Businesses sometimes dont even know the true measure of what is going - Federal OSHA cant give assistance

- But state agencies can o If state comes in and you dont comply then they can report you to the feds - Neither side of the table has sufficient information to handle this problem on their own Who Is An Employee? Why do we cover this first - The employment relationship is so important because back in the day of the employer sovereign peoples relationship was fixed by status (apprentice, indentured servant, etc.) - Employer at this time had obligations that was comparable to duty to family duty of maintenance - Beginning in Early to mid-1800s o Idea of contract takes hold and the relationship is determined by the terms of the contract o Big companies sprouted up so employees really did not have any power to negotiate a fair contract o Exceptions to this for women, children, and people who were mentally deficient o In some cases contracts that were unconscionable were also tossed out - In Era of protective laws o Now status is important again because it now applies to employees even if they are called something else in the contract o Microsoft case is a good example of this court ignored what the contract said and looked at the actual status of the employees Employee vs. independent Contractor - Everyone agrees that the tests that were developed in the 30s and the 40s are now very much out of date o Both sides agree on this o These old tests dont reflect the modern work environment o Need new rules to draw lines between - What are these new rules o At the time of Darden the court was still talking about the restatement of agency law ALI is working on a restatement of employment law (it is in packet before the cases) Nationwide Mut. Ins. Co. v. Darden (1992) Supreme Court - Case deals with ERISA o How do we characterize deferred compensation, an employers promised for a future pension o Is it pay for services already performed, a gift for the future, etc? - When Darden retired he would have two pots of money from Nationwide o Deferred compensation based on performance o Extended earnings plan when you leave you get a severance package - Darden is terminated and he wants the money but he doesnt get it, why? o There was a non-compete clause and he went to a competitor o A bad-boy clause, violated commitment so you forfeit your pension - ERISA defines employee as an employee employed by the employer o If Darden is an employee they cant take his pension but if he is not an employee the employer can keep the money - Arguments that Darden was not an employee o He could make independent decisions - Arguments that he was an employee o He had to agree not to sell insurance for any other insurance company o They could assign him additional work, they could assign him manuals and he had to go through the training o Nationwide is in the business of selling insurance, one would think that they would need someone to do the work, this is the core activity of the company

Court of Appeals looked at the purpose of the statute, make employers keep the promises that make to their workers o Darden had reasonable expectations that he would be treated as an employee Supreme Courts says the Court of Appeals was wrong o The CoA relies on old cases for definition of employee, applied in light of the mischief that the statute was directed at Congress has basically overruled these old precedents with new laws and definitions o Court says they are going to go back to the old Common Law Agency Rule Reconciles this with different standards from FLSA because that act defines employee differently Court just ignores the agency interpretation of Employee Battle for institutional competence: who should be the arbiter of a word, the agency or the court? o When it is a specialized word used by an agency the court would give it deference but when congress uses a legal term like contract or employee than an agency should not trump the courts understanding of the common law.

Lauritzen - Migrant workers come in to pick cucumbers o Pickles need to be picked at just the right time to be worth good money. Pickle Pickers are actually highly skilled. o [Thoughts on wage policy think about the effect that immigrant workers have on wage policy. What constitutes a competitive market?] - Concurrence o Says they have low human capital and are certainly being paid the correct wage o Fedex Home Delivery v. NLRB (D.C. Circuit 2009) Notes Cant just take your money ERISA says deferred compensation is money for work that has already been done. o Employer cant take this money because it money for work done o Problem: protection is only for employees o What about money for unused sick days for state employees? Once you retire you get a contract but what happens if you are not yet retired Other major purpose of ERISA o In public sector there are no rules can make a promise but if there is no money then too bad This is also how it used to be for private business before ERISA If they fail to set money aside for pention then too bad o ERISA says if you make a promise your employees then you have to keep that promise You dont have to make the promise in the first place or provide it for the future but once the promise has been made you cant take it away How do you keep the promise, the employer has to lock up the money

Employment relationship is important b/c back in the days of the employer sovereign: relationship to employer was determined by your status. Employer had a duty of maintenance (supposed to provide for employee in some sort of way). Mid 1880s. Idea of contract took hold. Needed to negotiate with your employer the terms of employment. But individual had little voice. Myth was employee could negotiate fair contract. Women, children and mentally deficient were protected early on and the court upheld this legislation.

Moved from status defining to contract and today back to status based on statutory construction of who is an employee. Example: Micro-soft cases. Independent contractors. FEDEX Cases: Lauritzen case: status determined based on the law. Bottom line in these cases: there is an agreement for either independ contractor or employee in these cases: the definitions from the 30s no longer fit todays circumstances. Need new rules for today's workforce. Darden: Employee definition was determined based on Agency law. Dunlap Commission 1994 - other effort to define employee. Looks very much like the effort for the restatement. Nationwide Mut. Ins. Co. v Darden SCOUS 1992: ERISA case. How do we characterize the deferred compensation he was entitled to. Nationwide argued that he violated the non-compete (not able to open up competing business w/in area). Can sue for breach of contract, but Nationwide cannot simply take the money or withhold it (the money remains Dardens) This is called the non-forfeiture provision of ERISA. ERISA only applies to the private sector. o But in WI public sector employees are protected by the State Constitution. Not discussed in Darden, but the other purpose of ERISA is to provide force of law to protect employees. 1974 law passed. Employers promised pensions. ERSIA: promise to employees must be kept. Don't have to make a promise, but if you do it must be kept. Can take away future promise, but not for the past. Pension is considered deferred income. The money must be locked up. Public sector no rules to protect. Arguments that Darden was an independent contractor: 1. Own place of business a. Set own hours, decided who he would sell to. b. His skills determined his success Argument he was an employee: 1. Could not sell other insurance only Nationwide's. (gets to control). 2. Could only sell w/I territory Fundamental difference btw independent contractor and employee: Selling insurance is what nationwide does as a business (it is not like brining in an auditor to check the books). Insurance was the CORE function. o Like Microsoft case: performing same function as the Micro-soft employees. COA: set out 3 factors and determined based on Darden's reasonable expectation he should received the promise. SCOUS: COA relied on old cases and the definition of the employee was broadly defined. Says where ever Congress uses the word employee the SCOUS will adopt the common law of agency test. Court looks to Chevron: and says agency opinion letter not given any weight b/c the agency doesn't trump the courts expertise in defining common law definition of employee. If it was a term of art to

that particular agency this would likely be different. FEDEX Case: NLRB case. Independent contractors according to the DC Cir. The Judge substitutes findings with his own. Secretary of Labor vs. Lauritzen Case: (Wage and Hour employee definition) Competitive Wage: Wage policy elements: effect of wages on American labor caused by illegal aliens. o Need to think about what constitutes competitive market for skill. Take Away: independent contractor or a title as such does not exempt one from the Wage and Hour Laws. There is a Statute that regulates Migrant workers. o WI had a law as well. That was contracted to them to implement the federal law. (law enacted as a result of the car going over the mountain). Anyone transporting migrant workers must be registered. The Crew Chief (usually the head of household). This is typically who gets paid as well. We want to know who the crew chief is (result of murders). Must have insurance on the vehicle of the Crew Chief, and must pass vehicle inspection. How does crew chief know about the work? o Contact those who worked for in the past. Looking at solely the right of control test: Paid on a piece rate. Get half of what the farmer gets based on the grade of the cucumber. How much, quality, and get half: all this incentivizes the process. As the season goes on the % of profit for the migrants rises. Amount received MUST equal the minimum wage. Determined by the amount received by the hours worked. The contention in this case is the records kept are not proper, children were used, and min wage not paid. o IN Agriculture children can work at an earlier age (14-15 y/o) BUT can't drive farm equipment for someone else except for parents unless 16. o Should not be migrants working if the children are under 13. B/c this overlaps the school year. The employer has responsibility to ensure the kids don't work illegally. No question that the other family members are employees of someone (whether they are working for the crew chief or the farmer). o Can look to Restatement 3rd or the reality. SO this case boils down to how we are going to treat the crew chief. o Once this is boiled down this starts looking more like a joint employer case. (similar to the Silverman case where the 2nd Cir treated Ms. Pak more like an independent contractor). However, the 7th Cir does not draw this distinction between independent contr. And employee. o Use Economic Reality Test: 6 factors, but it boils down to the migrants being dependent on the farmer for their livelihood. Migrants need a crop to pick. w/o the farmers hiring them they are unemployed. Their work is an integral part of the process. This is a crucial aspect. Can't outsource to get around labor / employment laws. Can still be considered a joint employer. Migrants have minimal investment - work gloves.

 Profit opportunity: no greater or less than the normal worker. Another factor: duration of employment: Seasonal employment doesn't prevent one from being an employee. While they are there their obligation is to the employer. o Amount of skill: o Common Law Test: is the right of control. This we learned in Darden is the common law test when Congress doesn't specify/ define. It is up to the head of household to set schedule, but this really isn't control b/c there is a right time to pick. The farmer is monitoring to oversee. This is like in Silverman where the supervisor is watching to ensure it is being down right. Easterbrook Concurrence: He is the first judge to raise the question of why right of control is so important. Says this is a concept from Tort Law. Can't insulate one's self by making one an independent contractor. Creating a perverse incentive. Says makes sense for Tort law, but is it the proper test for Employment law? The purpose of the law was to provide subsistence to the workers. They were dependent and couldn't negotiate living wage so to effect the purpose of the law they must be employees. Problem with this interpretation: wage laws apply to skilled workers too. o Professor Clauss: believes the best test is entrepreneurship. Example: cleaning lady who comes: even if one has several employers not an issue. Still an employee. But once you have a business plan and develop your business you become an independent contractor. Also, if you have a business that you can pick up and take somewhere else. This means you have a separate existence and can take the business from place to place. FEDEX: CA high Court and DC Cir come to different outcomes: What distinguishes one from employee and contractor: need to maintain your independent control / entrepreneurial control. The FEDEX drivers couldn't take a day off just b/c they wanted to your truck was committed to FEDEX 10-12 hours a day 5 days a week. FEDEX drivers can't take their business and move to a different client. Estrada v FEDEX Ground Package System, INC. (2007 CA Court of Appeals). Owner drivers. This is a special class of employee - independent contractor. FEDEX Home Delivery v NLRB (2009 - DC Cir). : rely on what the contract says they can do Entrepreneurial control: can hire other drivers to work for you, some have negotiated higher rates. Judge emphasizes the entrepreneurial ability. Dissent: Says Chevron deference should have applied. This was an adjudication. And the agency should have been given deference.

Also, cases differ b/c CA says reality is one thing and what the contract says you can do is another. CA Court: the drivers don't truly have entrepreneurial control. CA found that FEDEX retained the manner of determining when the work was to be completed. Remember: federal law in this case the FLSA is a floor. So, CA case is distinguished b/c the law in CA says you can't waive any of the protections given to you. And the employer can't mandate things that reduce wage w/o reimbursement. So, making one pay for their truck/ uniforms

2/2/12 Easterbrook concurrence from Lauritzen asks if common law test is the appropriate thing to use. Three Questions: 1. Who should be making these decisions? 2. Should there be one test for employment law? How does this fit into Board law with its feeble precedent in these cases There are also questions of owner v. employee - Especially in cases of professional groups, i.e. doctors and lawyers Should any of these statutes cover the owners? - ERISA o Could an owner also be protected against losing their pension o Maybe they should be, they also worked and were promised this pension, why should the corporation be able to default on their pensions? o Under ERISA, if you have a qualified plan, those commitments are backed up by the money you set aside and if you dont have the proper amount set aside there is federal insurance. There are caps (Like with the FDIC). o If you have a comfortable middle class pension you will be fully covered by the insurance but if you are a top executive then you will not be. - Discrimination o What happens at the partnership level o Freedom of Association comes in o Teacher in a religious school Special training on religious counseling Supreme Court said she fell into the ministerial exception because of the first amendment. o Maybe state doesnt have the power to determine who you enter into entrepreneurial relationships with The court has not yet resolved this question o When there are a ton of partners it will be different from when there are only a few who exercise real control o Same with corporations publicly traded corporations will probably be protected right to the top but a smaller family one the top executives may not be. - Safety and Health o Why shouldnt the top officials get workmens compensation It might not really be feasible to just one definition of employee that applies under all of these different labor laws. - Maybe start with a presumption and then have a few exceptions - The main thing is that it should probably be more clear. Lopez v. Silverman, (S.D.N.Y. 1998) Successor employer really no change in the business except for some formal change in the ownership Question is whether Silverman has a joint responsibility to pay these employees Conflict over two tests (see p. 32-33) Court decides to use the economic reality tests

o (1) Degree of control exercised by the owner over the workers o (2) The workers opportunity for profit or loss and their investment in the business o (3) the degree of skill and independent initiative required to perform the work o (4) the permanence or duration of the working relationship o (5) the extent to which the work is an integral part of the employers business Clauss says more important text is to ask whether the work being done is integral to clients business. Is Pak an employee or is she more like an owner o Here you would want to use the entrepreneurship test she would probably fit better as an employer than as an employee The Question is how much of the work that the potential employee does for the potential joint employer o This is an important question for joint-employer cases: How much of employers work do you do? o In this case Han got almost 100% of its business from Renaissance o When it was the Woo company they only did about 20% of the work for renaissance

Employee cant contract away what the statute/agency has defined you as cant just contract as independent contractor. Vizcaino v. Microsoft Corporation (9th Cir. 1997) Also (1999) Facts o Court has to ask if they should correct a mistake in the contract This is a contract case in some ways o Employee Stock Purchase Plan and Savings Plus Plan were offered to all employees of the company The management team didnt think this precluded them from entering into a contract with freelancers who were labeled as independent contractors rather than employees o There was not really any sneaky or negative intent from Microsoft, they just wanted the flexibility to not hire them back the next year o IRS gets unhappy because there is not automatic collection from these independent contractors and IRS is probably not getting the full amount Microsoft makes some employees, some were not hired but directed to a temp agency where they would do the same thing, some left. o One group of temps who used to be freelancers and another group who started working for the temp agency after all this happens Court o For ESP the court says they must have meant it to cover all employees because if not it would lose its tax benefits. They would not choose to get rid of the tax benefits for this as it was a qualified plan under the IRS code o For SPP, it has to be remanded to the plan administrator to decide if these people are allowed to participate in the pan or not o Remedy These people now have to be given some money How do you decide who would have purchased stock and who would not have (when these employees started Microsoft was not huge company it was later) o What about the temp employees who used to work Microsoft and who didnt All of these temp employees are joint employees of Microsoft

When does using a temp agency still require you to be considered a joint employer? f Court says you can be employees of two employers at the same time as long as your work is not incompatible.

