Employee Staffing Services, Inc. v. Aubry

• Decision Date: 05 April 1994
• Docket Number: No. 93-15482,I,AFL-CI,93-15482
• Parties: , 18 Employee Benefits Cas. 1033 EMPLOYEE STAFFING SERVICES, INC., in its capacity as sponsor and plan administrator of the Employee Staffing Services Employee Welfare Benefit Plan; The Employee Staffing Services Employee Welfare Benefit Plan; Human Resource Technology dba Stafcor; and Pro City Apparel, Plaintiffs-Appellants, v. Lloyd W. AUBRY, Jr., as Director of the Department of Industrial Relations for the State of California; Victoria L. Bradshaw, as Labor Commissioner for the State of California, and California State Department of Industrial Relations, Division of Labor Standards Enforcement, Defendants-Appellees, and International Ladies' Garment Workers' Union,ntervenor-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1038

20 F.3d 1038

62 USLW 2637, 18 Employee Benefits Cas. 1033

EMPLOYEE STAFFING SERVICES, INC., in its capacity as sponsor

and plan administrator of the Employee Staffing Services

Employee Welfare Benefit Plan; The Employee Staffing

Services Employee Welfare Benefit Plan; Human Resource

Technology dba Stafcor; and Pro City Apparel, Plaintiffs-Appellants, v. Lloyd W. AUBRY, Jr., as Director of the Department of

Industrial Relations for the State of California; Victoria

L. Bradshaw, as Labor Commissioner for the State of

California, and California State Department of Industrial

Relations, Division of Labor Standards Enforcement,

Defendants-Appellees,

and

International Ladies' Garment Workers' Union, AFL-CIO,

Intervenor-Appellee.

No. 93-15482.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Dec. 16, 1993.

Decided April 5, 1994.

Karen E. Ford and James P. Baker, Littler, Mendelson, Fastiff, Tichy, & Mathiason, San Francisco, CA, for plaintiffs-appellants.

H. Thomas Cadell, Jr., Chief Counsel, Div. of Labor Standards Enforcement, John M. Rea, Chief Counsel, Dept. of Indus. Relations, San Francisco, CA, for defendants-appellees.

Marsha S. Berzon, Michael Rubin, Indira Talwani, Altshuler, Berzon, Nussbaum & Rubin, San Francisco, CA, for intervenor-appellee.

Elizabeth A. Goodman, U.S. Dept. of Labor, Washington DC, David S. Foster, Thelen, Marrin, Johnson & Bridges, Daniel E. Leach, Leach & English, San Francisco, CA, Allan J. Graf, Farmer & Ridley, Los Angeles, CA, Jane Lauer Barker, Asst. Atty. Gen. in Charge of Labor Bureau, New York City, for amici.

Appeal from the United States District Court for the Northern District of California.

Before: POOLE, BEEZER, and KLEINFELD, Circuit Judges.

KLEINFELD, Circuit Judge:

The premise of the complaint in this case is that ERISA opened a loophole so that employers could avoid buying workers' compensation insurance. It does not. The obligations of California workers' compensation insurance cannot be avoided by substituting an ERISA plan's coverage for work-related injuries. We affirm the district court's dismissal of the complaint.

Facts

Employee Staffing sponsors an ERISA plan. The ERISA plan covers work-related injuries and provides medical, health, and life insurance benefits. Stafcor, a subsidiary of Employee Staffing, employs workers covered by the plan. Firms in the California garment industry pay Stafcor to provide workers, instead of employing the workers themselves. The State of California, though, refuses to issue certificates required under California Labor Code Sec. 2675 to the garment manufacturers on the ground that Stafcor has not complied with the California workers' compensation laws. The State Division of Labor Standards Enforcement has ordered Stafcor to "stop using any employee labor until you have secured Workers' Compensation Insurance." Since Stafcor's business is supplying workers to other companies in various industries, this order has the practical effect of putting Stafcor out of business.

The plaintiffs sued for a declaratory judgment that ERISA has preempted the field that California seeks to regulate, so that its order and denials of certificates to the garment manufacturers would be illegal. They also sought an injunction against further enforcement. The district court issued a temporary restraining order, but later denied a preliminary injunction and dismissed the complaint.

Analysis

We review dismissal under Federal Rule of Civil Procedure 12(b)(6) de novo. We proceed for purposes of analysis as though the complaint's averments were established. Buckey v. County of Los Angeles, 968 F.2d 791, 794 (9th Cir.1992). Though our analysis differs from that of the district judge, we affirm on grounds supported by the record. United States v. Washington, 969 F.2d 752, 755 (9th Cir.1992).

ERISA Preemption

The coverage provision of ERISA expressly excludes workers' compensation plans. 29 U.S.C. Sec. 1003(b) (1988). The preemption provision includes a list of exceptions, and workers' compensation is not on the exception list. 29 U.S.C. Sec. 1144 (1988). But the preemption clause expressly makes an exception for plans exempted by the coverage provision. The problem is that the statutory language sometimes refers to plans, and sometimes laws, leaving room for argument about its proper construction.

