The Department of Labor (DOL) Wage and Hour Division issued final regulations, effective March 11, 2024, which are intended to serve as a practical guide to employers on how the DOL determines whether a worker is an employee or independent contractor under the Fair Labor Standards Act (FLSA) [29 CFR part 795]. This new guidance may impact employee classification under the Employee Retirement Income Security Act of 1974, as amended (โERISAโ), because the federal law is premised upon the existence of the employee-employer relationship [29 USC ยง1001]. ERISA governs the operation and administration of covered health and welfare and pension benefit plans by imposing minimum coverage and vesting requirements as well as heightened fiduciary responsibility for plan sponsors. It requires reasonable claims procedures and gives participants the rights necessary to enforce their benefit entitlement under ERISA covered plans.ERISA defines โemployeeโ as an individual employed by an employer, language which provides inadequate guidance to employers in the administration of their ERISA covered employee benefit plans [29 USC ยง1002(6)]. For this reason, plan sponsors often rely upon federal common law to determine whether a worker qualifies as an employee and is therefore eligible to participate in employer-sponsored employee benefit plans. Employee status is also central to determining whether an arrangement is actually subject to ERISA. Although the new rules are intended to provide worker classification guidance for purposes of minimum wage
standard for โprudenceโ is relatively well established in common law. Under the โprudentโpersonโ rule, courts have historically held that fiduciaries must invest in an objectively reasonable manner, โconsidering the probable income, as well as the probable safety of the capital to be invested.โ HarvardColl. v. Amory, 26 Mass. 446 (1830). Mont. Code. Ann. ยงยง 17โ6โ231โ34 (2023) (emphasis added). Fla. Stat. Ann. ยงยง 1010โ13 (2023). Ky. Rev. Stat. Ann. ยง21.450, ยงยง 61.645โ50 (2023).Id. (emphasis added). Kan. Stat. Ann. ยงยง 75โ42a01โ06 (2023) (emphasis added). Ind. Code. Ann. ยง 5โ10.2 (2023) (emphasis added).Id.; Ind. Code. Ann. ยง 5โ10.2 (2023). Complaint at 6, Securities Industry and Financial Markets Assโn v. Ashcroft (W.D. Mo. 2023) (No. 2:23โcvโ04154โSRB) (citing 15 CSR ยง 30โ51.170(3)(D)). Complaint at 38, Securities Industry and Financial Markets Assโn v. Ashcroft (W.D. Mo. 2023) (No. 2:23โcvโ04154โSRB). Complaint at 4, Keenan v. State of Oklahoma (W.D. Okla. 2023) (No. 5:23โcvโ01121โD). 29 U.S.C. ยง 1001 et seq. (2018).Id. 29 CFR ยง 2550.404aโ1(c)(1ยญ) (2020). 85 Fed. Reg. 72846 (2020). 29 CFR ยง 2550.404aโ1(c)(2ยญ) (2020).See 86 Fed. Reg. 7037 (2021). 87 Fed. Reg. 73822 (2022).Id.; 29 CFR ยง 2550.404aโ1(b)(4ยญ) (2022). 29 CFR ยง 2550.404aโ1(c)(2ยญ) (2022) (emphasis added).Utah v. Walsh, No. 2:23โCVโ016โZ, 2023 WL 6205926, at *2 (N.D. Tex. Sept. 21, 2023).Id. at *3.Id. at *5.Id. John McGowan, Despite McCarthy Ousting, Congressional Conservativeโs AntiโESG Agenda Is Safe, Forbes (October 4, 2023), https://www.forbes.com/sites/jonmcgowan/2023/10/04/despiteโmccarthyโ oustingโcongressionalโconservativesโantiโesgโagendaโisโsafe. H.R. 4237, 118th Congress (2023โ24).Id. Most recently, in March 2024, Mississippiโs Secretary of State issued a ceaseโandโdesist order alleging that an asset manager has made false and misleading statements about the funds it marketed as โnonโESGโ when in fact those funds advance the environmental goal of reducing carbon emissions to net zero. See Sarah Jarvis, BlackRockโs
On August 15, 2023, the U.S. Court of Appeals for the Tenth Circuit issued an opinion in Pharmaceutical Care Management Association v. Glen Mulready,in his official capacity as Insurance Commissioner of Oklahoma, Oklahoma Insurance Department,No. 22-6074. The Pharmaceutical Care Management Association (PCMA), which represents pharmacy benefit managers (PBMs), challenged Oklahomaโs 2019 Patient's Right to Pharmacy Choice Act Title 36 ยง 6958 et seq (the Act). PCMA โsued to invalidate the Act, alleging that the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. ยง 1001 et seq., and Medicare Part D, 42 U.S.C. ยง 1395w-101 et seq., preempted the Act. The district court ruled that ERISA did not preempt the Act but that Medicare Part D preempted six of the thirteen challenged provisions.