ERISA Preemption and Claims for Employee Benefits*
January 2004
While prevailing California case law still
holds that ERISA preempts an employee benefit trust fund action against a payment
bond surety, the trend toward preemption continues to wane.
by Marilyn
Klinger
Sedgwick,
Detert, Moran & Arnold LLP
In California, the Employee Retirement Income Security Act of 1974 (ERISA)
no longer preempts claims for employee wages, unpaid union fringe benefits,
the employer's agreed-upon 401(k) contributions, or employer insurance benefits,
depending on who pursues them. See Betancourt v Storke
Housing Investors, 2003 DJDAR 13589 (December 15, 2003).
ERISA Preemption and Mechanic's Liens: California
In Betancourt, the California Supreme Court
held that ERISA does not preempt laborers and the laborers' union from enforcing
mechanic's liens, under California Civil Code section 3110, for unpaid union
trust fund benefits. Prior to this decision, Carpenters
So. Cal. Admin. Corp. v El Capitan Development, 53 Cal 3d 1041 (1991),
was the California Supreme Court's last word on the issue. In that case, the
court held that ERISA preempts an action, under California Civil Code section
3111, wherein an employee benefits plan sought to foreclose a lien on unpaid
benefits. Section 3111 provides for an employee trust fund, the functional equivalent
of a benefits plan, to foreclose a lien to compel payment of benefits on employees'
behalf.
The California Supreme Court, thus, holds that ERISA does not preempt laborers
or laborers' unions from enforcing mechanic's liens for unpaid benefits under
section 3110, but does preempt benefits plans from enforcing such a lien. The Betancourt court explained the distinction
as involving the following factors.
- Section 3111, allowing benefit plans to
enforce a lien, specifically regulates employee benefit plans (which only
ERISA may regulate) and provides a remedy not available under ERISA. Betancourt, 2003 DJDAR 13589, *15
- Section 3110 is a mechanic's lien law of general application. "Neither
the plan, nor its administration and management, nor the benefits it provides,
are implicated except insofar as it may be the recipient of any amounts
recovered under the lien." Betancourt, supra,
at *17.
Betancourt makes this distinction between
sections 3110 and 3111 despite the fact that Section 3089(b) defines "laborers"
to include "an express trust fund [a benefits plan] as described in section
3111." This expanded definition of "laborer" is inconsistent with the distinction
in Betancourt, as it allows an express trust
fund [a benefits plan] which cannot enforce a lien under section 3111 to do
so under section 3110, under the expanded definition of laborer in section 3089.
The Betancourt decision attempts to explain
this inconsistency by relying on the purpose of the section 3089's amendment
which added "express trust fund" to the definition of "laborer." The amendment
was "intended to give effect to the long-standing public policy of this state
to protect the entire compensation of laborers on works of improvements, regardless
of the form in which that compensation is to be paid." Betancourt concluded that, in contrast to section
3111, section 3110 is not "specifically designed to affect employee benefit
plans." Betancourt, supra, at *9, citing Mackey v Lanier Collection Agency & Serv. (1988) 486 U.S. 825, 829.
The court further states, without analysis:
The cross-reference to express trust funds in this context is not dispositive
for ERISA preemption…. [ftnt 9] ¶We conclude that even though section 3110
includes express trust funds among the long list of those entitled to liens,
this inclusion is not determinative for ERISA preemption. Betancourt, 2003 DJDAR 13589, supra,
at *15, n. 9.
The thin distinction the court makes in Betancourt is not very convincing. Rather, it appears that it simply did all that it could
to avoid overruling its earlier decision in El Capitan and, yet, proceeded to limit ERISA preemption as much as possible. In this regard,
the comments of the appellate court's opinion, which Betancourt upheld, are instructive:
We recognize that we are bound by decisions of our Supreme Court [referencing El Capitan]. But, El Capitan relied on U.S. Supreme Court precedents predating 1991
to conclude that ERISA preempts section 3111. In the ensuing decade, the
U.S. Supreme Court dramatically altered its view of ERISA preemption. When,
by unanimous decision, the U.S. Supreme Court alters its interpretation
of the preemptive effect of the federal law at issue before us, we are bound
by the more recent decision. Betancourt v Storke
Housing Investors, (2001) 94 Cal App 4th 709, 114 Cal Rptr 2d 551.
