Fifth Third Bancorp v. Dudenhoeffer (opinion here) is an ERISA case. (Those of you operating machinery or driving please skip to the next decision). Fifth Third's retirement plan permitted employees to invest in a variety of vehicles, including Fifth Third's stock via an Employee Stock Ownership Plan (ESOP). When the company's stock declined (74%) after the great recession killed Fifth Third's mortgage portfolio, employees sued Fifth Third and some of its officers, claiming that as administrators of the retirement plan, they owed the investors a fiduciary duty to be prudent, and should have taken actions to mitigate losses. They did not, and bought and held the stock as normal.
The lower courts decided that the administrator was entitled to a "presumption" that their decisions were prudent. The Supreme Court unanimously disagreed, holding that the administrators of an ESOP had the same duty as fiduciaries as anyone else.
You might say, "duh," but an ESOP exists to buy and hold the stock of the company. ERISA does not require administrators to diversify ESOP holdings as it requires administrators to diversify traditional retirement plan holdings.
Thus, an ESOP fiduciary is not obliged under §1104(a)(1)(C) to “diversif[y] the investments of the plan so as to minimize the risk of large losses” or under§1104(a)(1)(B) to act “with the care, skill, prudence, and diligence” of a “prudent man” insofar as that duty “requires diversification."
The Court then rejected the lower courts' "presumption of prudence" that it conferred on ESOP administrators.
In our view, the law does not create a special presumption favoring ESOP fiduciaries. Rather, the same standard of prudence applies to all ERISA fiduciaries, including ESOP fiduciaries, except that an ESOP fiduciary is under no duty to diversify the ESOP’s holdings. This conclusion follows from the pertinent provisions of ERISA,
The fiduciaries argued that if they are not provided protection from lawsuits, then decreases in stock price will lead to meritless lawsuits against ESOP administrators. The Court recognized the concern, and provided guidance to lower courts on how to weed out "sour grapes" lawsuits that do not allege actual breaches of fiduciary duties. As with many Supreme Court decisions, the Court left it to the lower courts to sort out how future claims will be addressed.
So, this case removes some protection from administrators of ESOPs. Employers should have their ESOPs reviewed to ensure the administrators act consistently with ERISA's "prudent" person standard.
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Harris v. Quinn (opinion here) is a case about the First Amendment and those public sector employees who perform in-home, personal attendant work. These are workers paid by the state, funded by federal Medicaid, who provide in-home care to the elderly and others who would require nursing home care. However, unlike most public sector employees, the laws creating these positions provide that the true "employer" is not the state, but rather the "customer" who receives the care. So, these personal care attendants are a special type of public sector worker. The Harris case concerns the Illinois program and workers.
Unions have organized many of these employees. State law authorized the unions to bargain with the state over personal attendants' terms and conditions of employment. Those who choose not to join the union still are covered by the collective bargaining agreements the union negotiates. They are required to pay a reduced fee (called "fair share") to pay for the unions' collective bargaining activities. The employees do not pay additional "dues," which go towards other union activities, such as lobbying and political contributions.
Several Illinois personal attendants sued the state, claiming the state law authorizing union representation and the "fair share" fee violate the First Amendment, because they require employees to pay a union they do not support. If the union workers were true "public sector" employees, the Supreme Court already upheld "fair share" agreements against a First Amendment claim in Abood v. Detroit Bd. of Ed. 431 U. S. 209 (1977).
The Supreme Court held, 5-4, that Abood did not apply to personal attendants, who were in fact "employed" by the private sector "customer," but paid by the state. The Court's majority analyzed and criticized Abood as based on flawed reasoning and a misinterpretation of precedent. But the majority did not overrule it as it applies to "full-fledged," public sector employees. The personal attendants, employed by private sector "customers" were not "full fledged."
Without Abood's protection, the Illinois law therefore violated the First Amendment. Here is the money quote:
Thus, unless or until Abood is overruled in a future case, it remains good law. This decision applies only to personal care attendants working under state laws that treat them as employees of private customers. Those employees need not join unions or pay agency fees if they do not wish to do so. It remains to be seen if the state laws will be modified to fit the employees within Abood, or if this decision applies equally to personal attendants in states other than Illinois. Breathe.
