Skillin v. Rady Children’s Hospital, December 6, 2017, DCA4/1
ERISA was passed in 1974 to ensure proper management of employee plan contributions. It doesn’t guarantee benefits–there is no set amount that must be contributed, and no guarantee that investments will produce a specific return. ERISA is about proper oversight and procedures. And to ensure uniformity, some ERISA sections preempt state labor law. For example, ERISA section 514(e) preempts state laws that “would directly or indirectly prohibit or restrict the inclusion in any plan of an automatic contribution arrangement.” In this case, Mr. Skillin claimed that his employer, a children’s hospital, deducted too much money from his paycheck. According to him, the excessive deductions violated Labor Code sections 221-224, which in turn made his wage statements inaccurate. The appellate court rejected these claims.
ERISA was passed in 1974 to ensure proper management of employee plan contributions. It doesn’t guarantee benefits–there is no set amount that must be contributed, and no guarantee that investments will produce a specific return. ERISA is about proper oversight and procedures. And to ensure uniformity, some ERISA sections preempt state labor law. For example, ERISA section 514(e) preempts state laws that “would directly or indirectly prohibit or restrict the inclusion in any plan of an automatic contribution arrangement.” In this case, Mr. Skillin claimed that his employer, a children’s hospital, deducted too much money from his paycheck. According to him, the excessive deductions violated Labor Code sections 221-224, which in turn made his wage statements inaccurate. The appellate court rejected these claims in a decision that is not that satisfying.
Here, Mr. Skillin started working at Hospital in 1997. While the opinion isn’t explicit on this point, he elected to participate in the hospital’s retirement plan (versus being automatically enrolled). He also contributed a flat rate of $700 per month. In 2009, the hospital adopted an automatic enrollment program for new hires; and, unless they chose a different contribution level, the plan required new hires to contribute 3 per cent of their pretax earnings to the retirement plan. Until 2014, Hospital allowed the pre-2009 employees to continue contributing flat dollar amounts. At that point, the hospital decided to require these employees to convert from a flat dollar amount to a percentage contributions. But the hospital attempted to set the contribution rate for these employees at a percentage that basically equaled the flat dollar figure. In converting Mr. Skillin to the new method, the hospital notified Mr. Skillin that it would deduct 18% from his paycheck; it then provided a corrected notice that the percentage would be only 11%. However, ultimately the hospital deducted 18%, or about $1300. Under California law, an employer is strictly limited in what it can deduct from an employee’s paycheck.
The court acknowledged that it could find no case interpreting ERISA section 514(e). In finding that employee’s claim was preempted by 514(e) as a matter of first impression, the court felt that “a law requiring written authorization for wage deductions is incompatible with permitting automatic contribution arrangements in which employees are treated as having opted in.”
While there was no dissent, here’s how a dissent might have read: Plaintiff is a long-standing employee who opted into the hospital’s plan before the hospital instituted automatic enrollment for new hires. Requiring the hospital to deduct the correct amount from Mr. Skillin’s wages has no bearing on whether hospital can automatically enroll subsequent employees. Further, the hospital deducted more than it said it would. Therefore, even if Mr. Skillin had been automatically enrolled into the hospital’s plan, applying state labor laws to ensure that hospital deducted the amount that the hospital itself said it would deduct, or the amount that the employee previously had authorized, would not prohibit, restrict or in any way impact whether the hospital could maintain a retirement plan that automatically enrolled employees into the plan. Not to mention that denying an employee immediate access to $600 of his income could create a real hardship.