ERISA Preemption and Mechanic's Liens: Nationally
Regardless of the relative merits of the distinction between sections 3110
and 3111, the Betancourt decision does follow,
for purposes of California state law, the increasing trend in most jurisdictions
against finding ERISA preemption. In fact, Betancourt criticizes recent cases from other jurisdictions for failing to give due consideration
to the "starting presumption that Congress does not intend to supplant state
law" in areas of traditional state regulation. Betancourt,
supra, at *19.
ERISA Preemption and Payment Bonds
Notwithstanding that neither Betancourt nor El Capitan focuses on payment bond claims, a
review of case law regarding ERISA preemption and bond claims throughout the
country further support the conclusion that ERISA preemption will not, in the
future, be a factor with respect to payment bonds.
Several federal courts have concluded that ERISA does not preempt state laws
related to payment of contractors on public construction projects. See, e.g., WSB Electric, Inc. v Curry, 88 F3d 788, 791 (9th
Cir 1996); Operating Engineers Health & Welfare Trust
Fund v JWJ Contracting Co., 135 F3d 671, 679 (9th Cir 1998); Carpenters Local Union No. 26 v U.S. Fidelity & Guar.
Co., 215 F3d 136, 138-140 (1st Cir 2000).
The JWJ case is particularly instructive with
regard to the issue of payment bond claims and the trend toward the stricter
application of ERISA preemption. In that case, various employee trust funds
sought to recover contributions that a contractor withheld on several Arizona
public-works contracts. Among other theories, plaintiffs sought recovery based
on Arizona's Little Miller Act, which also provides procedural mechanisms for
enforcing the payment bonds. The Ninth Circuit Court of Appeals ruled that ERISA
did not preempt application of the Little Miller Act. In reaching its decision,
the JWJ court cited the following factors.
(1) whether the state law regulates the types of benefits of ERISA employee
welfare benefit plans;
(2) whether the state law requires the establishment of a separate employee
benefit plan to comply with the law;
(3) whether the state law imposes reporting, disclosure, funding, or
vesting requirements for ERISA plans; and
(4) whether the state law regulates certain ERISA relationships, including
the relationship between an ERISA plan and employer and, to the extent an
employee benefit plan is involved, between the employer and employee.
JWJ, supra, at 678, citing Aloha Airlines, Inc. v Ahue, 12 F3d 1498,
1504 (9th Cir 1993).
The Ninth Circuit concluded that Arizona's Little Miller Act provided no
additional ERISA-governed rights to employee benefit plans and neither conflicted
with federal regulation of employee benefit plans nor hindered or detracted
from the interests of employees. JWJ, supra,
at 679. The court also noted that, in contrast to a state statute expanding
remedies beyond those provided under ERISA, the payment bonds simply transferred
the obligation from the employer to the surety, and thus did not expand the
ERISA remedies. Id.
The court further noted that nothing in ERISA suggests that Congress intended
to preempt either the area of state statutory payment bonds, and Congress has
traditionally left to the states the enforcement of rights and obligations arising
by contract, pursuant to state law, for the protection of the public. Id. at 678.
Conclusion
Prevailing case law in California still holds that ERISA preempts an employee
benefit trust fund action against a payment bond surety. See, e.g., Operating Engineers Pension Trust v Insurance Company
of the West, 35 Cal App 4th 59, 42 Cal Rptr 2d 1 (1995), Carpenters Health & Welfare Trust Fund v Developers
Ins. Co. (1992) 11 Cal App 4th 1539, 15 Cal Rptr 2d 85; Carpenters Health & Welfare Trust Fund v Surety Co.,
(1993) 13 Cal App 4th 1406, 18 Cal Rptr 2d 661. It is expected, however, that
these cases will slowly be discredited as the trend toward ERISA preemption
continues to wane.
*Credit must be given to Peter Cofield of Sedgwick, Detert,
Moran & Arnold's Los Angeles Surety Practice for the thorough research and creative
analysis in this article.
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