867 F.3d 721
7th Cir.2017Background
- Heather Studer worked as an occupational therapist at Katherine Shaw Bethea Hospital and resigned with 251.12 hours of accrued Paid Days Leave (PDL).
- Hospital policy (PDL) capped accrual at 320 hours and incorporated a Voluntary Employees’ Benefit Association (VEBA) plan that governed conversion/use of excess or post-termination PDL hours.
- Under the VEBA plan, upon termination the hospital paid up to 80 hours in cash and converted remaining accrued PDL hours into dollars deposited to the employee’s VEBA account, usable for post-employment medical reimbursements.
- Studer sued in Illinois small-claims court under the Illinois Wage Payment and Collection Act (IWPCA), claiming the hospital unlawfully failed to pay her the monetary equivalent of 171.12 PDL hours at separation.
- Hospital removed to federal court, asserting complete preemption by ERISA; the district court denied remand, granted summary judgment for the hospital for failure to name the ERISA plan as a defendant, and permitted amendment; Studer moved to alter judgment and appealed the denial.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Studer’s IWPCA claim is completely preempted by ERISA under Davila | Studer: IWPCA creates independent duty to pay accrued vacation at termination; claim can be resolved under state law without reference to ERISA | Hospital: PDL accrual/use and post-termination payment are governed by the VEBA ERISA plan incorporated into the PDL policy, so claim arises under ERISA | Held: Preempted — claim could have been brought under ERISA §502(a)(1)(B) and requires interpretation of the ERISA plan, meeting Davila’s two-step test |
| Whether the VEBA qualifies as an ERISA employee welfare benefit plan | Studer: PDL policy (not VEBA) is the source of entitlement and not an ERISA plan | Hospital: VEBA was designed to provide post-employment medical reimbursements, referenced ERISA, and deposited converted PDL funds into accounts for healthcare reimbursements | Held: VEBA is an ERISA employee welfare benefit plan because it provides reimbursement for medical expenses and references ERISA rights |
| Whether Studer was a participant in the VEBA plan | Studer: Implicitly disputes relying on VEBA; argues she did not waive independent PDL rights | Hospital: Employees working regular schedules who accrued PDL were automatically enrolled and could later waive; Studer did not waive | Held: Studer was an automatic participant and eligible for benefits under the plan |
| Whether the IWPCA creates an independent legal duty sufficient to avoid ERISA preemption | Studer: IWPCA §5 requires final compensation for earned vacation at separation, creating an independent state-law duty | Hospital: IWPCA entitlement is limited to vacation “earned in accordance with” employer policy; because PDL and post-termination treatment are governed by VEBA, resolution requires interpreting ERISA plan | Held: No independent duty — adjudicating the IWPCA claim requires interpreting the VEBA plan; thus Davila’s second prong is met and ERISA completely preempts the claim |
Key Cases Cited
- Aetna Health Inc. v. Davila, 542 U.S. 200 (2004) (two-step test for ERISA complete preemption of state-law claims)
- Beneficial Nat. Bank v. Anderson, 539 U.S. 1 (2003) (complete preemption exception to well-pleaded complaint rule)
- Franchise Tax Bd. v. Constr. Laborers Vacation Tr. for S. Cal., 463 U.S. 1 (1983) (well-pleaded complaint rule)
- Hartland Lakeside Joint No. 3 Sch. Dist. v. WEA Ins. Corp., 756 F.3d 1032 (7th Cir. 2014) (ERISA’s broad preemptive scope for health and welfare benefits)
- Jass v. Prudential Health Care Plan, Inc., 88 F.3d 1482 (7th Cir. 1996) (requirement to name the ERISA plan as a defendant in most circumstances)
- Rice v. Panchal, 65 F.3d 637 (7th Cir. 1995) (state-law claims that cannot be resolved without interpreting an ERISA contract are completely preempted)
Conclusion: The Seventh Circuit affirmed—the VEBA was an ERISA plan, Studer was a participant, her IWPCA claim required interpretation of the ERISA plan, and therefore her claim was completely preempted by ERISA.