Gulf King Shrimp Co. v. Wirtz (5th Cir. 1969) Dealt with child labor Facts o Company never asked or consented to child labor o Working in a big warehouse tearing heads of shrimp o Company punches pay card per bucket but sometimes multiple go on one card This could be a record keeping violation and a wage law violation because there is no way to know who is doing what kind of work There is also no way to necessarily know if children are working o Company had been warned before that this was leading to violation Court o Says it doesnt matter, if you knew or should have known there were children working for you Donovan v. American Airlines, Inc. (5th Cir. 1982) Are the flight attendants trainees or employees? Court asks if you are acquiring a fungible skill? o Argument that it is not because each airline requires you to go to their skill o Other side that actually you are learning some skills that will transfer Also, community colleges teach courses for flight attendants Discussion Questions Set 1 1. What would be the employee status in the following case? Mr. W owns 100 fireworks stands located and operated across south Texas. Texas law permits the sale of fireworks only during a 13 day seasion ending January 1 and during an 11 day season ending July 4 each year. Mr. W. Fireworks operates an office and warehouse in Somerset, Texas, from which it buys and imports from Asia the fireworks it sells, recruits operators, acquires land for fireworks stands, constructs the stands and paints them in uniform colors with a standard Mr. W logo, employs 5 or 6 routemen to supply the stands with fireworks, and advertises. Mr. W procures licenses and insurance for all the stands; it also pays for electrical service at all the stands, and it pays a commission to the operators or the stands. The operators are responsible for trash collection, pay for renting portable toilers (the stands are permanent), and pay for various devices to improve business conditions, and the personal living environment at the stands. A. All operators sign standard form contracts with Mr. W that set stand hours and prices, and prohibit the sale of other merchandise by operators. The contracts, however, refer to the stand operators as independent operators and five them sole control over the day-to-day operations of their standards. They are free to hire their own employees. Are the operators employees or independent contractors? The contract term of independent contractor doesnt matter for the purposes of this determination. The ability to hire employees is evidence of an independent contractor relationship but it is not determinative.

Mr. W sets the hours, the dates the stand is open, owns the stand, has his logo and paintjob on them, has the license and insurance, he also imports and distributes the fireworks. This is all indicative of an employee relationship Ultimately, the operator position would not exist without Mr. W, and the operator has almost no entrepreneurial power under this scenario. These extras are a little questionable. This would come down to whether or not the extras are more for the benefit of the employee or the employer. The toilet is probably more for the employer, people would not want to stop if there is no toilet.

B. Would your answer be different if the stand operators were free to sell any kind of merchandise so long as they did not sell the fireworks of competitors? With thus freedom, many of the operators sell a wide variety of hodiday items, including American flags, party supplies, streamers, crepe paper, books and other founding fathers paraphernalia (including lawn statuary, paper weights, etc.). Because these stands have prime highway locations, many operators earn 40-60% of their income from these sales. They order their own merchandise. However, they cannot operate the stand outside the two seasonal periods, or outside the established hours of operation. Maybe, this would certainly provide a lot more evidence as to the entrepreneurial nature of the stand operators. More risk on the stand operator here, more like an entrepreneurial relationship 2. The Badger Bus Tour Company, which provides bus service to rural communities throughout the Midwest, has adopted a new policy allowing drivers to bid on any open route positions, based on seniority. Prior to the adoption of this new policy, the company either assigned a new driver to an open route, or made a unilateral assignment of an existing driver. Anyone assigned to a new route was required to ride on the buses as an extra for one week, learning all of the out-of-way stops for that particular route. A. New hire drivers were not compensated for the week they rode on the bus as an extra, since it was considered part of their initial training (once they had completed their course on the operation and repair of Badgers 57-seat touring bus). Is this practice legal under the FLSA? No, the drivers were receiving more of a benefit than the employer was First part definitely seems to benefit the employee more these skills may be used by the employee on any similar bus. Second part, the employer seems to be getting more value here In the cases Clauss has found the training period was considered as a whole but it seems like there should be a distinction between the first and second half of the training B. Current employees who were reassigned to a new route (without any choice) were paid their regular rate for the route training time. Was this required by the FLSA? Yes, they are current employees and they are intended to remain employees, the employee is not really getting any benefit here outside of keeping his/her job C. Current employees who voluntarily sought reassignment to a different route were not paid for the route training time. Was this practice legal under the FLSA? Note sure, Here the employee is probably getting more benefit because the employee is the one who wants reassignment this is wrong because the benefit it still going to the employer here, there is burnout, changing this route could improve morale, presumably the employer doesnt do this for no reason

3. Eugene works for the TEJ Company as a surplus salesperson. TEJ dumps many surplus items from its warehouses into a fenced lot owned by TEJ and located in the back of its property. Eugene sells as many of the items as he can. He decides what his hours will be, deals with buyers who come around and makes up the prices to be charged. He gets to keep 20% of all sales revenue. Eugene pays for a small ad to be carried weekly in the local newspaper, reminding bargain hunters of the kinds of items he can offer at greatly reduced prices. Is Eugene an employee of TEJ or an independent contractor? Would your answer be different if TEJ requires the surplus lot to be open from 10 to 4 every day, and compensates Eugene with a $10 an hour wage? Independent contractor o Only real sticking point is the lack of ownership of the lot o Possible Tests: Economic Reality Test: Whether the employer (1) had the power to hire and fire the employees (2) supervised and controlled employee work schedules or conditions of employment (3) determined the rate and method of payment (4) maintained employment records Another Test: (1) the degree of control exercised by the employer over the workers (2) the workers opportunity for profit or loss and their investment in the business (3) the degree of skill and independent initiative required to perform the work (4) the permanence or duration of the working relation ship (5) the extent to which the work is an integral part of the employers business CA FedEx Test: Whether the principal has the right to control the manner and means by which the worker accomplishes the work but also (1) whether the worker is engaged in a distinct occupation or business (2) whether, considering the kind of occupation and locality, the work is usually done under the principals direction or by a specialist without supervision (3) the skill required (4) whether the principal or worker supplies the instrumentalities, tools, and place of work (5) the length of time for which the services are to be performed (6) the method of payment, whether by time or by job (7) whether the work is part of the principals regular business (8) whether the parties believe they are creating an employee relationship DC Circuit FedEx Test: Entrepreneurial (1) whether the putative independent contractors have significant entrepreneurial opportunity for gain or loss (2) whether position presents the opportunities and risks inherent in entrepreneurialism (3) All the other common law factors still considered with an emphasis on the 2 factors above FLSA: employees are those who as a matter of economic reality are dependent upon the business to which they render service Lauritzen test: Six criteria (1) the nature and degree of the alleged employers control as to the manner in which the work is to be performed (2) the alleged employees opportunity for profit or loss depending upon his managerial skill

(3) the alleged employees investment in equipment or materials required for his task, or his employment of workers (4) whether the service rendered requires a special skill (5) the degree of permanency and duration of the working relationship (6) the extent to which the service rendered is an integral part of the alleged employers business Darden (common law) Test: (1) the hiring partys right to control the manner and means by which the product is accomplished (2) the skill required (3) the source of the instrumentalities and tools (4) the location of the work (5) the duration of the relationship between the parites (6) whether the hiring party has the right to assign additional projects to the hired party (7) the extent of the hired partys discretion over when and how long to work (8) the method of payment (9) the hired partys role in hiring and paying assistants (10) whether the work is party of the regular business of hiring party (11) whether the hiring party is in business (12) the provision of employee benefits (13) the tax treatment of the hired party Meeting w/ Clauss Easterbrook pickle case - common law right of control just doesnt do it anymore - Courts at some point will have to reconsider - Takes care of the home worker - If this business couldnt function without your input then you are clearly an employee - Very highly skilled workers who work for multiple companies, can turn down work, free to do other peoples work For wage/hour the 6 tests are the critical tests, once you leave this things are a little more fluid Wage/House Safety/Health Benefit plans, what kinds are out there, who has to be eligible, what protections are out there ERISA Healthcare Focus on the broad preemption - This is always a big issue - ERISA is the broadest clause ever preemption, been to the Supreme Court many times Affordable healthcare - Because of preemption in ERISA it was difficult to regulate healthcare - Most state insurance laws set the kind of minimal healthcare that is now at issue in the national press

Self-insured employers could pre-empt state regs through ERISA but ERISA had no provisions about insurance All these efforts failed

Look at the very different situation for public sector

State ex rel Patterson v. Industrial Commission of Ohio (1996) Ohio Supreme Ct. - Case about workmens compensation applying differently to different types of employees. Plaintiff was the widow of a relief worker who died. Entitled to less compensation as a result. Court said that this was a violation of equal protection. Hoffman Plastic Compounds, Inc. v. National Labor Relations Board (2002) US Supreme Ct. - Court said that illegal immigrant who was working was not entitled to back pay after an NLRB ruling because he was committed serious misconduct by being in the country illegally. Big difference between pay hours dictated by contract or employment or collective bargaining agreement. 2/9/12 Back to enforcement mechanisms next week Hammer v. Dagenhart (1918) - Involves the early child labor laws o The difference between feds and states was the age; Feds set age for absolute bar (mining and manufacturing) at age 14. State law said that you had to be at least 12. Some limits between 14 and 16 6 8 hour days a week, not before 6am or after 7pm o No concern for schooling here because many schooling programs ended earlier (8th grade). - Issue o Can the government prohibit the shipment of goods produced by child labor across state lines for 30 days - Court reasoning: o In commerce was considered the shipment of goods across state lines Commerce doesnt begin until the goods are delivered to the carrier o Congress is really trying to regulate inside the factories which is something that typically falls under the state power Congress said we can do that because we can ban shipment of banned goods court responds that in those cases the good itself was bad - Dissent (Holmes): o Agrees that feds cant regulate production in the factory but he says they can still prohibit those goods from being shipped in interstate commerce o Issue of indirect vs. direct regulation o Without allowing this the individual states could do Notes: - The early hour laws were really safety laws o Women, children, people in certain occupations like mines

Courts would challenged the science but they did not really disagree that the law was in the sphere or legislative authority When congress enters the field their law preempts state law o They can state that they want to preserve state laws except where they conflict but it doesnt have to

United States v. Darby (1941) FLSA goods made in a factory where people are paid in violation of these laws and where children are employed goods cannot be shipped until there have been no such practices in the factory for 30 days o 215(1) prohibits transport or shipment in commerce goods produced in violation of 206 or 207 o (2) minimum wage or overtime o (4) 212 child labor o (5) record keeping Those sections are all being challenged This is a criminal action because 216 allows for criminal proceedings Federal Arbitration Act - Exemption for workers was found in section 1 of stat because it said it did not apply to workers engaged in commerce - Other section said any commercial agreements affecting commerce - They used different definitions modern court of textualists said when the text is this clear we dont look to legislative intent. Paying close attention to the statutory language is essential 2/14/2012 Holmes dissent in Dagenhart - congress can prohibit the shipment of any goods - He does not see that production activity in and of itself would be subject to federal power Darby overturns and changes Holmes reasoning - Power of congress to regulate interstate commerce includes protecting commerce by prohibiting certain methods of production - 206(a): engaged in commerce or in the production of goods for commerce o Definitions in 203 Includes people whose activities are vitally related to those who are in commerce or in production of goods for commerce Who completes the journey? This is a very broad definition o Production of goods for commerce includes any activity necessary for that production i.e. window washers in a factory were covered o Congress did include some limiting language if not actual production have to be closely related and directly essential to production Still includes a lot of different people - Employers divided their workforce between intrastate workforce and interstate workforce o One production line would only make intrastate and others would do the the interstate, same with truck drivers, etc.

Congress changes this in 1961

Up until 1961 still had to be engaged in commerce or production of goods for commerce - NLRA said any industry effecting commerce o This is broader than the FLSA In 1961 congress looked to enterprise engaged in commerce or production of goods - Included phrase handled goods in commerce - Doesnt matter that a particular company has only a trivial effect on commerce Today: Enterprise with a least 2 employees who have some nexus with commerce that includes goods that have at any time moved in commerce. - This basically covers every entity - So the real constraint in coverage is the dollar volume test. - One dollar volume test (excluding public hospitals and schools which have no dollar volume test) o Test is 500,000 dollars Even if you do not make it to 500,000 dollars you may still be held responsible to those employees that are engaged in commerce or producing goods for commerce In 1974 congress extends that law to protect domestic workers - who in any workweek is employed in domestic service in a household o Only way to do this is for congress to conclude that domestics effect commerce o As a result they had the authority to extend this domestics if they all quit they wont buy cleaning supplies (that come from interstate) and it also could free up the woman for her to enter her own commerce connected activities Court determines this even though congress did not articulate it - Just because congress does not tell the court the power under which it acted does not mean it is not ok. If there is obvious power court should respect congress use of power. I. WHO IS AN EMPLOYEE A. TESTS (COMMON LAW, ECONOMIC REALITIES, ETC) American Law Institute Restatement Third of Employment Law Nationwide Mut. Ins. Co. v. Darden (1992) Supreme Court Facts: Rules: Secretary of Labor v. Lauritzen (1987) Seventh Circuit Facts: Rules: Vizcaino v. Microsoft Corporation Ninth Circuit (1997 and 1999) Facts: Rules: Estrada v. FedEx Ground Package System, Inc. (2007) Cal Court of Appeal Facts: Rules:

FedEx Home Delivery v. NLRB (2009) D.C. Circuit Facts: Rules: Gulf King Shrimp Co. v. Wirtz (1969) Fifth Circuit Facts: Rules: Baker v. Flint Engineering & Construction Company (1998) Tenth Circuit Facts: Rules: B. TRAINEES vs. EMPLOYEES Donovan v. American Airlines, Inc. (1982) Fifth Circuit Facts: Rules: McLaughlin v. Ensley (1989) Fourth Circuit Facts: Rules: C. VOLUNTEERS vs. EMPLOYEES Tony and Susan Alamo Foundation et al. v. Secretary of Labor (1985) Eighth Circuit Facts: Rules: D. JOINT-EMPLOYER Lopez v. Silverman (1998) Southern District New York (U.S. District Court) Facts: Rules: E. OWNER/PARTNER vs. EMPLOYEE Clackamas Gastroenterology Associates, P.C. v. Wells (2003) Facts: Rules: Solon v. Kaplan (2005) Seventh Circuit Facts: Rules: EEOC v. Sidley & Austin (2002) Seventh Circuit Facts: Rules: F. WELFARE RECIPIENTS/WORK RELIEF Gonzalez v. City of New York (2004) Second Circuit Facts: Rules: State ex rel. Patterson v. Industrial Commission of Ohio (1996) S.Ct. of Ohio

G. ILLEGAL IMMIGRANT as EMPLOYEE Hoffman Plastics Compounds, Inc. v. National Labor Relations Board (2002) S.Ct. Facts: Rules: II. THE ERA OF PROTECTIVE LABOR LEGISLATION A. OVERVIEW 1. MODES OF IMPLEMENTING AND ENFORCING STATUTES a. PRIVATE ENFORCEMENT b. PUBLIC ENFORCEMENT c. AGENCY ENFORCEMENT B. CASES Hammer v. Dagenhart (1918) S.Ct. Facts: Rules: United States v. Darby (1941) S.Ct. Facts: Rules: 1. FAIR LABOR STANDARDS ACT (FLSA) Maryland v. Wirtz (1968) S.Ct. Facts: Rules: Brennan v. Arnheim and Neely, Inc. (1973) S.Ct. Facts: Case about owners of apartment buildings and management service that takes care of all the buildings. - They are a business management company for these properties o At any specific building their activities do not make enough money to be covered, can we combine them? See test below Rules: - Three criteria to become a covered enterprise (as per 203(r) definition of enterprise) o Related activties o Unified operation or common control o Common business purpose - Yes, these are related under these criteria they do the exact same activities at all of these place (horizontal relationship). - Court says it does not matter than the management company does not own all of these buildings that they manage Class Notes: - Can also be related vertically common ownership (Production and retail aspects) - Also can related by promoting one another (i.e. bank builds big office building to project prestige and then rents out rest of building) - Key from the third criteria is the business purpose this will help exclude charities (but non-profits will still be covered)

Alden v. Maine (1999) S.Ct. Facts: - Parole officers were not being paid overtime so they sued the state of Maine for their unpaid overtime - Maine said that they had sovereign immunity th - Court said you could not sure in Federal court under the 11 amendment so congress amended the law to say that you could also sure in state in court o People start to sue their state employers, court says they cant do this in federal court unless congress was exercising their Fourteenth Amendment powers. - FLSA waives immunity for federal government (and for the states but this gets overturned in this case) Rules: - Courts holds that you cannot sue in state court either - If congress acting under commerce clause rather than the Fourteenth Amendment then it does not have to power to waive the states sovereignty. Class Notes: - Court does not address a constitutional issue until it is squarely presented so when congress first added schools and public hospitals it was upheld (Maryland v. Wirtz) o As a result people started to sure - One problem with looking a traditional state activities is that they are constantly changing over time o Garcia overrules National League of Cities but Blackmun is much more respectful to the idea of state sovereignty.

