Pension & Benefits News Employee’s state law claim for deductions from pay for health insurance contributions preempted by ERISA
Thursday, September 12, 2019

Employee’s state law claim for deductions from pay for health insurance contributions preempted by ERISA

By Pension and Benefits Editorial Staff

ERISA preempted an employee’s state law claims of unjust enrichment and marital discrimination where deductions from his wages pursuant to an attendance policy were contributions toward the cost of his health insurance benefits under his employer’s welfare benefit plan, ruled a federal district court in Michigan ruled. The court also found ERISA preempted the employee’s marital discrimination claim under the ELCRA. Thus, the court granted the employer’s motion to dismiss the claims.

Lost production hours impact contributions. The employee was a water jet operator for the employer. The employer had an attendance policy that includes a production-hour system. Employees were penalized for certain work absences—referred to as "production hours lost"—which impact employees’ contributions toward the cost of their medical and dental insurance. The employer paid the full cost of health insurance coverage for employees beyond their 180-day probationary period unless they incurred missed production hours. The amount an employee contributes toward the costs of his or her health insurance coverage depends on the welfare plans the employee selects and the number of production hours the employee has used.

The employee incurred lost production hours due to his late arrival or to absences from work to care for his wife who suffers from serious health conditions. He alleged he requested, but was denied, FMLA leave in connection with these absences. Due to his lost production hours, he had to contribute toward the costs of his welfare benefits (health and dental insurance). These amounts were deducted from his paychecks. The employer terminated the employee in November 2017 due to his absenteeism.

In June 2018, the employee filed this lawsuit, challenging deductions to his wages and the denial of his request for FMLA leave. In July 2018, he filed a first amended complaint (FAC), asserting the following claims on behalf of a putative class: (i) unjust enrichment under Michigan law; (ii) FMLA interference, discrimination, and retaliation; and (iii) marital discrimination in violation of Michigan’s Elliot-Larsen Civil Rights Act (ELCRA). The employer filed this motion to dismiss counts one and three of the FAC.

Matters outside the pleadings. As an initial matter, the court addressed the employee’s objection to the employer’s introduction of matters outside the pleadings to support its motion to dismiss. These materials included two welfare benefit plan agreements, an election form for medical and dental insurance that the employee had signed, and forms related to discretionary benefits and attendance policy instructions. Although the employee argued he neither referred to nor attached these materials to his complaint, the court disagreed, finding they were referred to in his complaint and were central to his claims. Thus, the court concluded it could consider the materials attached to the motion without converting the motion to one for summary judgment.

Unjust enrichment claim seeks return of contributions. Turning to Count I, the court found ERISA preempted the employee’s unjust enrichment claim. ERISA preempts state law and state law claims that relate to any employee benefit plan, and the Supreme Court in Shaw v. Delta Airlines ruled that "[a] law ‘relates to’ an employee benefit plan if it has a connection with or reference to such a plan." Here, the employee was a participant in the employer’s welfare benefit plan, which is an ERISA plan, and his unjust enrichment claim is directed to the money the employer deducted from his wages as contributions to the cost of his coverage under the plan. Those contributions were pursuant to the terms of the employer’s welfare benefit plan even though the amounts were calculated using the number of production hours he lost pursuant to the attendance policy. The attendance policy itself imposes no financial penalties on employees. Thus, his unjust enrichment claim is equivalent to an action seeking return of contributions made under the terms of the plan and, as such, ERISA preempts the claim.

Discrimination in benefits pursuant to ERISA plan. The court also found ERISA preempted the employee’s marital discrimination claim under the ELCRA. The employee alleged the employer engaged in marital discrimination because "married employees paid a higher financial penalty for tardiness and absences than those who were single." The penalty at issue, however, was the contribution employees were required to make for their insurance under the employer’s welfare benefit plan. Thus, the employee alleged discrimination in the provision of employee benefits pursuant to an ERISA plan, according to the court.

Although ERISA does not "proscribe discrimination in the provision of employee benefits," ERISA plans are subject to federal discrimination laws, such as Title VII because ERISA does not preempt federal law. Turning to Shaw again, the court explained that "state laws are saved from ERISA preemption to the extent they ‘play a significant role in the enforcement of a federal statute.’" Thus, in Shaw, the Supreme Court concluded "a state law proscribing discrimination also prohibited under federal law is not preempted by ERISA. If, however, the alleged discrimination is not also prohibited by federal law, the state law claim is superseded."

Here, Title VII prohibits employment practices that discriminate on the basis of an individual’s race, color, religion, sex, or national origin. Unlike the ELCRA, Title VII does not prohibit discrimination on the basis of marital status, and the employee did not identify any other federal law that does so. Thus, as Shaw dictates, the discrimination claim is preempted by ERISA, and, therefore, the court granted the employer’s motion to dismiss Counts I and III of the FAC.

SOURCE: Klaiss v. Steel Tool & Engineering, Co., (E.D. Mich.), No. 18-12053, August 26, 2019.

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