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Finally, Burwell v. Hobby Lobby Stores, Inc. (opinion here) involves the interplay between the Affordable Care Act (ACA aka Obamacare) and the Religious Freedom Restoration Act (RFRA). As explained by the Court:
The ACA requires employer health plans to provide “preventive care and screenings” for women without “any cost sharing requirements.” The Department of Health and Human Services issued regulations, implementing that statutory provision. The regulations require the health plans to include 20 contraceptive methods approved by the FDA. The 20 include 4 methods that "may have the effect of preventing an already fertilized egg from developing any further by inhibiting its attachment to the uterus."
The regulations expressly exempt religious organizations, such as churches, from that contraception mandate. HHS also excluded non-profits with religious objections. But this case involves whether a for-profit, "closely held" corporation (Hobby Lobby and others) can claim that providing the 4 contraception methods described above impinge on its religious convictions, violating the RFRA.
The majority, 5-4, over vigorous dissents, held that the "contraception mandate" violated the RFRA. The Court decided that, as a closely held corporation, Hobby Lobby and the other employers involved were "persons" covered by RFRA.
The Court then decided that the mandate burdens the religious beliefs of the persons who own these close corporations. The Court noted that the employer's options were (1) ignore their religious beliefs to provide the mandated coverage (2) pay humongous penalties for non-compliance with the ACA.
The Court assumed that the mandate served a "compelling interest." But the Court decided that the regulations were not the "least restrictive means of furthering" the government's interest in providing preventive care. The Court noted that the ACA itself contained alternatives that would provide the contraception desired, but without requiring the employers to pay for them in a way that burdened their religious beliefs.
This is a politically charged decision engendering much controversy and loud arguments about important social and political issues. My job is to explain what the opinion says, and how it affects employers. So here goes:
1. The decision applies only to "closely held" corporations: "a federal regulation’s restriction on the activities of a for-profit closely held corporation must comply with RFRA." The term "closely held" corporation will be contained in state and federal corporate law. In this case, the companies were owned and operated by one family. Publicly traded corporations, private corporations owned by unrelated shareholders who have no day-to-day responsibilities to operate the business, etc. are not covered by this decision.
2. The ruling applies only to those closely held corporations that operate under sincerely held religious beliefs that conflict with a law that burdens those beliefs. Closely held corporations that do not operate under religious tenets will not be covered. Still, this is a broad standard. But the Court majority pointed out that federal courts must ferret out insincere religious beliefs in a variety of contexts. Larger corporations, with diverse shareholders, likely will not be able to establish a common religious belief, or that its belief governs the operation of the business.
3. As the majority points out, the law and regulations already provide full access to contraceptives for religious entities and non-profits, even though the contraceptive mandate does not apply. So, the administration and/or Congress can still ensure women who want the 4 contraceptives at issue, and who work for closely held corporations with religious objections to them, can obtain them free of charge.
4. The Hobby Lobby opinion therefore does not apply to most employers or most workers. Smaller businesses are grandfathered in old plans, do not offer health insurance, and are exempt from ACA's penalties. Even if the ACA fully applies to a business, some businesses offer no coverage and pay the penalties, allowing employees to buy individual coverage via the health exchanges. It remains to be seen whether the HHS will modify its regulations, or if the insurance companies will change coverage options to provide contraception coverage to affected workers as it does to employees of religious organizations and non-profits.
There are several dissents, with the lead dissent penned by Justice Ginsburg. Two dissenters (Justice Ginsburg and Sotomayor) would not confer RFRA protections to for-profit corporations. Justices Kagan and Breyer would not reach that issue. Justice Ginsburg also argued that the contraception mandate did not burden the employers' owners' religious beliefs because it was up to employees whether or not to use the contraceptives involved. Finally, Justice Ginsburg warned of a flood of claims for religious exemption.
Harris v. Quinn (opinion here) is a case about the First Amendment and those public sector employees who perform in-home, personal attendant work. These are workers paid by the state, funded by federal Medicaid, who provide in-home care to the elderly and others who would require nursing home care. However, unlike most public sector employees, the laws creating these positions provide that the true "employer" is not the state, but rather the "customer" who receives the care. So, these personal care attendants are a special type of public sector worker. The Harris case concerns the Illinois program and workers.
Unions have organized many of these employees. State law authorized the unions to bargain with the state over personal attendants' terms and conditions of employment. Those who choose not to join the union still are covered by the collective bargaining agreements the union negotiates. They are required to pay a reduced fee (called "fair share") to pay for the unions' collective bargaining activities. The employees do not pay additional "dues," which go towards other union activities, such as lobbying and political contributions.