2. THE OVERTIME REQUIREMENT/HOURS OF WORK

Difference between Overnight v. Misel and Belo contracts is that Belo contracts are only for fluctuating work sometimes there WILL be LESS work, it is IRREGULAR. With the other case the employer just does not want to hire more workers so there is overtime basically every single week. - This is about helping the employer and employees be more flexible rather than just the employer trying to squeeze more of his employees. Section 7(b)(1) and (b)(2) - Must have a union - Can agree to no overtime on a 6 or 12 month basis so long as they do not exceed a certain number of hours over a given period of time - See packet but Clauss said not that important

FLSA 207(e) - (5) o (6) o

This for extra pay intended as overtime for things like days over 8 hours so it does not get included in the regular rate and it can be used to offset overtime payments This is premium pay like a shift differential (premium pay for undesirable work). If this is not paid at 1 times the regular rate then it is not overtime and gets added to the regular rate. If is paid at 1 times the regular rate it is not included in the regular rate and may be used to offset overtime payments.

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h. Statutory Exemptions Statutory Exemptions - Created by congress and as a result the rule is narrow construction - Since these are exemptions they are affirmative defenses with the burden of proof on the employers - These were all written by congress but certain words are in the law yet defined by the agency o When delegated courts have to defer to this unless it is arbitrary and capricious - Sometimes they leave it up to the courts to interpret the words. - Complete exemptions in 213(a) - Complete exemptions only for overtime in 213(b) - Partial exemptions in 207 - Employers exemptions o Ex. Railroads and air carries, small newspapers and broadcast stations - Establishment exemptions o Motion picture, amusement - Employee exemptions o Executive, administrative, public safety, etc. - Under narrow construction every single one of these words must be interpreted. - Courts more and more excluding EMTs and Paramedics because they are not specifically preventing fires. o Used to be excluded because they are trained by the fire department and are capable of fighting firefighters 213(a)(1) - Very problematic exemption because of politics o Agencies wanted to amend these things but agencies are subject to too much political pressure - The dollar amount has never been very effective - In 2004 they added a high paid employee exemption for salary of 100,000 or more and perform duties of an executive or administrative employees with important duties - Debates over whether it made more or less employers exempt Auer v. Robbins (1997) Facts - Secretary says you cant be salary if you are subject to wage deductions - Have to be paid the same amount without regard to how many hours you actually worked that week. - If you are really an executive there is no one monitoring your every move to check up on you o If they treat you like you are on the clock then you are not really an executive - The dollar amount had long been surpassed but the no deduction kept this law relevant Holding Reasoning Notes - The reason it came up again in modern time is because it was being challenged in the context of the public sector (arguing public and private are different) o Arguing that there are not many ways to punish because of merit protection o Manual setting out disciplinary deductions did not apply to all the police, was not clear that officers were routinely disciplined in this way - This is mooted by the 2004 regulations because they decide to exclude the police from the exemption Why did they cut out police, firefighters, etc.? - Now that we have moved away from manufacturing the broad exemption for white collar people is no longer relevant - Dont want to include in the exempt group people who are more equivalent to blue c ollar because they are doing more of the production work of the enterprise. o In this sense they are extending overtime to a lot more people

Examples: underwriters who process claims (most courts will say this is more like production work, not like administrative work, their work is office work but it is not directly a related to management);

Long Island Care at Home v. Coke, S.Ct. 2007 Facts: - These home companions work for a third party - They are doing more than the traditional live in companions, this is paid for by insurance Holding: Reasoning: Notes: Bayada Nurses, Inc. v. Pennsylvania Dept. of Labor and Industry, 2008 Facts: Holding: Reasoning: Notes:

Domestic Service Workers Tuesday, March 06, 2012 1:21 PM Ag workers and domestic workers have been left out for long time. Ag workers have never been covered by the NLRA, and under the FLSA have been covered since the mid 60s but with all sorts of exemptions. The 1974 effort to extend the FLSA to domestics was important. o Notion was that someone dependent on an occupation should get the min. Same as before. But what do you do about the elder-sitter and the baby sitter. Congress was reluctant to extend b/c of fear the casual worker would suddenly be converted into a FLSA employee. So 13(a) 15 provided an exemption for both of these. o The DOL had to write regs. Reality. The elder sitter is doing more than just "watching the old lady" The Coke case: elder sitter worked more than 60 hours of work and never got the min. Prior to 1974: domestic service workers would have been covered had they worked for an enterprise. There was never an exemption for them prior to this there were simply private contracts. There weren't the services available back then. Theoretically, there were a few firms that were enterprises. (more common in the home health realm). So, when the DOL wrote the regulation, the employees became exempt. This was an employee exemption not an employer exemption. So, in the course of carving out the DOL removed people that had previously had coverage. Today, there are 1.6 million people doing this kind of work. Case demonstrates one of the problems with gov't regulation Point: need to be a counselor of law (not just a litigator) Justice Breyer: wrote for the Majority. o In the Proposed rule modifying the Regulation the agency explains that they can rewrite, b/c: Congressional language was ambiguous, so the agency is permitted to rewrite the regulation and the court defers. Agencies can flip, so long as they are operating in the range of ambiguity. Agency here justifies actions:

Says it goofed when it exempted people previously not covered No problem, b/c the agency had carte blanc to act (broad discretion). Also, remember: home health services back in the 70s were something wealthy people got. Enterprises during that time only provided services to the wealthy. So, the SCOUS: says even though the DOL thought about the issue it is unclear the result from the first regulation would have been different. In the new rule: DOL points out: industry has changed immensely. In 1974 only one person paid: the home owner. Since then 70% are paid for by US Gov't / State Gov't. 12% paid by private insurance So, the tab is picked up by big institutions that can afford to pay a fair wage. Also, they were only thinking about the single earner family. Today: dual income changes the ability to pay. Also, harder to care for ones own family. Elder person probably lives by themselves and care is needed for more than just a few hours a day. The department's description of the duties back then were loose. Today the proposed reg is very precise about what a companion does vs. a home aide. Other thing the rule does: it reverses the 74 mistake. 3rd party payers no longer get exemption. Live in Domestic: the law exempted the homeowner from OT. Goes back to compensable hours of work. Like the apartment manager. The law contemplates that there is an agreement. Fixed hours. Other hours are not obligated hours. But this didn't work for live in domestics. So, if provided by agency they don't get exemption. 2ndly: home owner must keep a daily record of hours worked. And the homeowner will need to initial.

The Penn case: o Purpose important to look at state law too. And just b/c the language is the same: Such as domestic service employee: does not mean the terms mean the same thing.

Reason for the Federal action (the Penn Statute pre-existed the Feds): The employers wanted something to be comprehensive. FLSA Sec. 18: leaves in place more favorable / stringent State Laws. So many States have changed and follow Penn. So, this was one of the reasons the DOL changed the reg. 3. Religious Clauses on Gov't regulations Alamo is still good law despite Hosanna Tabor. This will likely be a short answer question on the exam. Presumption in American Law: is that rules don't apply to religiously affiliated institutions. Applies so long as Congress is silent. Wouldn't always present a 1st Amend problem, but it would always present a Constitutional question. So, Cannons tell us to apply presumption unless Congress spoke. Must be engaged in some kind of business that Congress wants to regulate on behalf of the people. o Most religiously affiliated organizations do not have a business (which is why Alamo was such an easy case) Church affiliated Schools: usually exempt b/c they are not engaged in a business (don't expect to generate income. o BUT when congress extended enterprise coverage: they specifically included schools, hospitals etc. . Whether for profit or not for profit.

So, the Question on pg. 210. What if not a relig. Affil. Hospital or school. Such as the Chesepeak Rehab Center: they dont charge for the services. Court says they are not a covered enterprise. o Don't satisfy the def. of enterprise coverage found on pg. 210. o Also the court looks at the exemptions: in 1974 religiously affiliated conferences were exempted. People pay. Congress past this exemption to confirm their intent. MOST employees receive their coverage b/c they work for an enterprise. o But individual coverage applies too. If the job is engaged in commerce. This guy crosses State lines. Ministerial exemption wouldn't apply here. o So: first question: is there a business purpose? (don't even have to address the 1st Amend) Salvation Army Case: o Court found these people were ministers. o Also involved the employees in the thrift shop. These people were more like those in Alamo. As part of the therapy they were housed fed and worked in the thrift shop. They didn't deny they should be paid the min. o Lets say they didn't pay them: The activities might not always be exempt. The Court hasn't grappled with the question of what to do with what to do with those who are ministers but engage broadly in commerce.

If the business the company is engaged is in tending to people's soles: that is ministerial. Assume you are covered: Who are the ministers? The SCOUS left in the term Ministerial (although other Justices Alito and Kagan take exception with the term). Hosanna Tabor is a Title VII case. o These are school teachers. Most of what they do every day is teach. o What is the difference btw the lay teach and the Call teacher? Congregation bestowed the title and view the person as one of the faithful. Is distinguished from the collegues. In order to stand for confirmation: had to take lots of courses. Get through an oral board. (it was a long extended period of testing before she could be nominated). 6th Cir: BUT there is very little that separates her from the other teachers. Also spent very little time on religion. o Justice Roberts (Majority): 6th Cir. Used the wrong test: fact of the matter is she was distinguishable b/c she was relied on by the members of the church. Justice Thomas in Concurrence: court must stay clear of judging who the minister is Problem is how do you distinguish someone like Alamo that intends to make everyone a minister. Posner in Salvation Army Case: this presumption can be rebutted (pg. 212). Identifying a fake Church? This is a very sticky issue? Most of our regulations with the exception of ADA don't apply to religiously affiliated institutions. BUT when they receive federal funding. 4. The Child Labor Provisions There are no exemptions from the Child Labor provisions. There are a few within the act but need to watch out for mistakes Definiton of hazardous child labor in section 203(l) Under the age of 16 in non-farm jobs Need to be 18 to work in occupations that are declared by the secretary to be hazardous Farms 213 (c) o Originally children working on farms were totally exempted but this was later changed

o o o o

Bottom line is that you have to be 14 (instead of 16) and you cant work during school hours You have to be at least 16 to work in hazardous farm labor 12 and 13 may work when school not in session if parents consent or if they are working on parents farm Under 12 (10 and 11) can work in hand harvest labor with short seasons Secretary had to make certain findings before they could do this (including not hazardous to the health of the child). Pesticides for example can be hazardous because there are no tests on the children but law only says a reasonable assurance of safety Need to certify there are no adults available to work Had to live within commuting distance of farm (protects migrant children)

Special bill allows amish to have children work in sawmills so long as they dont operate the power equipment, they were safety gear, and they are supervised by an adult from their religious sect. Compactors and Balers Safety Standards - Used to be a rule saying children could not operate these but it was changed Driving Restrictions - Had a rule saying people had to be 18 to drive commercial vehicles - Many always complained about this so congress passed a law that 17 year olds can now drive these vehicles (subject to some restrictions). Enforcement and Compliance Problems Wage & Hour Violations o Back pay private suit in fed/state court, individual action or special class action (opt in), has to be brought by employees 16 (b) suit o Liquidated damages private suit in fed/state court, individual action or special class action (opt in), has to be brought by employees 16 (b) suit o Suit by secretary under 17 (mainly what is used today) Injunctive Relief Back pay can be part of the equitable relief o Suit by secretary under 16(c) Civil Penalties o Criminal action under 16(a) Secretary can ask for this if there are repeated and flagrant violations (but fine is minimal) Wrongful Termination/Retaliation o Suit be secretary (only option until 1977) o After 1977 individuals can bring their own lawsuits All legal and equitable relief as appropriate Compensatory damages Punitive damages Get a jury trial Mandatory attorneys fees Liquidated damages Child Labor Violations o No private right of action (so no damages to the parent for a childs injury) Problem for workmens compensation laws

Secretary brings suit Can try to get an injunction but courts dont really like to do this Only really do this for repeat violators to set up contempt Penalties 1,00 per violation added for repeat violation 10,000 per employee who was subject of such a violation 5. Wrongful Discharge or Anti-Retaliation Provision

215(a)(3) allows a private right of action - to discharge or in any other manner discriminate against any employee because such employee has filed any complaint or instituted or caused to be instituted any proceeding under or related to this chapter, or has testified or is about to testify in any such proceeding or has served or is about to serve on an industry committee Most courts (prior to Kasten) had said complaints to the employer are protected, this is considered a complaint. Only a few really absurd opinions held otherwise. th - Issue before the 7 circuit was whether or not it had to be in writing o Will need to draw a line somewhere to determine difference between just grumbling and an actual complaint. o If it has to be in writing then the hr people can see what it was that led to the issue Kasten v. Saint-Gobain Performance Plastics Corp. - Facts: Kasten complained everyday that the timeclock was at the workstation so the workers had to clock in after putting on and taking of protective clothing. - Holding: The complaint does not have to be in writing, it can be oral - Reasoning: o Breyer finds some ambiguity so he can look to the purpose of the statute and so he can give some deference to the agency interpretation o Not going to address the issue of internal communications - Dissent: o Scalia says it was very clear in the petition for cert that this was internal and they argued it in the briefs o The internal complaint was the really big issue in this case and now we dont have an answer to it. - Notes: o Problem with Scalia dissent is that at the time a good chunk of the employees were illiterate and complains at this time were almost always oral because workers were so scared. He also incorrectly states that the NLRA required a complaint with the government first Travis v. Gary Community Mental Health Center, Inc. - Facts: - Holding: - Reasoning: 6. Enforcement Procedures under the FLSA (see above) 3/13/2012 Wrongful Discharge Travis v. Gary Community Mental Health Center, Inc. 7 Circuit (1990) th - 7 circuit says legal relief typically included compensatory and punitive damages - BUT a majority of courts have actually said that you cant get punitive damages, liquidated damages cover the legal relief Supreme Court has yet to rule on this Circuit split. There is also a big variance among states as to whether or not punitive damages may be available in wrongful discharge cases.
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This makes it difficult to know how the Supreme Court would rule on this issue if it heard a case. If you are in a jurisdiction that does provide punitive damages you might try to bring a second count for wrongful discharge in violation of public policy. Always need to check to see if there is a superior remedy in state common law BUT also need to make sure the federal statute does not preempt the state common law