โ PCMA then appealed โthe courtโs ERISA ruling on four provisions of the Act and the courtโs Medicare Part D ruling on one provision.โWhat is ERISA?For context on this dispute, letโs begin with a background on ERISA. ERISA is a federal law which sets minimum standards for most retirement and health plans in private industry. To protect individuals participating in these plans, ERISA requires plans to provide participants with plan-related information, including information about plan features and funding, and standards for participation.ERISA refers to employer-provided benefits as โemployee welfare benefit plansโ (see 29 U.S. Code ยง 1002(1)), and it applies to plans established and maintained by an employer to provide benefits to current or former employees or their bene
hat receive federal funding. The phrase โhealth program or activityโ includes federally funded contracts of insurance; Section 1557 therefore prohibits sex discrimination in certain health insurance contracts. Schmitt v. Kaiser Found. Health Plan of Washington, 965 F.3d 945, 951 (9th Cir. 2020); but see Religious Sisters of Mercy v. Azar, 513 F. Supp. 3d 1113, 1136 (D.N.D. 2021) (holding that health insurers are subject to Section 1557 only for the parts of their operations that receive federal funding).Increasing LitigationSince 2017, several federal courts have found that blanket exclusions for gender affirming care violate federal law. One such case is C.P. v. Blue Cross Blue Shield, 2022 U.S. Dist. LEXIS 227832 (W.D. Wash. Dec. 19, 2022).In C.P. v. Blue Cross Blue Shield, plaintiffsโa transgender boy of 17 and his motherโargued that Blue Cross violated Section 1557 when it administered a self-funded health care plan, governed by the Employee Retirement Income Security Act of 1974, 29 U.S.C. ยง 1001 et seq., that categorically excluded from coverage transgender benefits. Plaintiff C.P. had gender dysphoria and sought hormone therapy treatment, and later, chest reconstruction surgery. Blue Cross initially covered the hormone therapy by mistake; it later notified plaintiff C.P. that subsequent treatment would not be covered. The relevant exclusionary language provided: โTransgender Reassignment Surgery Not Covered: Benefits shall not be provided for treatment, drugs, therapy, counseling services and supplies for, or leading to, gender reassignment surgery.โ Importantly, the plan at issue generally covered care for hormone therapy, mastectomies, and chest reconstruction if that care was considered medically necessary for diagnoses other than for gender affirming care.In granting plaintiffsโ motion for summary judgment, the court relied on Bostock and Ninth Circuit precedent to conclude that the plan discriminated on the basis of sex in violation of Section 1557. The trigger for deni
the court found the defendants had proven that issue preclusion applied and granted the defendants summary judgment on the first claim. Additionally, the court found for the defendants with regard to the second claim, finding that because the plaintiff did not achieve any degree of success on the merits of his ERISA claim, that he was not eligible for an award of attorneyโs fees and costs. Allen v. First Unum Life Insurance Company, et al., Case No. 2:18-cv-69, 2023 WL 1781509 (M.D. Fla. 2023).Third Circuit Affirms Denial of Life Insurance Benefits on Ex-Husband, Despite Informal Communications Indicating Coverage. The plaintiff โ a woman who took out a life insurance policy on her then husband โ sought coverage under her ex-spouseโs policy following his death. The Third Circuit, in affirming the District Courtโs rejection of the plaintiffโs claim, found that under the policyโs plain terms an ex-spouse could not receive insurance coverage under the policy, which was subject to ERISA, 29 U.S.C. ยง 1001. Despite divorcing in 2013, the plaintiff, unaware that the policy only applied to current spouses, reenrolled her ex-husband in 2015, increasing the benefits to $300,000 and paying over $2,000 in premiums for the coverage. The plaintiff asserted, in part, that she was misled into believing that her ex-husband was covered by: (a) withdrawing premiums from her paycheck for his supposed coverage and (b) listing her ex-husband as a covered dependent on the companyโs โBenefits Web Portalโ. However, the Third Circuit court found that the plaintiff could not survive summary judgment on this claim because she failed to show that her reliance on these alleged misrepresentations was reasonable. The court found it was unreasonable as a matter of law because her interpretations of these sources โcannot be reconciled with the unqualifiedโ plan language. See In re Unisys Corp. Retiree Med. Ben. ERISA Litig., 58 F.3d 896, 907 (3d Cir. 1995); see also Talasek v. Nat'l Oilwell Varco, L.P., 16 F.4th 1
