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].

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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.]