216(b) of the FLSA includes language that gives legal and equitable relief that is appropriate to effectuate the purposes of 215(a)(3). What happens if an employee is wrong about the wrongful discharge claim? - Court has adopted a reasonable employee standard - If the employee acted reasonably then he/she be protected What about former or prospective employee? - Ex. Former employer cant give you bad references for suing him - Prospective emplpoyer cant refuse to give you a job because you sued a former employer - This is an important concept in whistleblower laws. Burlington Railway v. White - A retaliatory action DOES NOT have to result in a tangible economic loss to be considered Hans G. Heiman v. City of Chicago - What happens if you are denied time off for comp. time? th - 7 circuit said you cant get an injunction for this because 216 and 217 only allows injunctions for a violation of 215(a)(3), for this you are limited to back-pay and declaratory judgments. Family Dollar Store Case (the on whether an exec or an employee) - Where the district manager basically did everything - How to bring the limited class action? (how Clauss would do it) o 1. Ask the district court to certify the class Get affidavits from the district manager from each region (probably a couple in each region) show a national pattern. o 2. Unlike rule 23, there is an independent ground for revoking (de)certification if no one wants to join the class, need to show some evidence that people want to join the class. How do you notify the class? If there is a union, the union can notify (but cant bring one of these) If you are management you probably dont have a union Court can help you notify because it can compel the company to provide you with all the contact for all the store managers So this way you will know who you need to get in tough with and how you do so - The Second part of this case interpreting sections 10 and 7 of the portal to portal act o If you have section 11 liquidated damages (before portal-to-portal act the liquidated damages were mandated). Now the court has the discretion to deny liquidated damages if the employer satisfied an affirmative defense (not absolute bar, the only absolute bar is opinion letter from the attorney general. o Section 255 (statute of limitations) in portal to portal act It is 2 years from the date of the conduct that you are complaining about. o In 1966, a cause of action arising out of a willful violation has a statute of limitation for three years. In order to trigger willful, you have to have acted negligent and not checking on your obligations under the law o Statute of limitation is a jury question District court said jury finding of willful satisfied requirement for liquidated damages so there is no choice but to award.

Linds? Food Store - Secretary can sue for wages on behalf of employees or he can oversee the settlement of the suit - What if the secretary sues first and then settles the case? o There is no way for employee to opt in o Court of Appeals said that if secretary has considered this and settled then employees lose their private right of action. Webster v. Bechtell, Inc. - Had a small class with only a few employees, offered settlement o No liquidated damages - Alaska lawyers had a class action, asking for back wages only for original six, but asked for liquidated for everyone else. Public Procurement Contracts? (not on exam) Prevailing Wage Laws If you are going to do business with government body o Supplies and/or services Then you will be subject to our prevailing wage laws Government is the largest single consumer in the world and they award contracts competitively (for the most part). o Award to the lowest responsible bidder These standards are usually superior to any minimum wage law How do you determine the prevailing wages and for who do you determine them? 1. Describe what kinds of contracts we are talking about o Davis-Bacon, every contract for construction, alteration, repair, painting, have to pay prevailing wage for mechanics and laborers employed directly on the site of the work. Prevailing wages are to be set each class for that kind of work (is residential , housing, heavy road construction, etc.) also by county Secretary of Labor determines the prevailing rate and one cannot challenge them in court o Service Contract Act Basically the same but works for service employee and only 2500 value Provides for fringe benefits o Also Walsh-Healy 2. Enforced as contract law o These laws tend be very powerful How do we characterize the employees work? o Illustrated by Emerald Maintenance, Inc. v. United States Roofers are getting paid much less than the laborers In Hawaii prevailing practice is to only use roofers and not laborers So, they owe a lot of money Court said, since the bidder is supposed to be checking into this, it is his fault alone and he has to pay Southern Packing and Storage Co., Inc. v. United States 4 Circuit (1980) Making meals for soldiers Question was whether they were providing a service or making supplies Court held they were no doing enough to the product to be considered manufacturers, court holds this is actually a service contract What about painting mailboxes, is that a service contract or is it a davis-bacon contract
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I. Introduction (Chapter One)

A. Historical Background p. 3-17 1. History of the Regulation of Employee Benefit Plans p. 3-6 a. Pre-ERISA p. 3-5 b. Enactment of ERISA p. 5-6 2. Legislative History of ERISA p. 6-14 a. House of Representatives Report No. 93-533 (1973) p. 6-14 i. Synopsis p. 6-7 ii. Background p. 7-8 iii. The Existing Law p. 8-10 iv. Major Issues p. 10-11 (a). Vesting p. 11-12 (b). Funding p. 12 (c). Fiduciary Responsibility and Disclosure p. 12-13 v. Committee Action p. 13-14 3. Public Policy Goals of ERISA p. 14-17 a. ERISA 2: Findings and Declaration of Policy p. 14-15 b. Notes and Questions p. 15-17 B. Employee Benefit Plans in the Modern Workplace p. 17-18 C. Employee Benefits Law Today: Public Policy Issues p. 19-25 1. Federal Tax Policy and Employee Benefit Plans p. 19-20 Where it says 215 billion in missing taxes this because healthcare benefit plans are not taxed. People making less than 15,000 or less a year are paying the highest tax as a % of income. This is a subsidy to upper and middle class because poor are buying healthcare with post-taxed dollars but others are doing pre-tax through the health insurance benefits from employers Policy argument for this: This is a mandatory savings program (put in pension plan) because there is such a low savings rate in the United States. o Pension is being invested by fund administrators (so investing American dollars) and fiduciary duty requires diversification some must go to venture capital. o This is in American interests 2. Demographic Trends: Employee Benefit Plans and Public Benefit Programs p. 20-23 a. Americas Aging Population p. 20-21 b. Trends in Retirement Plan Design p. 21-22

c. Retirement Savings p. 22-23 d. Conclusion p. 23 3. The Scope and Cost of Retirement and Health Care Plan Coverage p. 23-24 4. Federalism and Preemption of State Law p. 24-25 D. Studying and Research Employee Benefits Law p. 25-28 1. Secondary Sources p. 26-27 2. Internet Resources p. 27-28 E. Discussion Question for Chapter One p. 28 II. PLAN OPERATION AND ADMINISTRATION (CHAPTER TWO) P. 29 A. The Statutory Structure of ERISA and its Regulating Federal Agencies p. 29-30 B. Types of Plans Subject to ERISA p. 30-44 a. Distinguishing Between Pension and Welfare Benefit Plans p. 31 b. Plans Excluded from Coverage Under ERISA p. 31-33 c. Single Employer Plans, Multiemployer Plans and Multiple Employer Plans p. 33 1. What is a Plan? p. 33-44 a. Donovan v. Dillingham, 11 Circuit (1982) p. 34-28 b. Musmeci v. Schwegmann Giant Supermarkets, Inc., 5 Circuit (2003) p. 38-44 C. Plan Documents, Trust Requirements and Amendment Procedures p. 50-61 1. Plan Documents and the Written Instrument Rule p. 51-52 2. Trust Requirement for Plan Assets and Types of Trustees p. 52-53 3. Plan Amendment Procedures p. 53-61 Plan amendments can only take place prospectively. Cant change it for the years that have already passed Can change the percentages for the future It gets tricky when people are already retired a. Curtiss-Wright Corp. v. Schoonejongen, S.Ct. (1995) p. 53-61 Issue in this case is whether the people who have lifetime benefits, the plan had a reservation clause, reserving to the employer, the right to change the plan.
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There is no mandated benefit in ERISA, only a requirement to keep promises if you make them. There is also no requirement for amending a plan so since the reservation clause if there will assume this the company will satisfy. Court says as log as they satisfy corportate law then they have satisfied the lan.

D. Plan Reporting and Disclosure Requirements p. 61-69 1. Legislative History and Policy Objectives p. 62-63 2. General Reporting and Disclosure Requirements p. 63-69 a. Summary Plan Description and Summary of Material Modifications p. 64-66 b. Annual Report p. 66-67 c. Summary Annual Report and Annual Funding Notice p. 67 d. Periodic Benefit Statement p. 67-68 e. Blackout Period Notice p. 68-69 f. Diversification Notice p. 69 g. Upon Request Disclosures and Other Information p 69 3. Note on Reporting and Disclosure Requirements Unique to Health Care Plans p. 7578 a. Disclosures to Plan Participants p. 75-76 b. Reporting Requirements to Federal Agencies p. 76-78 Class Notes 3/15/12 - 6 trillion is being held in U.S. national pension plans, this is more than the Gross National Product of many countries Terminology/History - Definitional Section is 1002 on p. 221 - Pension Plans o Single Employer Plans Typically offered by the employer unilaterally without regard to any union negotiations Most of these are under the control of the employer dont need to get permission from the unions The Employer is called the settlor b/c he offers the plan o Multi Employer Plans More commonly referred to as Taft-Hartley Plans These are typically negotiated by the union History Industries where there are small employers and lots of mobility were not typically providing their employees with pension plans At this time the unions were organized the by the trade (trade unions) and probably received your training from the union Regional bargaining units sprung up Unions ran these big regional pension plans b/c they were big and had more administrative abilities than the small employers o Every 40 hrs of work the employer would send in a check to the union pension plan

o o

BUT organized crime worked its way in big problem in the 40s o Using money to fund construction of Las Vegas In 1947 Taft-Hartley Act o 302(5) sets out requirements for these multi employer pension plans o The money has to go into trusts o Trust manages are subject to fiduciary duties o Have to be operated solely for the benefit of the participants o Employers cant give any money to union employees except for this purpose o Any kickbacks unions give to employers for participating will be punished under federal law o Only applies to these union pension plans Multiple Employer Plans Union does not have involvement but there are a bunch of small employers Multiple Employer Trusts (METs) Dilligngam Whether the MET offering this reduced plan could be considered sponsors of the plan and subject to ERISA? Public Sector Pensions Plans vs. Private Sector Plans When ERISA was first passed only applied to PRVIATE sector What about IRS Wanted to ensure employers were not using this to sneakily pay top executives much more without being taxed Didnt wanted disproportionate benefits for highly paid employees They didnt really care about whether the plan participants would actually see any money they were worried about revenues as that is there main job.

History o Prior to ERISA these plans were really only protected through trust law PROBLEM: you would only find out when the plan did not have enough money to fulfil the promise Trust law also never really had any principles of prohibited transactions Employers who did not have enough money could just borrow to satisfy its pension plan obligations Under ERISA this is VERY limited o 1947 Taft-Hartley o In 1958 Welfare Pension Benefit Reporting Disclosure Act The premise of this act is to require disclose of how assets are being invested Give employees power to intervene with a lawsuit gave them a private right of action Department of Labor only had to keep them on file but nothing else so it was basically a worthless law In 1974, ERISA o What were the biggest concerns in congress when they enacted ERISA Basically about forcing employers to keep the promises they made to their employees Money intended for pension plans has to be set aside Locked up in a separate box Money can either go into a trust or an insurance policy to cover the benefits Have to set enough money aside There had been a big problem with funding these benefits They are like social security and not pre-funded, always needed to put enough money into the plan to meet your current benefit payments This is called VNA o Need enough money to cover the benefits and the administrative costs No benefit plan is fully funded more like a mortgage that puts a little aside every time

o Need to be able to pay everyone if it all ended right now Most benefit plans make adjustments o They factor in cost of living increases, etc. o These are unfunded liabilities because not predicted o When it buys out another employer will sometimes absorb those employees Prohibited Transactions 408 (406 and 407 too), 404 as well 404 established fiduciary principles that were stronger than those at common law There are participation rights and once participating how long do you wait before you get a non0forfeitahle benefit. o Getting the non-forfeitable right is called vesting o Allowing these not to vest immediately is an incentive for employers (this is important because even today there no REQUIREJET than an employer provide a pension plan. o Did want employers to have to pay high administrative costs for employers who want to leave right away. o Prior to ERISA would usually have to have been for about 30-35 years to vest o Used to have years or service and age requirement In order to have continuous years of service you cant have a break in service if you do, it will wipe out any credits you have saved up Including layoffs and maternity leave as breaks in service Usually had to be 25 before you could start participating for purposes of years of service Cant have bad-boy clauses because these are deferred benefits, not gifts from the employer People cant garnish this money (cant be alienated) o Does allow for divorces b/c this was a big problem before the change Two Kinds of Pension Plans - Defined Benefit Plans (1974-1985) o This was the common type of plan during the period of (1974-1985) o Key is the TYPE OF PROMISE promise of a benefit here Promised monthly benefit/annuity for the rest of your life There is a formula that allows you to calculate what it will be WI Formula 1.6% x (high three years of pay average) x years of service all divided by 12 tog et monthly benefit o For this type of plan the risk is entirely on the employer Employee can figure out exactly what he/she will get - Defined Contribution Plans (in 1974) (20%) o Pre-401ks o Called money purchase plans o Employer is going to set so much money aside for you every year Goes into a special account with your name on it and when you retire that money is yours o Employer controlled the investments but the risk was on the employee (unless employer acted imprudently) Often would just turn it over to an insurance company who would turn it over in a lump sum when you retire o Benefit of this plan It was portable b/c when you left the company you could take the money and roll it over into a new companys defined contribution plan Whats Changed? - Today 79% have a defined contribution plan and 21 % have a defined benefit plans

o Market is too risky for employers to give out defined benefit plans today Settlor can terminate a plan and vest everyone immediately this how they were able to change these plans o Company would buy insurance policies to guarantee this plan o If you did this there would now be two plans (grandfather old employees under old unless they wanted to switch and new employees go under the new plan) 401k o Employee is usually expected to pay in the majority in the old days it was the employer o Example: employer can contribute up to 15,000 a year and employer will agree to put in 5,000 Yields an annual distribution of 20,000 Employee will direct how they would like the money managed More risky and more conservative options available o The employers contribution can be in their own stock all of it! Can sweeten by saying only going to match if you buy stock Can do this because employer not required to give any stock Ex. When Enron and Worldcom collapsed their employees basically got nothing o Since Enron and Worldcom there are LIMITS ON 401k After four years you can exchange you company stock for stock on the exchange allows you to diversify, includes employer contributed stock Get a little notice every suggesting you diversify but unless you give new instructions this will not happen. This puts investment risks and decision-making on the backs of people who do not have the education to make these decisions What happens in employer cant keep promise for defined benefit plan? o Title IV sets up a federal insurance company; PBGC Pension benefit Guarantee Cormpant Employers who have defined benefit plans have to send in an insurance premium every month based on the type of plan they have Like the FDIC if doesnt insurance your benefits 100% if you are a big holder no ensured beyond 7,000 dollars a month ERISA allows covers employee welfare benefit plans o i.e. Healthcare plans this is the big issue o In 1974 the only thing the government was concerned about with health plans was corruption So ERISA wanted to put the management of these plans under fiduciary principles but there were no substantive provisions at the time health plans are only year to year Health Plans are forward looking (pensions are backward looking) so at the time they did not think they needed to be worried about funding or vesting problems o Originally health insurance was state regulated But employers switched to self-insured plans so states could no longer regulate because ERISA has a preemtption clauses that preempts the field o

