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ERISA Preemption and Claims for Employee Benefits

Marilyn Klinger | January 1, 2004

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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.

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.

  1. 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
  2. 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.


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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