In Hansen v. Lab. Corp. of America, the United States District Court for the Eastern District of Wisconsin ruled that an employer’s attempt to combine its short term disability (“STD”) plan with ERISA-covered benefit plans does not make the STD plan subject to federal law rather than state law.
Law. ERISA generally preempts “any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.” A state law relates to an ERISA plan if it has: (1) a “connection with” or (2) a “reference to” an ERISA plan.
ERISA defines an “employee welfare benefit plan” in relevant part as “any plan, fund, or program which was…established or maintained by an employer…to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants…benefits in the event of…disability.”
However, under a “payroll practice” exception, the ERISA regulations provide that an “employee welfare benefit plan” does not include payment of (1) an employee’s normal compensation, (2) out of the employer’s general assets, (3) due to an absence for medical reasons.
Facts. An employee applied for, but was denied STD benefits. She then sued for benefits under state law. The employer responded that the STD plan was covered by ERISA and attempted to move the case to federal court where it would be subject to more favorable federal law.
Although the STD plan met all the requirements for the “payroll practice” exception, the employer claimed a plan can still be subject to ERISA as long as the employer treats the plan as an ERISA plan. The employer argued that it did this by representing the plan as part of its benefits package, including it in its Summary Plan Description, informing its employees of their rights under ERISA and including the STD plan in its Form 5500 reporting.
Court Ruling. Citing earlier federal Appeals Courts’ decisions, the court ruled that an employer’s labeling of a plan as ERISA-covered does not determine whether it is, in fact, subject to ERISA. Further, it ruled that, in determining whether a “plan” has been established within the meaning of ERISA, the fact that the employer complied with some of ERISA’s requirements is not enough by itself to establish that the STD program constitutes an ERISA plan.
The court concluded that because STD benefits fall under the regulation exempting certain “payroll practices” from the definition of an “employee welfare benefit plan”, the employer’s actions did not override the ERISA regulations. Because the STD plan was not subject to ERISA, it remained subject to state law. Accordingly, the case was remanded back to state court for further proceedings.