Vesting Rules Today - 1. IMMEDITATE VESTING fully vests immediately - 2. CLIFF VESTING -No vesting until you have completed 5 years of service at which point it is full th - 3. GRADUAL VESTING have to start to vest at 2 years and this increases until the 7 year when you vest completely (cant take more than 7 but it CAN take less) III. Qualified Retirement Plans Qualified Retirement plan Refers to an employee pension plan under ERISA that also complies with the requirements of Section 401(a) of the IRS code. Subset of the larger number of plans governed under Title I of ERISA A. Perspectives on Qualified Retirement Plans

1. National Retirement Policy: The Twin Problems of Elderly Poverty and Retirement Plan Coverage a. The Problem of Elderly Poverty Low-income elderly are heavily dependent on social security benefits b. Public Attitudes and Preparedness for Retirement Studies show a majority of Americans are cautiously optimistic about their retirement despite their ignorance and apathy concerning retirement financial planning. Ten Misperceptions 1. Saving too little 2. Not knowing when retirement will occur 3. Living longer than planned 4. Not facing facts about long term care 5. Trying to self-insure against long life 6. Not understanding investments 7. Relying on poor advice 8. No knowing sources of retirement income 9. Failing to deal with inflation 10. Not providing for a surviving spouse c. The Scope of Qualified Plan Coverage Federal income tax policy provides an incentive (tax subsidy) to employers to sponsor and for workers to participate in qualified plans See Table 3.1 on p. 91 for reasons why this is a bit misleading 2. Qualified Plans in Your Future Practice It is essential for practicing attorneys to know the rules for bringing an appropriate suit and what remedies to seek. They are complicated and not always clear B. Types and Characteristics of Qualified Plans 1. Defined Contribution (Individual Account) Plans and Defined Benefit Plans Qualified plans are voluntary for the employer so they will only sponsor one if it is affordable for the employer, suitable for its business and workforce, and will serve as an attractive recruiting and retention tool for its employees. Two Categories 1. Defined contribution plans (also known as individual account plans) 2. Defined benefit plans a. Defined Contribution Plans The plan document defines the amount of the contribution the employer must make to the plan each year The contribution is allocated to each account based on the plan formula Participants benefit at retirement is nonforfeitable (or vested) balance in individuals account - This includes contributions and accrued interest

There are different types of plans based on the nature of the contribution made by the employer - Profit Sharing Plan o Amount of employers annual contribution is up to the discretion of the employer o The employer may also choose to contribute a specified percentage of each participants compensation to the account o They can also choose to contribute a lump sum (determined through a formula) - Money Purchase Pension Plan o Employers annual contribution is fixed be a formula under the terms of the plan o Typically employer must contribute a predetermined percentage of each participants compensation to the participants plan account each year. o A variation on this is the target benefit plan Under this plan the employer uses a contribution formula that is actuarially designed to produce a specific account balance at the at retirement. o These plans are subject to the funding requirements of the Code so if employer contributes less than the plan document indicated it is penalized. - 401(k) Plan o Also known as cash or deferral arrangement or CODA o Plan participants direct the employer to contribute part of their current compensation to their plan accounts rather than receiving that amount as present compensation. o Many employers make employer matching contributions up a certain % of the amount employee contributes (these ARE NOT required). o Name comes from section of the IRS code that created it.

b. Defined Benefit Plans c. Hybrid Plans d. Employee Stock Ownership Plans e. Problems 2. The Growth of Defined Contribution Plans C. Age, Service, and Vesting Requirements 1. Introduction 2. Age and Service Rules for Eligibility a. Regulatory Guidance a. When does the twelve consecutive month period begin? b. Does the employee have to work continuously during the eligibility year of service period? c. What is an hour of service, and how does the employer determine and individuals number of hours of service? d. Can the employer exclude a group of employees from participating in the plan solely because they are classified by the employer as part time or temporary workers?

e. Can the employer exclude individuals from participating in the plan because they are classified by the employer as independent contractors and not as regular employees? f. Can the plan have more generous rules than the minimum age and service requirements of the Code and ERISA? g. How soon must the employee become a participant in the plan after satisfying the plans age and service requirements? b. Minimum Service Requirements and the Accumulation of Retirement Savings 3. Vesting Rules a. Determining the Applicable Vesting Schedule b. Defined Benefit Plan Vesting Schedules c. Defined Contribution Plan Vesting Schedules d. Vesting Schedules for Top Heavy, Terminated and Hybrid Defined Benefit Plans e. Determining Years of Vesting Service 4. Problems on the Age, Service, and Vesting Requirements a. Problem One b. Problem Two D. Benefit Accrual Requirements 1. Plan Amendments, Accrued Benefits, and the Anti-cutback rule a. Benefits Protected by the Anti-Cutback Rule i. The Concept of an Accrued Benefit ii. Statutory Benefit Accrual Methods for Defined Benefit Plans iii. Optional Forms of Benefits iv. Special Restrictions for Underfunded Defined Benefit Plans CLASS NOTES: 3/20/2012 ERISA divived into 4 titles - Title I o ERISA rules, put in place for the first time in 1974 o Enforcing the employer promise section o Reporting under the earlier statutes were totally unrealistic reporting requirements here are focused on getting information to participants in a form that is useful\ - Title II o Predecessor was the Internal Revenue Code designed to just tweak it to match ERISA - Title III

Sets up the government agencies that are going to have a rule Treasury Department Department of Labor Pension Benefit Guarantee Corporation (similar to the FDIC)

Title IV o Sets up the insurance fund o Different Risks For defined contribution plans there is nothing to really insure because all the risk is on the participant For defined benefit plan the company has made a promise to pay a certain amount so there is always a risk that a promise will not be kept if the companies go bankrupt o For an insurance scheme to work you have to charge an adequate premium These rates are set by congress, if they are set too high, people will complain, as a result the rates are too low the PBGC is underfunded. Defined benefit plans tend to be for higher paid workers

Some plans are not included - Church plans - Top hat plans o Because these are not funded Funding Problems - In the private sector if you had a really qood year you might not need to make any contributions this year. This is risky because you usually want to put money away for a rainy day - In public sector they do it all the time. o When times are good they really tend to not put any money in o When times are bad, the demands on the public money greatly increase - ERISA comes in because if the public elected officials do this so poorly how can we really expect the private sector to do better ERISA only protections - Penison plans - Employee benefit plans - First Question: did the employer create a plan that offers benefits to the employees? o If you have a plan subject to EIRSA then it has to satisfy certain minimum protections. o Donovan v. Dillingham Argue that theirs cannot be a plan because there is nothing in writing If there were actually the case no one would put any of their plans in writing and the would get around ERISA. Court says this is just cant be the answer their must be more Four part test o Could a reasonable person, see case for the test Notes: Fort Halifax this case only went to court because the employer said that the state plan was preempted by ERISA o If court said that it was a plan then it would fall under ERISA and their would not be any remedies (at the time) o If the court said this was not a plan under EIRSA then the state law would still apply. o Here the employer was trying use ERISA as a shield th o Court held there should really be a 5 Dillingham test If the plan requires funding then it should be covered Corporations big enough to offer their employees pensions had obligations in different states so ERISA needed preemption. o Establishment of plan 1102 on page 266. o This determination of whether or not there is a plan is very important

Dillingham test (and Halifax) 5 factors: Musmeci v. Schwegmann Giant Super Markets, Inc. Get vouchers that they can use to purchase food at these stores. The value to the employee is close to 2,500 a year. Does not make a provision for this at retirement, he says it is just a gratuity Court said these vouchers constituted income NO requirement that it needs to be paid out in cash, just needs to be for the benefit of the employees Schwegmann is a fiduciary when a business is sold you need to make a provision for the continuation of a plan ERISA focuses of keeping a promise o So the reasonable expectation of retirement benefit question makes sense. This is why the Darden case makes sense. 1102 (402) o Has to be a written instrument o Employee has to get a summary plan description o Money has to be locked up in a trust with your trustees as fiduciaries o

Plan Amendments

3/27/2012 Mainly concerned with the distinction between the defined benefit plan and the defined contribution plan. with the defined benefit plan there is a certainty of income during retirement Basically all employer plans today are defined contribution plans and that means all the investment risk is on the employee o In traditional plan the employer typically manages the investment of those monies (money purchase plan) These companies tend to have sophisticated investors who know what they are doing Your savings is mandatory money that would (but for the plan) come to you as wages o 401(k) plans - almost all allow the individual to direct the investment Lots of people with limited financial information will be in control of those plans Problematic if people just put everything in a 401(k) plan These are optional employer doesnt contribute unless you contribute For pension plans employer has to demonstrate that it does not discriminate in favor of its highly paid employees o But this doesnt mean you have to include each and every employee in the pension plan o Government is mainly worried about looking at the overall distribution o If you are in a tax practice you need to know the specific rules so you can ensure that you get the tax benefits Unqualified plans (these are unfunded and no one cares) o Top hat plan o People are just using these to control the distribution of income to themselves Consequences of having money in an unqualified plan o Even though money has been put aside to fund these plans that money is considered part of the firms assets and can be accessed by creditors. o With the qualified pension plans this money no longer even belongs to the firm

IRAs o

They are like 401(k)s in the sense that you can put pre-tax income into it. Earnings are not subject to tax either only tax when it is distributed to you. o You can defer distribution from your IRA Dont have to start taking an annual distribution until you are 70.5 There are other deferred income plans that are often for public employees but in these the employer is not making an additional contribution

As we embrace 401(k) and move away from traditional plans how do we know enough Americans are setting up 401(k)s - When you look at the plans people are setting there is not nearly enough money - There will not be enough money for people to be financially secure o These costs will be pushed onto the younger generation who will be struggling to send their own kids to college Anti-cutback rules (p.136-1137) - Employer has made you a promise - Cant amend the plan in a way the reduces your past benefit - Multi-employer pensions plans o If young workers arent employed at prevailing wages they arent getting enough money to pay the trust fund o Problem is retired workers go back at low half-wages and are drawing from the plan. Young workers cant get paid prevailing wages so they cant pay into the plan o So these trade plans require the suspension of benefits when retired go back to work in same trade - Heinz case from the book o Carpenter went back to work as a foreman and argued he was not going back to the same trade o He said you cant change the plan to include supervisors because that is a cutback o The court agreed that this could not happen Retirement Equity Act of 1984 - Giver participants spouse control over whether they will take a joint-survivorship or something else - Prior to this the default was a single-life annuity and only the plan participant could select o Could choose lump sum or joint and survivorship annuity - Lorenzen case o Once he gets to age 55 and retires he selects lump and his spouse consents o Had he lived he would have gotten 192,000 wife agreed (if you are going to die early probably take lump sum but if you think you are going to live a long time you will take a retirement annuity) o IF they had selected annuity the wife would not have been damaged she would have gotten 50% of amount whether he died before or after, it only makes a difference because they selected a lump sum o Under the lump sum, once he died, she would have gotten the full amount but since he died before she gets much less BUT it only matters because they selected the lump sum instead of the annuity Pre-Retirement Equity Act she would have gotten ZERO! - Under REA you will get at least something if the spouse dies Anti-Alienation Rule

206(d) of Title I Pension is absolutely protected from ANY demands made on it even by the spouse, it belongs to the plan participant and NO ONE else Congress did not like that result so law was ameneded to allow for qualified domestic relations orders o If a marriage dissolves and the pension is one of the assets then the court can order that the plan administrator will now also pay money to an alternate payee there has to be a qualified domestic relations order These have to satisfy very specific criteria Dickerson o Pan only allowed to be paid out on retirement or disability o These orders work great when the husband and wife are both retired (or could be retired) but here the spouse was not retired, could not be, and not getting paid yet o Court has to decide how to deal with this situation Typically family assets are the house and the pension plan Court says no Waivers o Ex-spouse can waive his/her rights to the plan o Kennedy case p. 228 Entered into a settlement at divorce and got a waiver Forgot to change the beneficiary on one of these forms so plan administrator paid to wife daughter showed the waiver Court said the waiver does not count as a qualified domestic relations order

Bankruptcy - Court says anti-alienation provision is so strong we will not apply a preference for bankruptcy law unless congress has done so and they have not - Possible justification: This may be the only money set aside for retirement and we dont want these people stuck on the public coffers Plan Termination - We know a settlor can terminate a plan - Standard Termination o If you terminate with sufficient assets (can afford to pay everyone) but everyone immediately vests they are entitled to their benefits (but they still dont get them until retirement) Have to get papers from PBGC saying the termination is valid o The sufficient assets part was very complicated in 1980s because the stock market was on fire plans were over-funded There was a lot of extra money sitting on top so employers terminated the plan so they could take that extra money If they didnt do that there was a hostile takeover and the new owner would terminate o SO congress passed a law that says if you terminate the plan the get at that extra money you pay an excise tax of 50% BUT if you roll it over into a new plan (such as defined contribution) then you will only pay 20% Clauss thinks they should not be able to do this at all because of the cyclical nature of the market Result is that there is a huge financial underfunding in our federal insurance fund - Distress Termination (when you dont have sufficient assets)

Sometimes ordered by the PBGC When they do this and they have insured the benefit what if there is not enough money in the plan to meet the minimum benefits that are insured. Government can go after the assets of the corporation up to 30% of the entire corporations net worth (includes parent, subsidiary, control group can get at all of them) But what if there is not enough, then it will become part of the U.S. government debt PBGC can terminate a plan before it is actually bankrupt o Employer can also see that if they dont shut down the plan they will be in a distressed situation o They will then use the additional gift of time to build up the assets in the fund

