covers the relevant employees or where the employer is not required to pay federal, state and city payroll taxes.  In addition, the Department of Consumer Affairs may waive the requirements if an employer demonstrates that offering the benefit is a financial hardship.

According to the Mayor’s office, the legislation is expected to save employees over $400 a year on Metro Card expenses and employers more than $100 per year per employee in tax liability.  The Mayor’s office also predicts that the Act will extend transit benefits to more than 450,000 employees in NYC who are not currently offered them.

The Act takes effect on January 1, 2016 but in order to allow businesses adequate time to adjust to the new law, employers will not be subject to penalties prior to July 1, 2016. 

Employers who do not already offer pretax transit benefits should take the next year to ensure compliance with the new law, assess and make any necessary changes to their payroll and benefits systems, and prepare communications to employees.