Here is the relevant portion of the coverage language, and the workers' compensation exemption:

Sec. 1003. Coverage

(a) Except as provided in subsection (b) of this section ... this subchapter shall apply to any employee benefit plan....

(b) The provisions of this subchapter shall not apply to any employee benefit plan if--

....

(3) such plan is maintained solely for the purpose of complying with applicable workmen's compensation laws or unemployment compensation or disability laws;

....

29 U.S.C. Sec. 1003. The room for argument is left by the language, "such plan is maintained solely ..." Plaintiffs claim that their plan, an ERISA plan, is maintained for comprehensive health care purposes, not solely for compliance with workers' compensation laws. They argue that because the exemption of Sec. 1003(b) does not apply, ERISA does, so they are required to comply with ERISA, but state regulation of their plan is preempted.

Here is the relevant language of ERISA's preemption clause:

(a) Supersedure; effective date

Except as provided in subsection (b) of this section, the provisions of this subchapter ... shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 1003(a) of this title and not exempt under section 1003(b) of this title....

29 U.S.C. Sec. 1144(a) (emphasis added).

Subsection (b) lists a number of kinds of laws not preempted, such as state criminal laws, insurance laws, and domestic relations orders. Plaintiffs correctly point out that workers' compensation laws are not among the state laws exempted in Sec. 1144(b). They argue that the reference to the coverage exemption of Sec. 1003(b) has no application to their multipurpose plan because it is not maintained "solely" for purposes of workers' compensation.

Part of plaintiff's argument, that their multipurpose ERISA plan is regulated by ERISA, not state workers' compensation commissioners, finds support in Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 107, 103 S.Ct. 2890, 2905, 77 L.Ed.2d 490 (1983). That case establishes that the coverage exemption "excludes 'plans,' not portions of plans, from ERISA coverage," so only "separately administered disability plans maintained solely to comply" with the state law are exempt from ERISA. Id. at 107-08, 103 S.Ct. at 2905. That language suggests that an attempt to regulate plaintiffs' ERISA plan would be preempted, regardless of whether workers' compensation benefits are included in the plan.

But the fact that the state cannot regulate plaintiffs' ERISA plan does not imply that the state cannot require another, separately administered plan for workers' compensation. Shaw says that although a state cannot regulate an employer's ERISA plan, it can require an employer to maintain a separate disability plan exempt from ERISA, under the same coverage exemption as applies to workers' compensation plans:

Congress surely did not intend, at the same time it preserved the role of state disability laws, to make enforcement of those laws impossible. A State may require an employer to maintain a disability plan complying with state law as a separate administrative unit. Such a plan would be exempt under [Sec. 1003(b)(3) ]....

If the State is not satisfied that the ERISA plan comports with the requirements of its disability insurance law, it may compel the employer to maintain a separate plan that does comply.

Id. at 108, 103 S.Ct. at 2905. The Shaw construction avoids "[t]he administrative impracticality of permitting mutually exclusive pockets of federal and state jurisdiction within a [single multibenefit] plan...." Id. at 107, 103 S.Ct. at 2905.

Syntactically, the preemption of "laws" and exemption of "plans" might be construed to place the power to exempt in the employer's hands, when it adopts a plan, instead of the state legislature's hands, when it promulgates laws. But a construction which attributes a rational purpose to Congress makes this locus of power unlikely, because it would accidentally allow employers to avoid the century-old system of workers' compensation. Shaw removes any ambiguity which might be found in the ERISA statute on this issue. We see no reason to distinguish workers' compensation plans from disability plans, since both are controlled by identical language in the same subsection of the ERISA statute, and the same reasons apply to both.

The regulatory scheme was different in District of Columbia v. Greater Washington Board of Trade, --- U.S. ----, 113 S.Ct. 580, 121 L.Ed.2d 513 (1992). The city required ERISA plans to provide benefits for employees who were not working during a workers' compensation disability period, so ERISA preemption applied. Greater Washington explains that the workers' compensation exemption does not limit preemption if the law relates to an ERISA plan. Id. at ----, 113 S.Ct. at 584. In the case at bar, unlike Greater Washington, the state law does not tell employers how to write their ERISA plans. The case before us does not involve intrusion on an ERISA plan by a state workers' compensation statute.

The California statute requires private employers to secure payment of workers' compensation either by purchasing workers' compensation insurance from a state-approved carrier, or self-insuring under a plan approved by the state Director of Industrial Relations. Cal.Lab.Code Sec. 3700. Plaintiffs do not allege that their ERISA plan was submitted for approval as a California self-insured workers' compensation plan. The California statutes say nothing about employee benefits under an ERISA plan. A...