o a release agreement. Employers likely will need to provide other consideration to support the release of claims.Employers should review its current New Jersey operations, as well as whether out-of-state employees are โreporting toโ the New Jersey location. Employers with satellite operations or remote employees that are โreporting toโ a New Jersey location may want to consider whether it is possible to change the reporting relationships of these non-New Jersey resident employees.Employers must revisit severance plans, employment policies, and general procedures for obtaining releases from employees in exchange for severance pay to ensure compliance with the law. Employers should consult with legal counsel before taking any such actions, especially when it involves compliance with the notice requirements under the law.***A challenge to the new law is pending in the U.S. District Court for the District of New Jersey. Certain laws appear to provide a basis for a challenge, e.g., ERISA, 29 U.S.C. ยง 1001, et seq., the National Labor Relations Act, 29 U.S.C. ยง 151, et seq., and the U.S. Bankruptcy Code. However, the U.S. Supreme Court has held that neither ERISA nor the NLRA preempts a similar mandatory severance pay statute in Maine. Fort Halifax Packing Co. v. Coyne, 482 U.S. 1 (1987). In that case, the Supreme Court held that ERISA did not preempt the Maine statute because the statute concerned employee benefits (not regulated by ERISA), rather than employee benefit plans (governed by ERISA). The Court also held that the establishment of mandatory severance in the event of a mass layoff or closing constituted a valid exercise of the stateโs police powers. Indeed, the Court described the Maine statute as an โunexceptional exercise of the stateโs police powerโ in the establishment of a minimum labor standard.
Congress sought to avoid these kinds of problems by eliminating state regulation in this field, and by instead โestablishing [federal] standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to the Federal courts.โ 29 U.S.C. ยง 1001(b) This goal is effectuated in various provisions of the Employee Retirement Income Security Act of 1974 (โERISAโ).A. ERISA Preemption of State Laws, GenerallyERISA relieves plan fiduciaries from the aforementioned quandaries by generally preempting state law. 29 U.S.C. ยง 1144.
On September 10, 2021, the Seventh Circuit decided Smith v. Board of Directors of Triad Manufacturing Inc., No. 20-2708, holding that benefit plans may require claimants to arbitrate claims under the Employee Retirement Income Security Act of 1974, 29 U.S.C. ยง 1001, et seq. (ERISA), but may not preclude claimants from obtaining relief that ERISA provides.Triad Manufacturing, acting through its board of directors, established an employee stock ownership plan (Plan) in December 2015, when several of Triadโs largest shareholders (Selling Shareholders) sold all of their stock to the Plan.
2 Rutledge v. Pharm. Care Mgmt. Assโn, No. 18-540, 2020 WL 7250098 (S. Ct. 10 Dec. 2020). 3 ARK. CODE ยง 17-92-507 (2015). 4 88 Stat. 829, as amended, 29 U.S.C. ยง 1001 et. seq.5 Rutledge, slip op. at 2 (citations omitted).6Id. at 2โ3.
States seeking to regulate pharmacy benefit managers (PBMs) and prescription drug pricing received a win from the Supreme Court, which reversed an Eighth Circuit decision that had invalidated an Arkansas law governing pharmacy and PBM conduct on ERISA preemption grounds.Eighth Circuit DecisionOn December 10, 2020, in a unanimous 8-0 decision(Justice Amy Coney Barrett did not participate), the Supreme Court held that an Arkansas state law that regulates the price at which PBMs pay pharmacies for prescription drugs is not preempted by the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. ยง 1001, et seq. Rutledge v. Pharmaceutical Care Mgmt. Assโn, 592 US__ (2020), slip op. at 1.PBMs are intermediaries between prescription drug benefit plans and pharmacies.Id.