Employee Benefit Plans - It doesnt require the establishment of any benefit plans o No employer is required to offer anything - Under 2010 Act there are now some requirements on employers with respect to healthcare - While ERISA has very detailed regulations for pension plans, there are no similar regulations for benefit plans o Subject to reporting and dislosure provisions part 1 of title 1 and part 4 of title 4 (fiduciary provisions), part 5 of title 1 (gave beneficiaries a cause of action if you improperly deny them a benefit) - Read 514 verbatim before class - 514 is the preemption provision class preemption, this is why it is a problem for ERISA not to regulate the employee benefit plans o Start in 1980 congress passed some little laws that bit by bit added protections because this was unteable - COBRA o Can extend group medical insurance rates to laid off, quit, divorced, etc. o They have to pay for it but they pay at group rates huge benefits - Parity between mental health and other health provisions - Where a real need was seen for protection congress might pass a bill but nothing serious until 2010 3/29/2012 Affordable Care Act (Obamacare) - All plans have to include a list of essential services - Prohibits lifetime dollar limits on your health insurance o The occasional person who exceeds these caps never really hurts the overall pool so this provision wont really hurt anything o To keep this in place would have to keep the state pools available Might survive either way - Cannot deny insurance because someone has a child under 19 with a preexisting condition (current) starting in 2014 could not have a special high price either (currently they can charge more for this). o This doesnt really depend on the individual mandate - 2013 Revenue provisions o Medicare and Medicaid are paid for with a 2.9% payroll tax This tax is not capped Combined tax payed by employee and employer

In 2013 that tax will go up by .9% for people earning more than 200,000 a year People with unearned income will also be taxed 3.8% (this is the first time people have been classed) will mainly affect the wealthy o Also changes your ability to deduct medical expenses Currently most working people dont really need to deduct anyway because they dont make enough money o In 2018 there is a 40% excise tax for Cadillac plans but only on the amount by which that plan exceeds the norm If you plan costs more than 10,200 (for single) or 27,500 (for families) on the market you pay a 40% excise tax on the amount by which it exceeds those norms. Requirements alter state insurance and self-insurance o States can still do better but the federal law imposes minimum Still not required to provide health insurance to your employees o Two solutions If you currently have a plan and dont dump it, it is a grandfathered plans get certain advantages For every employee that needs a tax subsidy to purchase insurance on the exchanges the employer for that person witll have to pay a penalty of 2,000 per person. 30 employees can do this before employer has to start paying Can avoid the 2000 by giving vouchers to employees for the amount the employer pays into the plan for that employee Employee can use this voucher to buy insurance from the exchange

o o

One key to lower the cost is the list of essential services that can be preventative care services - Strongly endorses wellness plans and provides incentives for these -

What can make insurance expensive are the copays and the fact that sometimes you have to pay a certain amount before the insurance kicks in - Employees sometimes choose to have a really high deductible to avoid some of these copays - This works out ok if someone has a health savings account but not very many employees also have an HSA o Might be an issue of employee education Issue of what to do when one person so skews the cost of insurance - Stop loss plans, sometimes will be excluded from the plan - Sometimes spread to other employees Fee for service plans vs. managed care plans fee for service plan - You decide where you want the work done, they get a bill Managed care plans - These all require you to go to a primary care provider - To get ANY specialized services you have to get prior approval from your primary care physician your care is being managed - Once care begins there will be a utilization review to see if you really need as much care as the hospital doing the work says you do

Who provides the medical care and how do they charge? o Closed network Might be big enough (Kaiser permanente) that all your services will be performed by that institution o Preferred Provider If you use network providers you get a discounted price and if you go outside you pay full price o Open plan Can use any provider This can sometimes be troubling if you dont have a primary care provider Operate in one of three ways o Employees are all paid on a salary so there is no incentive for them to recommend a procedure over a diagnostic or therapeutic treatment paid the same amount no matter what

Preemption - First rule is that preemption is disfavored o We assume that congress would rather not preempt states - Two cases where it will be inferred o 1. Where the state law will conflict with the federal law o 2. Did something intent to occupy the field - Becktell? o Section 218 of FLSA says state law no preempted but only if state has tougher standards o What if state is identical with wage and hour but the other provisions are batter? o Court says it did not intend to occupy the field, it sets some floors but does not occupy the field - ERISA o Uses insofar as it relates so this is a very broad statement of preemption
Metro. Life Ins. Co. v. Massachusetts, 471 U.S. 724, 724-26, 105 S. Ct. 2380, 2381-82, 85 L. Ed. 2d 728 (1985) p. 293 Facts: MA state law requires a certain amount of mental health coverage. Insurer is selling plans that do not cover mental health. Court: This is a savings clause case 514(b)(2)(A) said no preemption of state laws that regulate insurance, banking, or securities o The next section talks about insurance contracts so it is clear that the statute is using insurance in the broadest possible way

Notes: - This plan clearly relates to an employee benefit plan A Massachusetts statute ( 47B) requires that certain minimum mental-health-care benefits be provided a Massachusetts resident who is insured under a general health insurance policy or an employee health-care plan that covers hospital and surgical expenses. Appellant insurer in No. 84-325 contends that 47B, as applied to insurance policies purchased by employee health-care plans regulated by the federal Employee Retirement Income Security Act of 1974 (ERISA), is preempted by that Act. Section 514(a) of ERISA provides that the statute shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan. But 514(b)(2)(A) provides that, with one exception, nothing in ERISA shall be construed to exempt or relieve any person from any law of any State which regulates

insurance. The one exception is found in 514(b)(2)(B), which states that no employee -benefit plan shall be deemed to be an insurance company or other insurer ... or to be engaged in the business of insurance ... for purposes of any law of any State purporting to regulate insurance companies [or] insurance contracts. Appellant insurer in No. 84 -356 contends that 47B, as applied to insurance policies purchased pursuant to collective-bargaining agreements regulated by the National Labor Relations Act (NLRA), is pre-empted by that Act, because it effectively imposes a contract term on the parties **2382 that otherwise would be a mandatory subject of collective bargaining. Massachusetts brought an action in Massachusetts Superior Court to enforce 47B against appellant insurers, and that court issued an injunction requiring the insurers to provide the coverage mandated by 47B. The Massachusetts Supreme Judicial Court affirmed, finding no pre-emption under either ERISA or the NLRA. Held: 1. Section 47B, as applied, is a law which regulates insurance within the meaning of 514(b)(2)(A), and therefore is not pre-empted by *725 514(a) as it applies to insurance contracts purchased for plans subject to ERISA. Section 514(b)(2)(A)'s plain language, its relationship to the other ERISA pre-emption provisions, and the traditional understanding of insurance regulations, all lead to the conclusion that mandated-benefit laws such as 47B are saved from pre-emption by the operation of 514(b)(2)(A). Nothing in ERISA's legislative history suggests a different result. Pp. 2389-2393. 2. Nor is 47B, as applied to a plan negotiated pursuant to a collective-bargaining agreement subject to the NLRA, preempted by the NLRA. Pp. 2393-2399. (a) The NLRA pre-emption involved here is the one that protects against state interference with policies implicated by the structure of the NLRA itself, by pre-empting state law and state causes of action concerning conduct that Congress intended to be unregulated. Pp. 2393-2395. (b) Such pre-emption rests on a sound understanding of the NLRA's purpose and operation that is incompatible with the view that the NLRA pre-empts any state attempt to impose minimum-benefit terms on the parties to a collectivebargaining agreement. Pp. 2395-2396. (c) Minimum state labor standards affect union and nonunion employees equally and neither encourage nor discourage the collective-bargaining processes that are the subject of the NLRA. Nor do they have any but the most indirect effect on the right of self-organization established in the NLRA. Unlike the NLRA, mandated-benefit laws, such as 47B, are not designed to encourage or discourage employees in the promotion of their interests collectively; rather, they are in part designed to give minimum protections to individual employees and to ensure that each employee covered by the NLRA receives mandated health insurance coverage. These laws are minimum standards independent of the collectivebargaining process. Pp. 2396-2398. (d) There is no suggestion in the NLRA's legislative history that Congress intended to disturb the state laws that set minimum labor standards but were unrelated to the collective-bargaining or self-organization processes. To the contrary, Congress in the NLRA developed the framework for self-organization and collective bargaining within the larger body of state law promoting public health and safety. When a state law establishes a minimal employment standard not inconsistent with the NLRA's general goals, it conflicts with none of the NLRA's purposes. Section 47B is an insurance regulation designed to implement the Commonwealth's policy on mental-health care, and as such is a valid and unexceptional exercise of the Commonwealth's police power. Though 47B potentially limits any employee's right to choose one thing by requiring that he be provided with something else, it does *726 not limit the right of self-organization or collective bargaining protected by the NLRA. Pp. 2398-2399. 391 Mass. 730, 463 N.E.2d 548 (1984), affirmed.

FMC Corp. v. Holliday Facts: Little girl injured in car accident, dad files a claim, get only a little, sure driver and settle, collect what they think will be enough, FMC comes in and says give me the money under the policy they get subrogated 4/10/2012

Broad preemption clause that pretty much supercedes all state laws Metro Life - Savings clause no preemption of state laws regulating insurance o Normally this type of law would have been preempted but it was not because of the this savings clause FMC Corp. v. Holliday - Can the state regulate these self-insured plans? - Pennsylvania tried to prohibit the mandatory subrogation clauses that are a common part of these self-insured plans. - Supreme Court said the deemer clause is very broadly written no employed plan shall be deemed to be an insurance company, insurance contract, etc. Want to regulate but not with such a heavy hand that employers would be discouraged from offering these plans, especially considering the fact that they are not required to offer them. Stoploss - Employer self-insures but he has an attachment point at which he buys an insurance policy once so much is spent insurance policy kicks to cover these extreme costs - Court says stoploss insurance policies protect the employer, not the individual the employer is still paying healthcare costs but they are being insured by these other insurers. After the stoploss decision the number of self-insured plans have increased dramatically The Alphabet Soup Requirements for Group Healthcare Plans - Amendments to ERISA to respond to the fact that there was preemption but no regulation of benefit plans - These have been enacted as part of the budget process because budget votes cannot be filibustered (so you dont need 60 votes) - Medicare has mandatory enrollment at age 65 o Part B and Part D you have to affirmatively enroll in and you are charged a premium - Most employers used to require you to affirmatively join the healthcare plan now there is automatic enrollment and you have to affirmatively opt out - Cant discriminate against your older workers can reduce benefits to decrease costs but you cant discriminate would have to reduce coverage for all workers o Employer required to cover older workers but under the law medicare automatically kicked in and was primary o Part of 1982 act said that employers insurance played stayed the primary insurer and medicare would be the secondary insurer COBRA 1985 - Get to continue health coverage for a limited period of time if there is a qualifying event that drops you from the plan o It is very difficult to find your own policy so COBRA helps protect people - The employee pays for the full premiums under COBRA o This could be very expensive because employer usually subsidized these premiums but they dont have to do this for people getting coverage under COBRA o This includes maternity leave will have to play higher premiums - What about FMLA get up to 12 weeks of unpaid leave o Assumed that employer will continue to make his payment toward your benefits during this leave so employee would just have to continue to pay his/her share

Usually will take more than 12 weeks of leave for childbirth so after 12 weeks are up employee will go back to paying 100% of premium Qualifiying events o Termination of employment or reduction of hours Doesnt matter if the employee quit or was terminated If there is gross misconduct then it is not a qualifying event takes pretty bad behavior (worse than require to lose unemployment insurance) Reduction of hours This is relevant because sometimes (most of the time) employers do not provide benefits for part-time employees If hours are reduced under FMLA employer keeps paying so no COBRA Employee, spouse, and dependent child are covered by COBRA Continuation of coverage for 18 months o Death of covered employee Spouse and dependent child are covered by COBRA Continuation of coverage for 36 months o Divorce or legal separation of covered employee Spouse and dependent child covered Continuation of coverage for 36 months o Covered employee becomes eligible for Medicare benefits Spouse and dependent child covered Continuation of coverage for 36 months o Ceasing to qualify for coverage as a dependent child under the terms of the plan Dependent child covered Continuation of coverage for 36 months o If there are two qualifying events you just get the 36 months starting from the date of the first qualifying event Notice Requirement o When there is a qualifying event employer has to inform the plan administrator that the employee may continue healthcare and has to give notice to the employee that he/she can continue healthcare coverage o If you dont get notice you can sure employer for any healthcare costs you incurred (reduced by whatever you would have had to pay) the presumption is that you would have chosen to to use COBRA o There are also statutory penalties ($110 per day for each day of noncompliance) o Private cause of action under 502 of ERISA o Have to notify the beneficiaries independently of the plan participant Even if dismissed for gross misconduct the other beneficiaries are still eligible for COBRA Two problems o If divorce is the qualifying event and what if before you get divorced you tell the plan administrator that you have decided to go to individual coverage (but then get divorced a few days later) Under the language of the statute the divorced spouse would lose coverage but the law is not practiced in this it just doesnt count, still have to notify the former wife and child Even if divorce is invalid they are still entitled to COBRA notice

OBRA 1993

Can compel the parent who is working to continue coverage of the children o Qualified Medical Child Support Order (QMCSO) Have to have coverage for adopted children the same as natural

HIPAA 1996 - Policy goals o Prevents job lock prior to HIPAA it was common that you couldnt get insurance if you had a pre-existing condition. Could not be insurance AT ALL! So people would not get a different job because he/she would not be able to get insurance After HIPAA this is no longer possible o Even if you didnt think you had a pre-existing condition if you answer a question in a way that indicates you do not when you actually did you were considered to have lied and would lost you coverage - Under HIPAA you have to let the employee have insurance can impose a coverage exclusion for preexisting condition if all 3 criteria o 1. Must have advice, diagnosis, care, or treatment recommended or received within the six month period ending on the participants enrollment date in the plan o 2. Coverage exclusion can be no more than 12 months o 3. Period of preexisting condition coverage exclusion must be reduced by aggregate period of the individuals prior creditable coverage Unless you have a Significant break in coverage: 63 or more consecutive days then you have to take off the full 12 motnhs COBRA and Medicaid counts As long as you are in health program you havent had a break in coverage - Summary: If an individual has at least 12 months of prior health care coverage, enrolls in the employers group health plan at the first opportunity, and has not experienced a lapse in coverage of sixty-three days consecutive days, the plan cannot impose a preexisting condition coverage exclusion. - Exceptions o Children Newborn or adopted child covered (under Obamacare any child up to age 19) for up to a year - Discrimination o Also says you cannot discriminate against people based on health-related factors o Nothing that says they cant charge more money but you have to get coverage o Conditions Health status Medical condition (physical and mental) Claims experience Receipt of health care Medical history Genetic information Evidence of insurability Disability o Also cannot discriminate based on a history of domestic violence - Privacy protection o Congress could make privacy protections and if not by a certain date then the agency could pass regulations (which they did) o Congress has since passed the high-tech law which expands the privacy protections o These privacy protections are extremely stringent

All the electronic information has to be encrypted as well

NMHPA - 1996 WHCRA - 1998 GINA 2008 - Genertic information cannot be considered a preexisting condition MHPAEA - 2008 Michelles Law 2008 4/12/2012 PPACA 2010 After all of these federal regulations what happens to the state regulations that were already there? - States may still regulate insurance companies (but not self-insured plans) - When there are these piecemeal amendments to a law through a wide variety of actions the exemptions become very complicated Grandfathered plans - Plans that were in existence the day before PPACA - Certain conditions that you dont have to comply with o One of them is the outside independent review of a denial of a health plan - How do you lose this status o If you change the plans and what is covered o If you change the percentage of the premium that the participant had to pay o If co-pays are adjusted to reflect medical care inflation you DO NOT lose grandfathered status Preexisting conditions - Raised age to 19 - Starting in 2014 can no longer do anything with preexisting conditions What kind of case is mandated? - PPACA doesnt require that everything be covered - Essential health benefits o Amublatory patient services o Emergency services o Hospitalization o Maternity and newborn care o Mental health and substance abuse disorder services, including behavioral health treatment o Prescription drugs o Rehabilitative and habilitative services and devices o Laboratory services o Preventive and wellness services and chronic disease management o Pediatric services, including oral and vision care - Immunization, preventive care, and emergency services have to be completely covered Required?

