SCOTUS hands big win to employers in ERISA church plan case (+ video)

It's unanimous. ERISA's "church plan" exemption applies to a pension plan that is maintained by a church-affiliated organization even though the plan was not established by a church. Advocate Health Care Network v. Stapleton (US Supreme Court 06/05/2017) [Opinion text].

Watch the video

Watch the video


Takeaway: This means that a huge number of hospitals and health care facilities are allowed to ignore ERISA's rules, which are designed to protect employees. These institutions operate for-profit subsidiaries, employ thousands of employees, generate billions of dollars in revenues, and compete in the marketplace with companies that must bear the costs of complying with ERISA.

Original ERISA church plan exemption: ERISA § 1002(33)(A) defines a church plan as a “plan established and maintained” by a church. [Emphasis added.] 

But Congress later amended ERISA to expand the definition in §1002(33)(C)(i):

“A plan established and maintained for its employees . . . by a church . . . includes a plan maintained by an organization . . . the principal purpose . . . of which is the administration or funding of [such] plan . . . for the employees of a church . . . , if such organization is controlled by or associated with a church.”

The Supreme Court placed its focus on the word "includes." Lower courts (3rd, 7th, and 9th Circuits) had agreed with the employees' argument that §1002(33)(C)(i) merely created a sub-set of church plans, but the plans still had to have been established by a church. Reversing, the Supreme Court explained that use of the word “include” is not literal, but tells readers that a different type of plan should receive the same treatment (i.e., an exemption) as the type described in the old definition. In other words, because Congress deemed the category of plans “established and maintained by a church” to “include” plans “maintained by” church-affiliated organizations, those plans – and all those plans – are exempt from ERISA’s requirements.

In trying to make sense out of Congress' somewhat opaque language, the Court pointed out that (1) there were much more direct ways for Congress to draft language that would have the effect the employees wanted and (2) the employees' interpretation would have required that one ignore the words "established and" in subparagraph (C)(i).

And what's missing? The Court points out that three government agencies (Internal Revenue Service, Department of Labor, and Pension Benefit Guaranty Corporation) have for decades interpreted the statute as exempting plans like the ones involved in this case. Yet the Court does not breathe a single word as to whether those agencies' interpretations are entitled to one whit of deference. This is especially interesting in light of the fact that the government's amicus brief placed huge emphasis on deference-to-agency principles, and it pleaded with the Court to recognize the hospitals' reliance interest that built up over decades.

[For recent decisions and pending employment law cases, see Supreme Court Watch.]

SCOTUS: Federal Arbitration Act kills Kentucky's clear-statement rule

One more time, with gusto: A state-law rule that singles out arbitration agreements for disfavored treatment violates the Federal Arbitration Act (FAA). Kindred Nursing Centers v. Clark (US Supreme Court 05/15/2017) [opinion text].

The significant teaching in this case is a strong re-statement that the FAA requires courts to place arbitration agreements on equal footing with all other contracts at the contract-formation stage as well as the contract-enforcement stage.

Janis Clark held a broad power of attorney for her mother. When Mom moved in to a nursing home operated by Kindred Nursing Centers, Janis completed all the paperwork – including an arbitration agreement on Mom's behalf providing that any claims arising from Mom's stay at the facility would be resolved through binding arbitration. After Mom died, her estate sued claiming that Kindred's substandard care caused her death. Kindred moved to dismiss, citing the arbitration agreement, but the Kentucky courts allowed the suit to go forward. [Kentucky opinion text]

The Supreme Court of Kentucky examined the power-of-attorney instrument with considerable care, and concluded that Janis was not authorized to enter into an arbitration agreement. The court emphasized that it would enforce an arbitration agreement if one had been made, but that its decision was that there was no assent to an arbitration agreement in the first place.

The Kentucky court put things in terms of a waiver of fundamental constitutional rights – access to the courts, appeal to a higher court, and trial by jury – and said that "the power to waive generally such fundamental constitutional rights must be unambiguously expressed in the text of the power-of-attorney document."

