California's New Paid Family Leave Law - Preempted by ERISA?

[Christine Roberts]

Seeking "yeas" or "nays" on the following:

California recently enacted SB 1661, which mandates up to 6 weeks of paid leave (subsidized by employee payroll taxes paid to the state disability fund) in order for an employee to recover from a non-work related illness or injury, or in order to care for a sick family member, or bond with a new born or newly adopted child.

Some opponents to SB 1661 have argued that ERISA preempts California’s paid leave law. ERISA's definition of “welfare plans” does indeed include plans providing benefits in the event of sickness, accident, disability, death or unemployment. However, ERISA excludes “payroll practices” from the definition of “benefit plan.”

Usually this refers to “benefits” such as overtime pay, shift premiums, holiday premiums, and the like. Arguably, the family leave benefit, though funded through payroll deductions, does operate more like a “welfare plan” under ERISA, because it involves more administrative functions, such as a determination of who is eligible for paid leave, than the other types of plan.

To illustrate, an employer can tell an employee is entitled to receive overtime pay if it can document that the employee’s work hours exceeded eight in one workday, or 40 in one workweek. However, an employer cannot be sure if an employee is eligible for paid family care leave unless the employer knows (a) that the iemployee or the family member has a “serious health condition” as defined by the law; (B) in the case of family care, that the sick individual is a “family member” as defined by the law; © that no other member of the employee’s family is available to care for the sick family member; and (d) that the employee is not receiving any unemployment or disability benefits. Whether or not California's Employment Development Dept. shoulders some of these administrative tasks, an employer could make a good argument that the paid leave program is more than a mere “payroll practice” for purposes of ERISA preemption.

What do you think?

[mbozek]

The same arguments were made when New Jersey enacted its family and medical leave act. When the preemption arguments were dismissed Congress enacted the Federal FMLA. As long as the law only regulates pay and leave it is no different than payroll practices involving the employer's general assets, e.g., vacation benefits.

[KIP KRAUS]

If I’m not mistaken, ERISA specifically exempts state mandated benefits such as mandated STD in Cal., NJ, NY, Mass. and Hawaii. Therefore, the argument could be that ERISA doesn’t apply.

Christine, can I assume that this provision applies to employees residing in Cal. Even if the employer is not in Cal.?

[Christine Roberts]

Hi, Kip -

since the benefit is a function of payroll tax withholding, the answer is "yes," I believe, if the non-California employer is making other California payroll tax witholding for the employee.

Please note that the employer does not have to allow or offer any leave of absence at all if the employer is not subject to the provisions of the federal Family and Medical Leave Act ("FLMA") 50 or more employees in a 75 mile radius are subject to these laws.

As a practical matter employers will likely be reluctant to refuse a leave of absence request to an employee with a sick child or other family member, but if they are not subject to FMLA/CFRA, they simply don't have to either permit the leave, or keep the job open if they allow the leave to take place.

I've drafted a short memo on the paid leave law and hopefully Dave Baker will post it on the newsletter.

[IRC401]

If the CA mandated payroll practice is not part of an ERISA plan, can we assume that any medical information that the employee provides is not subject to the HIPAA privacy rules?

[Christine Roberts]

I believe HIPAA applies to "group health plans" which is not the same definition as welfare plans under ERISA.

That said, the California law is really only family leave, not medical leave (I think I conflated the two in my original post - my apologies), so the employee's own PHI should not be at issue.

I also believe HIPAA has an exemption for records that are part of an employee's personnel file. This is not a strictly defined term, however. But practitioners are interpreting it to allow employers to continue to process requests for medical leaves of absence.

[Steve72]

The revised HIPAA regs specifically exclude employment records held by an employer in the role of employer from PHI.

The HIPAA definitions of "health plan" and "group health plan" both describe plans which pay for medical benefits. As I understand it, the CA law requires salary replacement.

Therefore, regardless of whether medical information is provided to the employer, or the salary replacement "plan", there should be no HIPAA coverage.

One HIPAA concern that may arise is verification. If the employer wants to verify the illness directly from the employee's provider, the employer will need to convince the provider to disclose the information. An authorization executed by the employee should be sufficient for this purpose.