October 9, 2014Client Alert

Sixth Circuit Court of Appeals Holds Wisconsin Family Leave Act Substitution Provisions Preempted by ERISA

Recently, the United States Court of Appeals for the Sixth Circuit found that the Wisconsin Family Medical Leave Act (WFMLA) substitution provision was preempted by the Employee Retirement Income Security Act (ERISA). Employers should take note of the decision as it represents a stark departure from prior decisions of the Wisconsin Supreme Court.

In Sherfel v. Newson, an employee sought to substitute short-term disability leave under the employer’s short-term disability plan (an ERISA plan) for the unpaid WFMLA leave in connection with her bonding with her newborn. The period for which she sought the substituted benefit fell outside the period that her doctor had diagnosed her as disabled. The employer denied the substitution request on the grounds that she was ineligible for a benefit under the plan because she was not disabled.

In affirming the District Court’s decision rejecting the employee’s claim, the Circuit Court found that the employee’s request, if granted, required the employer to violate ERISA. The Circuit Court cited three specific examples for why ERISA preemption was appropriate in this context.  First, the state law required the plan administrator to pay benefits to a beneficiary chosen by state law and not the plan document. Second, the WFMLA interfered with the uniform administration of the employer’s plan in the other states where it operated because it subjected the plan to different obligations in different states. Third, the WFMLA created an alternative enforcement mechanism — i.e., the claimant had to go through the Wisconsin Department of Workforce Development to resolve the claim and not through the plan’s claim procedure (which was intended to be the exclusive remedy for rights under ERISA). 

Why Sherfel Matters to Wisconsin Employers

Under Wisconsin law, an employee can substitute for leave requested under the WFMLA, any other paid or unpaid leave which has accrued to the employee. Wisconsin courts have construed this substitution right to apply to any accrued leave, regardless of whether the employee would otherwise meet the eligibility requirements for such accrued leave. Accrual means that leave (1) arises from a contract, (2) is specified and quantifiable, (3) has a draw down feature, and (4) accumulates over time. The Department of Workforce Development considers short-term disability leave to constitute accrued leave. 

The Sixth Circuit’s decision limits the broad reading that the Wisconsin courts have given to the law. The Sixth Circuit decision holds that the ERISA-fication of an accrued benefit can limit an employee’s substitution rights under the WFMLA. While the decision’s effect on the Seventh Circuit and the Wisconsin Supreme Court is unknown, employers may want to consider making short-term disability plans subject to ERISA.

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