"[W]e are convinced that the power to waive generally such fundamental constitutional rights must be unambiguously expressed in the text of the power-of-attorney document in order for that authority to be vested in the attorney-in-fact. The need for specificity is all the more important when the affected fundamental rights include the right of access to the courts (Ky. Const. § 14), the right of appeal to a higher court (Ky. Const. § 115), and the right of trial by jury, which incidentally is the only thing that our Constitution commands us to 'hold sacred.' See Ky. Const. § 7 ('The ancient mode of trial by jury shall be held sacred, and the right thereof remain inviolate, subject to such modifications as may be authorized by this Constitution.')."

In a 10-page smack-down, Justice Kagan ripped through the Kentucky court's analysis, saying, "The Kentucky Supreme Court’s clear-statement rule … fails to put arbitration agreements on an equal plane with other contracts." She avoided saying that the Kentucky court manipulated its analysis, or that it was openly hostile to arbitration, or that it was using smoke and mirrors – but just barely.

Justice Kagan suggested that the Kentucky court was acting covertly, saying, "The [FAA] also displaces any rule that covertly [prohibits arbitration of a particular type of claim] by disfavoring contracts that (oh so coincidentally) have the defining features of arbitration agreements."

She also hammered home the idea that the FAA applies to contract formation as well as contract enforcement: "By its terms, then, the [FAA] cares not only about the 'enforce[ment]' of arbitration agreements, but also about their initial 'valid[ity]' – that is, about what it takes to enter into them."

Interesting that the Court never mentioned "preemption" or the Supremacy Clause. I guess it goes without saying.

The decision was 7-1. Justice Gorsuch did not participate. Justice Thomas dissented, as usual, based on his theory that the FAA does not apply to proceedings in state courts.

In a companion case the Court asked the Supreme Court of Kentucky to re-examine its holding to be sure that it was not tainted by its clear-statement rule.

[For recent decisions and pending employment law cases, see Supreme Court Watch.]

Emanuel and Kaplan tipped for NLRB

William J. Emanuel and Marvin E. Kaplan are the President's picks to fill two vacant seats at the NLRB. Once appointed and confirmed by the Senate, the NLRB will be at its full 5-Member strength and will have a Republican majority. Then we will begin to see changes that I have discussed at NLRB Watch.

William (Bill) Emanuel is a shareholder at Littler Mendelson where he practices traditional labor law in the Los Angeles office. A graduate of Georgetown University Law School and Marquette University, he has authored several amicus curiae briefs on behalf of trade associations in cases challenging state laws that allow labor unions to enter employers' private property. He is often recognized as a Best Lawyer in America© and has been a contributor to the ABA's treatise The Developing Labor Law. More at the Littler web site.

Marvin Kaplan is Counsel to Heather L. MacDougall, a Commissioner at the U.S. Occupational Safety and Health Review Commission. He spent six years as a lawyer for committees at the House of Representatives where he focused on investigating allegations of waste, fraud, and abuse by the Department of Labor and National Labor Relations Board. He is a graduate of Washington University in St. Louis Law School and Cornell University. More at LinkedIn.

Both are well qualified to be NLRB Members.

DOJ wavers on class action waiver cases (with video)

Perhaps a better title for this post would be "Elections Matter." Yet I do like "wavers on waivers."

"Am I the only one wondering whether the incoming administration will argue in favor of the NLRB's position in the NLRB v. Murphy Oil case?" That's what I wrote back in January [here].

Three cases pending in the US Supreme Court raise the following issue:

Whether arbitration agreements with individual employees that bar them from pursuing work-related claims on a collective or class basis in any forum are prohibited as an unfair labor practice because they limit the employees' right under the National Labor Relations Act to engage in "concerted activities" in pursuit of their "mutual aid or protection," and are therefore unenforceable under the savings clause of the Federal Arbitration Act.


