Airline Pilots Association International v. United Airlines, Inc. California’s Kin Care Law not Preempted by ERISA

In another case limiting the scope of federal preemption of state law, the California Court of Appeals held that the California Kin Care law, which allows employees to use paid sick leave to care for ailing family members, is not preempted by a sick leave plan established by an employer under the federal ERISA statute.

In the case of Airline Pilots Association International v. United Airlines, Inc., 2014 Cal. App. LEXIS 100 (1st App. Dist. 2014), pilots challenged the restriction on being able to use paid sick leave to care for sick family members under the Kin Care law. Defendant United Airlines maintained a sick leave plan for its employees. The rate at which its pilot employees accrued sick time was controlled by the collective bargaining agreement between United and the Airline Pilots Association International (“ALPA”). United set up a benefit plan and trust under the Employee Retirement Income Security Act (“ERISA”). The sick leave benefits were funded by the trust, which in turn was funded solely by United’s contributions (rather than being jointly funded by employer and employee contributions). By creating a benefit plan subject to federal law, United argued that it could establish sick leave benefits that were uniform for all of its pilots across the country.

ALPA viewed United’s sick leave plan as a thinly veiled attempt to avoid California’s Kin Care requirement that employees be allowed to use paid sick time to care for family members. Specifically, the Kin Care law at Labor Code Section 233 states that employers who provide paid sick leave must allow employees to use that sick leave to care for family members. In 2007, ALPA sued United for violations of Section 233 of the Labor Code.

The Revised Trust

Due to and in accordance with the litigation, United substantially revised the trust that funds the benefit plan. Pursuant to the new arrangements of the trust, United was required to make monthly contributions to the trust sufficient to cover one month of sick leave payments. However, even under the revised trust arrangements, United still had the discretion to cease making contributions if it determined that such contributions were inadvisable or impossible. Furthermore, United retained a reversionary interest in the trust assets upon termination of the trust and after all owed benefits were paid.

After revision of the trust in 2009, the parties made cross-motions for summary judgment. The trial court granted ALPA’s motion, ruling that the revised plan and trust established by United did not fall squarely within ERISA and therefore the federal law did not preempt the state law Kin Care requirements. The court relied heavily on the fact that even with the revisions of the funding formula of the trust, the trust assets were still reachable by United’s creditors, making the pilots’ sick leave inextricably tied to United’s financial health. This, according to the trial court, took the trust outside the scope of ERISA and precluded preemption of state law.

United appealed the grant of summary judgment in favor of ALPA. In affirming the decision of the trial court, the California Court of Appeals focused on the fact that neither the original trust nor the revised trust were in reality separate trusts. United was the owner of the trusts and included the trust income on its tax returns and paid taxes on the income. This tax treatment meant that the trust assets were considered general assets of United. As such, the trust assets were available to United in the event of insolvency, therefore putting the employees’ sick leave benefits at risk up until the time they are actually used/paid. The court of appeals then noted that a benefit plan is beyond the scope of ERISA if the risk of nonpayment of benefits hinges on the financial health of the employer rather than the health of the fund. The trust is simply not secure enough and employees’ sick leave is not protected enough if the employer has the sole discretion over using the trust assets.

The Issue of Standing

The court of appeals also rejected United’s argument that ALPA lacked standing to sue under the California Kin Care law. Although ALPA would not have standing under the Private Attorney General Act (“PAGA”), PAGA was not implicated because ALPA was not seeking to enforce a law or collect civil penalties on behalf of the general public. Rather, ALPA was seeking equitable relief for its members, who were private individuals. Even more fundamentally, the court pointed out that seeking relief on behalf of employees for violations of state labor laws committed by employers is the quintessential purpose of unions.

If you believe your employer is violating your California Kin Care law rights, or any other state law rights with respect to sick leave benefits, contact the employment attorneys at the Nassiri Law Group. We practice in Orange County, Riverside and Los Angeles. Call (949) 375-4734 today.