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Preemption Case Highlights Different Definitions of “Employee” Under the Code and ERISA



Kilfoyle v. Hill, 2020 WL 127695 (N.D. Ohio 2020)

An insurer’s field representative sued one of the insurer’s general agents (the “agency”) in state court, claiming that the agency interfered with the representative’s participation in the insurer’s retirement program for field representatives. The case was removed to federal court based on the agency’s argument that, because it involved a retirement plan, the dispute was completely preempted by ERISA. The representative asserted that ERISA did not apply because he was a statutory—not a common-law—employee, and the case should be returned to state court.

To determine whether the retirement plan claim was completely preempted by ERISA, the court first had to decide whether the insurer’s plan is an ERISA-covered plan. The court noted that the DOL’s regulations provide that the term “employee benefit plan” does not include arrangements under which no employees are participants covered by the plan. And, for ERISA purposes, the Supreme Court has interpreted “employees” to mean only common-law employees. Since none of the field representatives participating in the plan were common-law employees, and it was undisputed that participation in the plan was limited to field representatives, the court concluded the plan was not an ERISA plan. Given these “unambiguous” limitations on ERISA’s scope, the court was unpersuaded by the agency’s argument that the program should still be treated as an ERISA plan “because the IRS has long treated independent contractors as employees for tax purposes and Congress’ objective was to harmonize ERISA with longstanding tax provisions.” The court also rejected the agency’s argument that ERISA should apply because independent contractors can sue as beneficiaries, noting that ERISA beneficiary claims presuppose the existence of an ERISA-covered employee benefit plan. Absent such a plan, there is no basis for federal subject matter jurisdiction, so the court remanded the case to state court.

EBIA Comment: While this case focuses on the narrow issue of statutory employees, it illustrates a larger issue, namely, that the Code and ERISA sometimes use the same terms in significantly different ways. One should not assume that a defined term for one statute has the same meaning under the other. For more on the eligibility of statutory employees to participate in certain benefit plans, see EBIA’s 401(k) Plans manual at Section VII.B.5 (“Core Concepts: Eligibility: Certain Statutory Employees”), EBIA’s Cafeteria Plans manual at Section IX.A.5 (“Full-Time Life Insurance Salespersons Who Are Statutory Employees May Participate in a Cafeteria Plan”), and EBIA’s Fringe Benefits manual at Section XX.B.2 (“Qualified Transportation Plans: Only Current Employees Can Participate”).

Contributing Editors: EBIA Staff.

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