Not required but if you have more than 50 employees and still dont offer you have to pay $2,000 for each full-time employee who purchases private insurance through an Exchange and gets a subsidy to pay for it. o Doesnt apply to the first 30 employees who get private insurance through an exchange External Independent Review - If you choose to do this the decision is final o Dont get to go to court - Still may want to do this because these reviewers have to be experts, have no connection with the company being review, and give no weight at all to the internal reviewers o In court the internal reviewers get agency deference (irrationality) Getting a voucher for the exchange gives employees more choices because than can reject the employers plan doctors - Women/children can stay in the plan and still select a pediatrician and obstetrician on their own McGann v H&H Music Co. ERISA 520 - Cant discriminate with someone for exercising their right under the plan - OR interfere with someones attainment of a right under the plan Change from a 1,000,000 dollar cap to a 5,000 cap for medical expenses related to AIDS - Plaintiff claims that this was discrimination Court says this doesnt target him specifically because it would apply to anyone employee who has AIDS Employers still not required to give a disabled employee medical coverage for the rest of their life FMLA Financial Accounting Standards Board - FAS 106 o Had to indicate what you pay each year for healthcare to your employees o Have to indicate what you future liabilities are - FAS No. 158 in 2006 o Now have to list healthcare costs as a future liability every year - Created VEBAs (Voluntary Employee Benefit Accounts) o Gave the healthcare money (essentially) to unions o Funds are locked up and protected from creditors, no longer on companies books 4/17/2012 United Auto Workers v. Yard Man (1983) p. 383 - Benefits coming from collective bargaining agreement o Specific time period but promise of lifetime health benefits - Court held that under the circumstances an inference was created that the benefits under the retiree health care plan has vested and therefore could not be reduced or eliminated by the employer once the collective bargaining agreement expired. o Possibilities: (1) person retirees during the span of the agreement; (2) person could have retired but chose not to; (3) person is not yet eligible for retirement. Under Yard Man only the person who has retired during the span of the agreement will get the lifetime benefits

Notes: o Plan lifetime health benefits + with reservation to change benefits (Curtiss-Wright) without express reservation to change (silent) o Consequence of the silence The presumption would be that you can change the plan but how does a collective bargaining agreement change that? CB locks up the current terminology of the plan for the duration of the contract o So under Yard Man if you retired under the period of the collective bargaining agreement (1) presumption shifts so where the plan is silent the burden of proof is on the employer to show that he/she could terminate lifetime benefits; (2) once retired the benefits have vested. Seventh Circuit: Bland v. Fiatallis North America, Inc. Group of people has retired, plan is silent, told they have lifetime benefits (for spouses life too). This was in a letter sent to retired group. o Company started to modify the plan for current employees Court says: o Silence by itself is not sufficient but it creates an ambiguity and the court will look at the totality of the circumstances o decide what was promised and what was not. o As you peeled the onion employer kept reducing benefits for current employees but they had not previously been rolling back benefits for retirees. o Is it realistic for employees to think that they are covered even if the company goes bankrupt? Benefit paid out of current assets you now go bankrupt, no money purchase insurance policy and no current assets to pay promised benefits. When a company goes bankrupt there is always a hope that they will emerge fro bankruptcy. When people working at the plant he/she used to work are, over time, losing their benefits. Looking at what was the intent of the parties and what was there understanding at the time o Always need to look at the summary plan description (SPD) what were people told? What if you dont have the letter promising lifetime benefits and the company then goes under?

FIDUCIARY DUTIES Definition of a fiduciary: Section 3(21)(a): - (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets - (ii) he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or - (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan, includes any person designated under section 11105(c)(1)(B) of this title.

Varity Corporation v. Howe - Big operation has lots of subsidiaries all belong to a single plan. o Several divisions are about to go under going to try to move ailing divisions into a new subsidiary o Convince all these old employees to transfer to a new company o Invite all these employees to a big meeting Says dont worry about leaving because your benefits are exactly the same. o Within a year the new company is bankrupt doesnt have assets to pay off any of the benefits - Did this company breach their fiduciary duty? o Settlor contends duty is in the management and administration of the plan and I didnt breach anything in management or administration. You are trying to get me for miscommunication. - Court: o Fiduciaries have duty to communicate matters regarding plan interests even though there is nothing specific in federal law o Settlor was not just wearing his employer hat he was also acting as fiduciary because it was about convincing these employees would not lose benefits o Employees understand him as communicating to them as a fiduciary o Duties are not confined to management and administration Pegram v. Herdrich - Do not read in the book - Employer was self-insured and contracted with a HMO to provides services on a pre-paid basis. If they guess right they come out even puts the risk of a bad call on the HMO, instead of the employer. HMO is going to lose money if they do not guess for the yearly costs o Contract with physicians who get hourly rate and end of the year split the profit with physicians. New incentive is to do as little extra care as possible and you will get a bigger pieace of pie at the end of the year - Woman has bad stomach ache should have an ultrasound, but no openings at our clinic so wait for 8 days appendix ruptured and shes gets serious poisoning o Clear malpractice against doctor but also wants to sue the employer for breaching a fiduciary by selecting an HMO that create a financial incentive to underserve the employees o Lawyer argued the design of the plan itself breaches fiduciary principles - Court says this is ridiculous the claim can only be against the doctor o If the plan had denied service after a doctor recommended it then there would be action the plan but when the doctor just screws the action can only be against the doctor. Common law of trusts v. ERISA - Fiduciary standard was the prudent person standard - Under ERISA, the standard is the prudent expert standard o Acting rationally is no protection the question is what an expert investor would have done under the same circumstances - Law allows you to have several trustees and to delegate investment decisions to a particular trustee o You will have some fiduciary duties, though: MONITORING Will spend a lot of time going over the investment performance of your investment advisors If someone is consistently underperforming you need to dump him/her

Not just responsible for your own fiduciary breaches, also for co-fiduciaries if: (1) you assist in the breach (2) you know about the breach and do nothing (3) you know about the breach and conceal Plan can pay for fiduciary insurance but cant pay if there has been a breach and there is an assessment of damages. o Plan cant have any exculpatory language to relieve fiduciaries of their fiduciary duties (under the common law of trusts this is possible)

FIDUCIARY DUTIES I. 404/1104(1)(A) exclusing benefit A. Shall discharge duties with respect to the plan (fiduciary hat) 1. Have to discharge that duty solely in the interests of the participants and beneficies or plan 2. For the exclusive purpose of providing them benefits and defraying the reasonable costs of administering the plan B. Cases 1. Brock v. Hendershot p. 430 a. Two union reps (fiduciaries) set up a corporation to connect plans with clinics providing dental services. Going to hook up these clinics with dental claims in return for a commission (1) Using their position as union reps to ensure that every collective bargaining the employees get a dental benefit and the employer deals with the clinics that give them a kickback b. Court says: (1) This violates ERISA pretty blatant 2. Donovan v. Mazzola p. 430 a. Owned a plumbing company tied to a plan through collective bargaining with plumbers union (1) Pension plan was strong (2) Health plan provider was on the verge of bankruptcy (a) Need a big infusion of cash (3) Borrowed money from bank but cant make payments so they decide to borrow money from the well funded pension fund (a) Getting better interest rates that it could never get on the market (4) Convince Mazzola that they need to loan money to the convalescent home (health care plan) (5) Two funds managed by the same group here was this action in the sole interest of the pension plan (6) It tanks and the plan loses money b. Court says: (1) Mazzola didnt act solely in there interests of the pension plan (2) Unlikely to be paid back and even if it was the repayment would have been at below-market interest rates 3. Name a. CEO of big company hears that a big corporate raider is trying to acquire his company (a) Over the weekend he wants to generate enough stock that this doesnt happen (2) He is also trustee of the pension plan and he decides to have the pension plan buy the stock going to buy as much as possible to get up to 10% of the plans assets (3) Started at 48 per share, then dropped to 23

b. Court says (1) He was not acting solely in the interest of the plan because he was doing this to try to stop the hostile takeover c. Notes: (1) This might have helped employees who were not yet participants but can act solely in the interest of plan participants. (2) What he should have done was bring in an outside expert and make full disclosure to him to determine if it is a prudent investment C. What about advocating for public policy? 1. Cant use the assets for political purposes not solely in the interests of plan participants 2. Cant use it to promote a collateral goal a. Might be in some interests but not solely in the interests b. Can include these message but CANNOT use PLAN assets 3. When making decisions about selecting and retaining stock in companies? a. Can plan disinvest in companies because they dont like their political/environmental/etc. agenda? CANNOT do this 4. Note if you dont sacrifice anything you dont violate prudence and diversification rules but what about solely in the interest of the plan? This is very controversial. a. Might not be blatant about it. b. A lot of this does go on and courts/DOL are reluctant to get involved if you are meeting prudence and diversification II. 404/1104(a)(1)(B) Prudence A. Public policy actions (see above) also apply to prudence issues B. Cases 1. Bussian v. RJR Nabisco, Inc. p. 435 a. Their pension was overfunded they wanted that money b. If you terminate a plan with adequate assets everyone vests completely and you have to secure their benefits you do this by purchasing an annuity policy from an insurance company. (1) Nabisco picked the lowers bidder who then went bankrupt and everyone lost their annuities c. Court says: (1) The selection of Executive life insurance was motivated by Nabiscos interest in maximizing reversion of plan assets to the company rather than selecting a fiscally sound annuity provider for the plans participants (2) Also didnt do required due diligence 2. Donovan v. Mazzola a. Going to have to declare bankruptcy, what can they do with convalescent home going to hire and expert to decide how to dispose of it. (1) Union friend Dr. Schwartz (no experience) is hired, paid in advance, much more than market rate, Mazzola goes along with this b. Court says: (1) This was clearly not prudent C. FAS 158 (Accounting Standards) 1. Has led plan investments to be a little more conservative away from equities which are actually a good thing to have in the long run. In the short term they make companies books look bad. Is this really in the best interests of the plan to have fewer equities? Not yet resolved 2. What about venture capital? a. This should be a part of diversification want some money in high rate of return investments, but not all of it. DOL sets a % below which there is safe harbor

III. 404/1104(a)(1)(C) Diversification A. 401(k) plans B. Market risk, industry risk, firm risk 1. Want to be diversified a. Geographically dont want them all in one geographic area b. Industry dont want them all in one industry c. Firm dont one them all invested in once company/firm 2. Market Risk? a. About 30% is market risk and this is not really controllable, everything in your portfolio will likely be affected IV. 404/1104(a)(1)(D) In accordance with plan documents A. This is one big difference between ERISA law and common law B. Case 1. Herman v, NationsBank Trust Co. a. Plan said trustee should vote plan unallocated shares in the same way the participants were voting. b. Court said: (1) Even though plan document says that, ERISA says you should follow portion of a document that is in violate of ERISA law. 2. Name a. Trustee didnt do anything about 1 and 2 below (participants would borrow money then pay back thinking money would go back into the plan) (1) Instead the money was being used to pay bills because the company was in financial distress (2) Union had stopped making payments b. Trustee claimed he followed all the requirements of the plan documents (which didnt require him to do anything about 1 and 2 c. Court said: (1) You have to read the plan language in light of what the act was intended to do. (2) Clearly didnt do that here so its an easy case V. Duty to Inform A. Cases 1. Eddy v. Colonial Life Insurance Co. a. Scheduled for HIV surgery but before he gets it the plan is terminated he asks if he gets COBRA, plan administrator says no, we are too small (1) Another provision says that you can convert group policy to and individual policy, didnt tell him about because he didnt ask b. Court said: (1) Plan administrator who clearly knew about this other option should have told Eddy about it. There is also obligation to INFORM, not just avoid misinforming. 2. Barss v. Lockhead Martin a. Divorced wife on old policy, ex-husband gets new policy and puts down new wife on new policy (1) Divorced wife not informed (2) He dies ex-wife informed there are no old life insurance benefits new fianc gets eveyrhting b. Court says: (1) To require duty to inform Barrs is too steep a duty. If she had contacted them she would have had to inform but they cant be forced to keep track of her VI. 406 Prohibited Transactions A. Some transactions are just prohibited per se

1. Between plan and a party of interest a. These are prohibited unless they are exempt (section 408) (1) You can loan to money to plan participants (2) Even though administrator of the plan is an employee of the union you can agree that he should be paid by the plan (3) Administrator can offices at employers place of business (4) Can purchase up to 10% of company stock (money purchase plans can have as much company stock as they want) b. 408(a) allows Sec. of Labor to grant exemptions (1) If you are employed by the settlor you cant receive monies from the plan BUT you can be reimbursed from the plan for things like attendance at a conference/meeting VII. 401(k) Plans A. Enron problem everything was in Enrons stock and couldnt sell the stock until they reached age 50 and the company reserved right to have certain lockdowns 1. Many didnt diversify once they did reach 50 2. When they saw stock price dropping the company locked down and they couldnt sell anyway B. Pension Protection Act 1. Can still have all company stock BUT 2. Every year have to send a letter to participating employees telling them about the importance of diversification and direct to DOL website that explains this 3. For the stock that is contributed to you as part of deferred compensation you can trade immediately for other stock 4. For the stock employer contributes - participant can diversify after three years REVIEW OF DISTINCTION BETWEEN DEFINED BENEFIT AND DEFINED CONTRIBUTION Defined benefit plan insured government is not going to insurance plan that does not have all the bells and whistles to defend its integrity. Since defined contribution plans are not insured that government is not as concerned with mandating all these things to protect its intergrity. ENFORCEMENT

CIVIL ENFORCEMENT ACTIONS I. Introductory Information A. Under 501(a) there is criminal enforcement B. Board private rights of action C. Can also be brought by Secretary of Labor 1. Whenever an individual complaint have to send a copy to the secretary of labor so they can intervene in the big cases D. Participants and Beneficiaries can bring private suits 1. They are defined in section 3 II. Causes of Action A. 502(a)(1)(B) Recover Benefits 1. To recover benefits due to you under the plan (that you claim are wrongfully denied to you)

2. To clarify your benefits under the plan 3. If you are a participant or a beneficiary 4. Remedies a. Contract: Obtaining your benefits they made you a promise and then broke that promise you want your benefits (1) Pre-judgment interest if there is a delay interest will usually be included in the award (2) This will usually be in the form of injunctive relief b. Consequential damages are NOT available under ERISA c. Declaratory relief if you are trying to clarify your rights d. Injunction to enforce the terms of the plan suing for everyone (kind of like a class action) B. 502(a)(2) Fiduciary Duty 1. Breach of Fiduciary duty 2. By participant or beneficiary a. Co-fiduciaries also have standing to sue to protect the plan there is a strong incentive for fiduciaries to act to protect the plan (b/c joint and several liability) 3. Remedies a. Appropriate relief under section 409 b. Asking to reimburse the plan c. Removal of the breaching fiduciary/trustee (1) Settlor is a fiduciary insofar as he/she selects a trustee for the plan. Will often be a temporary one appointed to help settlor find a replacement. C. 502(a)(3) 1. Participants and beneficiaries 2. Enjoin practice that violates Title I or terms of the plan D. Other 1. 502(a)(6) a. Seceretary can sue get civil penalties failure to provide information under the plan E. Where can suits be brought? 1. Suits filed by participants or beneficiaries under (a)(1)(B) can be filed in state or federal court. 2. If it concerns Title I of ERISA it has to go to federal court. III. Claims for Plan Benefits 502(a)(1)(B) A. Cases 1. Metropolitan Life Insurance Co. v. Glenn (2008) STANDARD OF REVIEW a. Woman is getting benefits as part of a disability policy, got it for two years, had to apply for social security disability she got full permanent disability for social security. She got kicked off the employet plan\ b. Court says: (1) When plan administrator has discretion standard of review is still arbitrary and capricious BUT where the plan administrator might have a conflict of interests the court will take a hard look. (a) Sort of like a hard-look arbitrary and capricious (2) This woman should have gotten the benefit never explained why their decision differed from social security (how could this possible happen because permanent disability from social security is REALLY hard to get) 2. From class a. Case involving a woman with a disability she applies for disability self-funded plan, after waiting a long time gets a few benefits but those are quickly terminated. She brings suit under 502(a)(1)(B), she gets the benefits but there is an 8 month delay.

