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The Rise of Paid Family Leave Laws & Their Impact on Self-Funded Plans

By Brady Bizarro, Esq.
    
Most employers and workers alike are familiar with the federal Family and Medical Leave Act of 1993 (“FMLA”). The law requires employers to provide twelve weeks of unpaid, job-protected leave for an employee’s own serious health condition, for the birth or adoption of a child, or to care for a spouse, parent, or child with an illness. Importantly, the law also requires employers to maintain group health benefits for employees who take FMLA leave. The FMLA, like most other federal laws, applies whether an employer’s health plan is fully insured or self-funded.

As of this writing, five states have passed laws going beyond the FMLA, granting eligible employees paid family leave. They are California, New Jersey, Rhode Island, Washington, and New York. Rhode Island law requires four weeks of paid leave, California and New Jersey each offer six weeks of paid leave, and Washington offers up to twelve weeks per year. Beginning on January 1, 2018, the New York Paid Family Leave Benefits Law (“PFL”) will take effect and New York State will also begin providing employees in the state with paid family leave. The law will be phased in over four years and will eventually provide twelve weeks of paid family leave to employees; which is one the longest leave periods in the country.

What makes the PFL unique is not just that it requires employers to provide twelve weeks of paid family leave; it also requires employers to continue health insurance coverage to employees out on leave. While this state-mandated employer obligation would seem to be preempted by ERISA, the case law on this point is unsettled.

In 2005, the Department of Labor (“DOL”) seemed to put this issue to rest in an advisory opinion on the applicability of leave substitution provisions of the Washington State Family Care Act (“FCA”) to employee benefit plans. The FCA permits employees entitled to sick leave or other paid time off to use that paid time off to care for certain relatives of the employee who had health conditions or medical emergencies. As part of its analysis, the DOL analyzed section 401(b) of the FMLA, which provides that state family leave laws at least as generous as the FMLA are not preempted by “this Act or any amendment made by this Act.” 29 U.S.C. § 2651(b). As a result of the department’s guidance, it appeared as if state family leave laws enjoyed special protections from ERISA preemption.

In 2014, the Sixth Circuit Court of Appeals considered the same issue and reached the opposite conclusion. In Sherfel v. Newson, 768 F.3d 561 (2014), the Court found that the leave substitution provisions of Wisconsin’s FMLA sufficiently “related to” an ERISA plan such that they were preempted by ERISA. Specifically, the Court held that the state law would “mandate the payment of benefits contrary to the [written] terms of an ERISA plan,” thus undermining one of ERISA’s chief purposes; achieving a uniform administrative scheme for employers. Newson, at 564. As part of its analysis of the preemption issue, the Court also dismissed the legislative history relied upon by the DOL in an uncommonly blunt (and borderline satirical) manner. Considering whether legislators intended to preclude the preemption of state family leave laws by ERISA, the Court observed, “[T]he idea that this colloquy ever passed the lips of any Senator is an obvious fiction. Colloquies of this sort get inserted into the Congressional Record all the time, usually at the request of a lobbyist…” Newson, at 570.

In ruling that a state family leave law was preempted by ERISA, the Sixth Circuit Court of Appeals aligned itself with the U.S. Supreme Court’s earlier jurisprudence on preemption. It remains to be seen how other Circuit Courts will address similar challenges to state leave laws; especially those that mandate continuation of coverage. Still, paid family leave is one of the few policies in Washington, D.C. that has bipartisan support, and employers should expect to see more states pass laws akin to New York’s Paid Family Leave Act.




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