ERISA preempted state unpaid leave claim; policy was VEBA-plan dependent

An employee’s unpaid leave claim under the Illinois Wage Payment and Collection Act was completely preempted by ERISA because the employer’s leave policy was dependent on the terms of its VEBA plan, ruled the Seventh Circuit. In affirming the district court’s grant of summary judgment for the employer, the appeals court found that the employee’s claim did not implicate a duty that was independent of ERISA.

Unpaid leave claim.

The employee worked for a hospital as an occupational therapist. Following her resignation, the employee filed a small-claims complaint in state court alleging a violation of the Illinois Wage Payment and Collection Act (IWPCA). Specifically, the employee claimed that the hospital had violated the IWPCA by failing to pay her money owed for her accrued leave according to the hospital’s leave policy.

Removal to federal court.

The hospital removed the suit to federal court, arguing that the employee’s claim was preempted by ERISA. In response, the employee challenged the hospital’s preemption claim and filed a motion to remand the case to state court. The district court denied the motion for remand, holding that ERISA completely preempted the employee’s state law claim, and granted the hospital’s motion for summary judgment. Despite being granted leave to file an amended complaint naming the welfare benefit plan as a defendant, the employee filed a motion to alter or amend the lower court’s judgment, reiterating that the claim was not preempted.

ERISA preemption.

ERISA’s expansive preemptive power over health and welfare benefit plans means that it supersedes state laws that relate to employee benefit plans. A state law claim is completely preempted by ERISA if (1) the plaintiff could have brought the claim under ERISA’s enforcement provision and (2) no other independent legal duty is implicated.

VEBA plan participation.

Initially, the appeals court examined whether the hospital had created an ERISA employee welfare benefit plan and whether the employee was a participant in such a plan. The hospital’s leave policy set forth the rules regarding paid time off and included a variable accrual rate provision. In addition, the policy incorporated other employee benefits, including a “Voluntary Employees’ Benefit Association” (VEBA) plan. The VEBA plan and leave policy worked together to dictate how participating employees could use their leave hours after their employment ended. Upon an employee’s termination, the hospital would pay the employee for any accumulated leave, up to a maximum, and the remaining hours would be converted to dollars and deposited into the employee’s VEBA account.
Based on the plan’s stated purpose to provide employees with the opportunity to access the money for health care reimbursements and references to ERISA in the plan documentation, the court agreed with the hospital that the VEBA plan was an ERISA plan. Moreover, according to the plan’s terms, the employee was automatically enrolled in the VEBA plan and she never availed herself of the annual opportunities to opt out. Therefore, the court concluded that the employee was a participant in the plan and was eligible to receive benefits.

Benefits upon resignation.

Next, the court considered whether ERISA empowered the employee to bring an action in federal court to recover benefits under the plan. The employee disputed the hospital’s payment of only some of her accrued leave hours. The court found that such an alleged misapplication of benefits was exactly the type of claim that ERISA permits a plaintiff to bring.

Independent legal duty.

Finally, the court turned to whether the hospital’s actions regarding her accrued leave time implicated a legal duty independent of ERISA. The employee argued that the hours of accrued leave for which she was indirectly paid should have been paid to her as part of her final compensation when her employment ended. By moving that money into her VEBA account, the employee alleged that the hospital violated the IWPCA’s mandate to pay out accrued leave at the time of an employee’s separation.
However, the court was unpersuaded that the employee’s claim was entirely independent of ERISA. Indeed, the court noted, the employee’s argument would have the court look only to the leave policy for guidance and ignore the VEBA plan entirely. The IWPCA states that a separated employee is entitled to accrued leave according to the terms of the employer’s leave policy. The hospital’s leave policy conditioned the availability of accrued leave at the time of separation on the terms of the VEBA plan. The hospital would only be liable under the IWPCA if it failed to pay according to the terms of the VEBA plan. The IWPCA claim was not independent of ERISA. On the contrary, an interpretation of the ERISA plan was an essential part of the employee’s IWPCA claim.
Therefore, the employee’s claim was completely preempted by ERISA. The district court’s denial of the employee’s motion to remand and grant of summary judgment for the hospital was affirmed.

SOURCE: Studer v. Katherine Shaw Bethea Hospital, (CA-7), No. 16-3728, August 10, 2017.
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