Even though these cases turn on the National Labor Relations Act, they will have an impact on the non-union private sector workforce (over 90% are non-union).

Opening briefs had been due on April 28, but the Acting Solicitor General requested a delay. The Court granted a delay until June 9.

Why the delay in briefing? The Acting Solicitor General's request says:

"[T]he current briefing schedule is no longer adequate for the government [because] . . . [t]he Acting Solicitor General is engaged in a process of reviewing the position of the United States in these cases" and that he "must . . . consult with new leadership within the government."

So here we go, folks. The NLRB has taken the position (beginning with D.R. Horton (NLRB 2012)) that class action waiver agreements are illegal because they deny employees the statutory right to engage in concerted activities for mutual aid and protection. But the Department of Justice takes over a case once it gets to the US Supreme Court. It was a Democrat-dominated NLRB that decided D.R. Horton in 2012, and the Republicans are running the DOJ in 2017. Elections matter, my friends.

Courts have divided on the central issue, and the following cases are all consolidated and pending at the US Supreme Court:

Personally, I expect the government to do an about-face and disown the basic D.R. Horton rule.

Oral arguments should be scheduled for the Fall of 2017, with a decision coming in 2018.

[For recent decisions and pending employment law cases, see Supreme Court Watch.]


Web site for Ross Runkel, Arbitrator & Mediator:

FEHBA health plan carriers can ignore state anti-subrogation statutes

Faced with the threat of local laws that vary from state to state, the US Supreme Court unanimously held that insurance carriers operating under the Federal Employees Health Benefits Act can assert subrogation or reimbursement rights even though a state statute prevents carriers from seeking subrogation or reimbursement.

Missouri law prohibits the subrogation of personal injury claims. The Federal Employees Health Benefits Act (FEHBA) authorizes the Office of Personnel Management (OPM) to enter into contracts with private insurance carriers to administer benefit plans, and OPM's contracts require carriers to seek subrogation or reimbursement. Coventry Health Care of Missouri v. Nevils (US Supreme Court 04/18/2017) [Opinion text] held that these contractual subrogation and reimbursement provisions override state laws barring subrogation and reimbursement. The opinion was unanimous, and took only 11 pages.

Jodie Nevils was injured in a car wreck. He's a federal employee who was insured by Coventry Health Care under a FEHBA plan. Coventry paid his medical bills, and then Nevils recovered a settlement from a third party. Coventry asserted a subrogation lien on the recovery; Nevils satisfied the lien and then sued Coventry and ultimately won in the Missouri Supreme Court. He won because that court applied a state statute that prohibits subrogation in such cases, and also held that the federal scheme did not preempt that state statute.

Here's the federal statute, FEHBA §8902(m)(1):

“The terms of any contract under this chapter which relate to the nature, provision, or extent of coverage or benefits (including payments with respect to benefits) shall supersede and preempt any State or local law, or any regulation issued thereunder, which relates to health insurance or plans.”

The US Supreme Court said:

"We hold, contrary to the decision of the Missouri Supreme Court, that contractual subrogation and reimbursement prescriptions plainly “relate to . . . payments with respect to benefits,” §8902(m)(1); therefore, by statutory instruction, they override state law barring subrogation and reimbursement."

"We further hold, again contrary to the Missouri Supreme Court, that the regime Congress enacted is compatible with the Supremacy Clause. Section 8902(m)(1) itself, not the contracts OPM negotiates, triggers the federal preemption. As Congress directed, where FEHBA contract terms “relate to the nature, provision, or extent of coverage or benefits (including payments with respect to benefits),” §8902(m)(1) ensures that those terms will be uniformly enforceable nationwide, free from state interference."

For more on this case: Opinion analysis: Justices reject Missouri’s push to expand insurance benefits for federal employees by Professor Ronald Mann.

[For recent decisions and pending employment law cases, see Supreme Court Watch.]