Claims that husband had to cash out his retirement benefits due to this long delay. She wants the loss her husband incurred by cashing in early the Supreme Court says no you dont get this kind of remedy, it would beyond the benefit that was denied to you which is all you can get under (a)(1)(B). B. Notes 1. Standard of Review a. When administrator has not been given discretion there is de novo review b. When the administer has been given discretion (it is more or less arbitrary and capricious review) (1) After this decision pretty much all plans implemented discretionary review. 2. Questions a. Is this claim medically necessary? (1) Killian v. Healthsource Provident Administrators p. 520 (a) Administrator had refused to look at some documents... check book\ (2) Bynum v. Cigna Healthcare of North Carolina (a) Doctor prepared report that baby head surgery was not in fact cosmetic (b) Court found continued denial was arbitrary and capricious b. Accidental death policy? (1) Stamp v. Metropolitan Life Insurance Co. (a) Got drunk and died in a crash denied accidental death benefits (b) Court said that getting a drunk and ending up killing yourself does not count as accidental death 3. Model Act from National Association of Insurance Commissioners a. Model rules to try to ensure a review by someone who doesnt have a conflict of interest. IV. Claims for Break of Fiduciary Duty 502(a)(2) V. Under 503 every plan has to have a claim procedure A. If you deny a claim you have to have a reason and present it in writing B. There are also has to be an appeal procedure 1. Federal Regs set a timeline for that procedure a. Urgent matters it is 72 hours for claim and 72 hours for appeal (PPACA 24 hours, 72 hours appeal) b. Preapproval (after PPACA) 32 days claim and appeal?? c. Appeal has to be by a different person (wasnt always like this) 2. Under PPACA there is also an external review process that supplants judicial review possibilities. VI. Attorneys Fees A. The attorney fee shift is not mandatory it is discretionary, the court MAY B. This makes it difficult for people to bring lawsuits. C. Courts do not do this often enough to allow attorneys to count on it VII. Statute of Limitations A. Typically between 3 and 6 years wit the discovery rule (clock starts ticking when the problem is discovered) PREEMPTION OF STATE LAW I. Overview A. Difference between ordinary and complete preemption 1. Ordinary Preemption a. Will argue it is preempted if it relates to a plan (or directly targets a plan) (1) But could be saved by the savings clause if state is regulating insurance

(2) But if it is a self-insured plan then the deemer clause will say that it cannot be saved under the savings clause b. Normally a preemption claim is an affirmative defense 2. Complete Preemption a. Even if you bring suit in state court they will have to apply the federal common law b. Good ex. Is Pilot Life (below) c. What happens if there is no diversity so someone files in state court. Tortious interference with a contract, breach of covenant of good faith and fair dealing (1) Court says: Complete preemption means we disregard the well-pleaded complain rule (a) Only bringing it in state court to avoid the remedies that are available under section 502 II. Early Preemption Cases: Broad Preemption of State Law A. Cases 1. Shaw v. Delta Air Lines, Inc. (1983) SHAW FACTORS (2-part) Ordinary Preemption a. Regular question of a claim under state law and preemption is used as an affirmative defense b. Relates to? Sayings clause? Deemer clause? 2. Pilot Life Insurance Co. v. Dedeaux (1987) Complete Preemption a. Guy has a back injury, b. Court says: (1) The guys is just trying to get remedies in state court that he couldnt get under 502 of ERISA (2) These causes of action have been wiped out by federal ERISA law (a) It can stay in state court but defendant may remove it federal court. B. Notes 1. Initially the court just looked at the text and interpreted the clause very broadly 2. Relate in connection with or having reference to a. Very broad III. Modern Preemption Jurisprudence: A (Rebuttable) Presumption Against Preemption A. Cases B. Notes 1. This really broad understanding would affect pretty much every law in the country so the court shakes thing up IV. State Laws Regulating Health Care Plans and Health Care Provides A. Cases 1. New York State Conference Blue Cross & Blue Shield Plans v. Travelers Insurance Co. a. Costs imposed on these plans are indirect and it does not mandate any specific policy aspects. b. If it is never covered by 514 to begin with because there is nothing to worry about saving. 2. Rush Prudential HMO, Inc. v. Moran (2002) p. 697 a. Illinois law provided for independent review of an administrators decision to deny a claim (1) Surgery from someone out of network (recommended by treating physician) was denied by the plan administrator he said there plenty of people in the network who could do something similar. (2) Illinois independent review said yes, it was medically necessary b. Court says: (1) This regulates insurance so it falls under the savings clause

(2) HMOs are still insurance companies even though they arent traditional indemnity insurance companies (3) The remedy still isnt expanded because you are still just getting a contract remedy for benefits that should have been provided to you. c. Dissent says: (1) The savings clause shouldnt matter here because the remedies are all completely preempted by 502 (2) The additional step of the independent review fundamentally changes the remedy (a) [Note]: this might actually be a good point because of differing standards of review 3. Pharmaceutical Care Management Association v. Rowe a. Maine law included more than just ERISA plans b. More like licensing and ethics requirements for these pharmaceutical managers c. If this were to be preempted then ERISA would be preempting much more than what it should 4. Egelhoff - Washington law has designated spouse as a beneficiary this is voided on the date of the divorce a. Plan document always spells out how you deal with beneficiaries b. Plan administrator pays out to ex-wife instead of to the estate (as he should have done under Washington) c. Here there was real conflict between the plan document and what the Washington state law says (1) This would be contrary to congressional intent (2) This is conflict preemption there is an actual conflict here 5. Kentucky Association of Health Plans, Inc. v. Miller a. Kentucky laws pretty much makes it impossible to have a network of preferred provider (1) Have to let insured go to any willing provider who follows the plan b. Court says (1) This law does regulate insurance (2) The McCarran-Ferguson Act test for determining whether a law regulates the business of insurance is confusing, misdirects attention, and fails to provide clear guidance. (3) Thus, it is rejected, and the new law is: (a) Modern Test for Determining Whether a Law Regulates Insurance Under 514(b)(2)(A): (i) State law must be specifically directed toward entities engaged in insurance, AND (ii) State law must substantially affect the risk pooling arrangement between the insurer and the insured. 6. Aetna Health Inc. v. Davila a. Facts: THCLA allows you to sue an HMO for alleged failure to exercise ordinary care in the handling of coverage decisions in violation of the THCLA (1) Plaintiffs denied treatment by the their insurance companies (a) Wanted one drug got another and had severe reaction (b) Had serious surgery and sent home over objection and objection of the surgeon she end up having major complications B. Notes 1. Need to make sure to distinguish between the different types of preemption 2. 514 Ordinary Preemption a. 1. Law has to directly relate to an insurance plan b. 2. Is it consistent with congressional purposes to preempt

3. 502 (Complete Preemption) a. These are the only remedies available for breach of ERISA and any sate law remedies will be pre-empted Last two cases - Maryland law - San Francisco city ordinance - Try to deal with too many people ending up on public assistance because they dont have access to medical care. Review Session Saturday 1pm 3pm 5223 NOTES ERISA Preemption - Language of the clause o Plan ERISA only applies if the employer provides or maintains a benefit plan. Needs to have some administrative procedures to carry out promises needs to be in writing but this a plan can exist before it is written out One time severance pay requirement dictacted by state law doesnt count as a plan o Relates to Early on this clause was interpreted in the broadest possible way Question is connection with or reference to Newer period Cant just ask whether it relates to also need to look at the intentions of congress o Savings Clause o Deemer Look at FMC Holliday o What about HMOs that provide insurance and treatment - What kind of plans would ERISA never be intended to cover o Public plans, religious institutions, state laws on (employment comp, workmens comp) Two kinds of preemption under ERISA viability of a state law (use the travelers insurance standards and look at the savings clause) - Normally preemption starts with the presumption that there is no preemption o Congress will typically write a preemption clause the get around this presumption. Can you sure in state court of federal court? - With a suit based on claims for benefits or clarify ERISA says can sure in state or Federal - Often defendants will ask to move the case to federal cout o Will contend that there is a 502 claim that would entail preemption of any state court issue and lead to moving to federal court.
ERISA Attack 1. Is there a plan? 2. Does it relate to an employee benefit plan? - Be sure to discuss the new rules for determining this stuff 3. Savings and Deemer Clause

EXAM: 1.5 hours FLSA and 1.5 ERISA st 1 half semester questions mainly covered by one long essay (about an hour for essay and a few short questions as well). ERISA covered mostly by short answer and a short essay (20-25 mins for essay). ERISA -

Need to know what plans give employers tax benefits Why certain plans would be insured Where investment risk is placed Why certain plans would be tied to nonforfeiture Lifetime health benefits.

Lifetime health benefits - When does a lifetime promise become a plan and enforceable under ERISA. - If its a deferred benefit ERISA will protect you (even if its not a pension) o Say severance, even if unwritten, until it is terminated by the employer you are protected. o If employer reserves the right to change the plan he can change the plan, might not even need a reservation clause since benefits dont vest o Cant retroactively terminate a plan o Is there ever a time where something is a current benefit that has to be continued? The important issue is what happens if you are the retire the key is if you have been promised these for life. Retail Industry Leaders Association v. Fielder Fourth Circuit 2007 - Facts: o Maryland law targeted at Walmart who provided such terrible health care that the employees were ending up on state assistance o If employer contribution to healthcare for emloyees is less then 8% of total payroll costs then you have to bring it up to 8% level and pay the difference to the state who will use it to defray some of the costs of medical assistance if you dont do this you will be fined 250,000. - Court: Golden Gate Restaurant Association v. City and County of San Francisco Ninth Circuit 2008 - Facts: o Usually the home rule mandate limits municipalities to things that are unique to that municipality- question is often whether it is a matter or statewide concern or a matter of local concern. o Law limited to work being done on public contracts o Required employers with 20 employers or more to pay 1.00 or 1.76 an hour for healthcare. - Court: o This is not preempted it is not the same as Fielder Proposed Wisconsin System - In the United States virtually all of the safety net is based you work/employment history o Most legislative reforms have basically left this system in place - Eliminate employer health care plans - Provides health insurance to all Wisconsin residents and all out of state people who work in Wisconsin - How to pay for it? o A tax all employers pay a payroll tax of 10.5% and employees pay a 4% payroll tax o Self-employed pay 10 % of income up to the social security tax. - Money goes to a new agency (Healthy Wisconsin Authority) o Fiduciaryes, investing money, etc. o Divide state into regions and invite insurance companies to come in and bid to participate in the healthy Wisconsin insurance program

To participate insurance companies cant spend more than 8% of income on administrative costs (Medicare does it for 3%) Have to meet certain other requirements in order to bid as well [Most states are pretty selective about who can come in and sell insurance] A single payers system but not a single deliverer system You can also get vouchers for the value of the care provided by the Wisconsin system (average costs for the general plan),.

3 hour open book exam st - First 1.5 hours covers 1 half (1hr essay, .5 hour short answer) - Second 1.5 hours ERISA (.5hr essay, 1hr short answer) Make sure to review cobra and HIPAA Review Part II Checklist when you look at a statute... I. Need to be an employee A. This is a matter of status, NOT contract B. This determination will be made by a courts analysis of your relationship to the employer 1. Key cases: Darden and Pickle case... a. Darden says if the statute is silent then default position is the common law right of control test b. Fedex cases are also good examples... 2. This can change based on the purpose of the legislation C. Critical Factors 1. Whether the work is integral to the primary work of the employer? a. Does this work look like what the employees do? 2. Evidence/indicia of entrepreneurship? D. Volunteers? 1. Key for this case is whether they do the work in expectation of pay E. Trainees? 1. Key test trainees v. employees waiting to be assigned the test is who really benefits from the relationship? a. If the employee benefits (training for a skill that could be taken elsewhere) (1) The more an employer pays for this the more likely you are a trainee b. Was there any productive labor performed for the employer? F. Public work programs for the state G. Illegal Immigrants 1. They are pretty clearly employees so the issue was more the remedy if employee is illegal it affects the remedy. The remedy cant allow the illegal immigrant to continue to work.Retroactive remedies (pay for work already done could be different) 2. H. Religious affiliations? 1. Alamo even though it was religious org they were engaging in business and competing 2. Josana? school case the court focused on the fact that she was a minister II. Whether employer/company is covered? III. Constitutional Basis Commerce Clause A. If the justification for the regulation is the commerce clause then the state cant be sued by its employees B. If the justification is the fourteenth amendment then state employees can sue the state. C. Check on the Alden case... IV. Always want to look at the language A. What language is being used by the legislature in extending the benefit B. The language can have a great impact on how these laws actually gett applied. V. Minimum Wage Requirements A. 7.25

B. Complexities 1. Sub-minimum wage for youth 2. What can and cant you include a. Can include board and lodging 3. Tipped employees a. A portion of the tip can reduce the amount of cash money that has to come from the employer VI. Hours A. Overtime B. Managerial vs. other employees C. Regular rate for the purposes of overtime 1. Check to make sure I have the handout 2. Key is that the regular rate is not an artificial rate includes not just hourly pay rate but all remuneration for work that week / hours you worked = regular rate then overtime is determined a. Important questions is what type of payments that go beyond hourly rate count towards the remuneration.