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Sept. 30 — A Wisconsin law requiring employers that offer paid disability leave to extend those benefits to new mothers is preempted by federal benefits law, the U.S. Court of Appeals for the Sixth Circuit held Sept. 30 in a 2-1 decision.
The Wisconsin Family and Medical Leave Act (WFMLA) requires all employers to give their employees six weeks of unpaid leave following childbirth. The Sixth Circuit was asked to consider the law's “substitution provision,” which forces employers to allow the substitution of unpaid leave provided by the law with paid leave under their Employee Retirement Income Security Act-governed disability plan, if they have one.
Writing for the majority, Judge Raymond M. Kethledge found this provision to be preempted by ERISA because it forced plan administrators to award disability benefits “to certain beneficiaries who undisputedly are not short-term disabled as defined by the plan.” He therefore affirmed a permanent injunction barring enforcement of the law as applied to ERISA plans.
Judge Jane Branstetter Stranch—the only female judge on the panel—wrote a separate opinion concurring in part and dissenting in part. She argued that the Wisconsin law didn't mandate the substitution of ERISA-governed paid leave benefits; rather, it gave employees the opportunity to substitute “definite, calculable leave” that has accrued to them, such as vacation or sick leave.
The lawsuit received attention from a number of industry groups, labor unions and associations.
In an amicus brief asking the Sixth Circuit to uphold the Wisconsin law, a group of nonprofits and labor unions pointed to the goals encapsulated by the federal Family and Medical Leave Act in arguing that the WFMLA survived ERISA preemption.
“Congress clearly intended to insulate from preemption those state laws that offered more generous family and medical leave protections, particularly those that, like the WFMLA, diminished the primary obstacle preventing workers from taking advantage of their legal rights to leave—namely, lost wages,” the groups said in their brief.
In another amicus brief arguing in favor of ERISA preemption, a group of employer-side industry groups argued that the WFMLA provision “undermines ERISA's policy of nationwide uniformity in benefit plan administration.”
The groups also said that this threat was “amplified by the potential reach of the WFMLA to non-resident employers and employees.
” Although the Department of Labor didn't file an amicus brief with the Sixth Circuit, it filed one at the district court level urging the court to save the law from preemption (19 DLR A-5, 1/28/11).
The DOL argued that, while the law related to ERISA plans, it was saved from preemption because preemption would impair the operation of the federal Family and Medical Leave Act.
That wasn't the first time the DOL had argued against ERISA preemption of the WFMLA. It also submitted an amicus brief in a 2000 case in which the Supreme Court of Wisconsin found that the WFMLA's leave substitution provision survived ERISA preemption.
The majority found that the law, to the extent it required the payment of benefits contrary to the terms of the relevant ERISA plan, was expressly preempted by ERISA because of three impermissible factors.
First, the law required plan administrators to pay benefits to beneficiaries “chosen by state law” rather than to the beneficiaries identified in plan documents, the majority said.
Second, the majority continued, the law interfered with the “uniform administration” of the relevant ERISA plan because it subjected the plan to different legal requirements in different states.
Third, the law interfered with ERISA's civil enforcement provisions by creating an “alternate enforcement mechanism for obtaining ERISA plan benefits,” the majority said. Specifically, it pointed to the portion of the WFMLA that allows employees to file complaints with the Wisconsin Department of Workforce Development if they believe that their employers have violated the statute.
In addition to finding the act expressly preempted, the majority also found the law “impliedly preempted” because it imposed “conflicting obligations on the plan administrator.”
Chief Judge R. Guy Cole Jr. joined in the majority opinion.
In her separate opinion concurring in part and dissenting in part, Stranch took issue with the majority's characterization of the Wisconsin law.
Stranch emphasized that the law was written permissively to allow employees to substitute paid leave for unpaid leave, rather than forcing such a requirement on employers.
Further, Stranch said that the Wisconsin courts have interpreted the statute as applying only to “definite, quantifiable leave that accrues to the employee over time and has a draw-down feature.” The short-term disability leave benefits provided under ERISA-governed plans don't fall within this definition, Stranch said.
“Wisconsin law permits employees to substitute definite, calculable leave that has accrued to them, such as vacation or sick leave, for unpaid WFMLA leave. The Wisconsin appellate courts have never interpreted the WFMLA to allow or require the substitution of ERISA Plan STD benefits for unpaid family leave,” Stranch concluded.
Despite finding that the benefit substitution provision survived ERISA preemption, Stranch agreed with the majority that the civil enforcement provision contemplated by the WFMLA was preempted as applied to ERISA plans.
The lawsuit stemmed from a Nationwide Mutual Insurance Co. employee's claim for benefits under the company's short-term disability plan following the birth of her child. Nationwide declined the employee's request for paid leave, explaining that she failed to meet the plan's definition of disability.
The employee filed a complaint with the Wisconsin Equal Rights Division, and an administrative law judge later ordered Nationwide to provide paid benefits to the employee.
Nationwide then filed a lawsuit against various Wisconsin state officials, seeking an injunction barring application of the WFMLA's benefit substitution provision.
The U.S. District Court for the Southern District of Ohio allowed the lawsuit to move forward in September 2010 (188 DLR A-2, 9/29/10; 49 EBC 2564) and ultimately ruled in favor of Nationwide, agreeing that the law was ERISA-preempted as applied to the insurer (194 DLR A-9, 10/5/12; 54 EBC 1239).
Nationwide was represented by Daniel W. Srsic of Littler Mendelson, Columbus, Ohio, and Melanie A. Houghton of LHC Group Inc., Lafayette, La. The Wisconsin Department of Workforce Development was represented by Richard B. Moriarty of the Wisconsin Department of Justice, Madison, Wis.
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Text of the opinion is available at http://www.bloomberglaw.com/public/document/Joan_Sherfel_et_al_v_Reggie_Newson_et_al_Docket_No_1204285_6th_Ci/1.
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