Several Illinois personal attendants sued the state, claiming the state law authorizing union representation and the "fair share" fee violate the First Amendment, because they require employees to pay a union they do not support. If the union workers were true "public sector" employees, the Supreme Court already upheld "fair share" agreements against a First Amendment claim in Abood v. Detroit Bd. of Ed. 431 U. S. 209 (1977).
The Supreme Court held, 5-4, that Abood did not apply to personal attendants, who were in fact "employed" by the private sector "customer," but paid by the state. The Court's majority analyzed and criticized Abood as based on flawed reasoning and a misinterpretation of precedent. But the majority did not overrule it as it applies to "full-fledged," public sector employees. The personal attendants, employed by private sector "customers" were not "full fledged."
Without Abood's protection, the Illinois law therefore violated the First Amendment. Here is the money quote:
we refuse to extend Abood in the manner that Illinois seeks. If we accepted Illinois’ argument, we would approve an unprecedented violation of the bedrock principle that, except perhaps in the rarest of circumstances, no person in this country may be compelled to subsidize speech by a third party that he or she does not wish to support. The First Amendment prohibits the collection of an agency fee from personal assistants in the Rehabilitation Program who do not want to join or support the union.The dissent, penned by Justice Kagan, essentially argued that Abood controlled the case. The dissent rejected the majority's distinction between personal attendants and other state-paid employees. The dissent also noted that the majority criticized, but did not overrule Abood.
Thus, unless or until Abood is overruled in a future case, it remains good law. This decision applies only to personal care attendants working under state laws that treat them as employees of private customers. Those employees need not join unions or pay agency fees if they do not wish to do so. It remains to be seen if the state laws will be modified to fit the employees within Abood, or if this decision applies equally to personal attendants in states other than Illinois. Breathe.
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Finally, Burwell v. Hobby Lobby Stores, Inc. (opinion here) involves the interplay between the Affordable Care Act (ACA aka Obamacare) and the Religious Freedom Restoration Act (RFRA). As explained by the Court:
RFRA prohibits the “Government [from] substantially burden[ing] a person’s exercise of religion even if the burden results from a rule of general applicability” unless the Government “demonstrates that application of the burden to the person—(1) is in furtherance of a compelling governmental interest; and (2) is the least restrictive means of furthering that compelling governmental interest.”Congress passed RFRA in response to an earlier Supreme Court decision that upheld a law against a claim that it violated religious beliefs. The Court noted "[b]y enacting RFRA, Congress went far beyond what this Court has held is constitutionally required." RFRA provides broad protection to religious practices, but allows the government to demonstrate the necessity of a law that burdens religious beliefs under the standard above.
The ACA requires employer health plans to provide “preventive care and screenings” for women without “any cost sharing requirements.” The Department of Health and Human Services issued regulations, implementing that statutory provision. The regulations require the health plans to include 20 contraceptive methods approved by the FDA. The 20 include 4 methods that "may have the effect of preventing an already fertilized egg from developing any further by inhibiting its attachment to the uterus."
The regulations expressly exempt religious organizations, such as churches, from that contraception mandate. HHS also excluded non-profits with religious objections. But this case involves whether a for-profit, "closely held" corporation (Hobby Lobby and others) can claim that providing the 4 contraception methods described above impinge on its religious convictions, violating the RFRA.
The majority, 5-4, over vigorous dissents, held that the "contraception mandate" violated the RFRA. The Court decided that, as a closely held corporation, Hobby Lobby and the other employers involved were "persons" covered by RFRA.
The Court then decided that the mandate burdens the religious beliefs of the persons who own these close corporations. The Court noted that the employer's options were (1) ignore their religious beliefs to provide the mandated coverage (2) pay humongous penalties for non-compliance with the ACA.
The Court assumed that the mandate served a "compelling interest." But the Court decided that the regulations were not the "least restrictive means of furthering" the government's interest in providing preventive care. The Court noted that the ACA itself contained alternatives that would provide the contraception desired, but without requiring the employers to pay for them in a way that burdened their religious beliefs.
This is a politically charged decision engendering much controversy and loud arguments about important social and political issues. My job is to explain what the opinion says, and how it affects employers. So here goes:
1. The decision applies only to "closely held" corporations: "a federal regulation’s restriction on the activities of a for-profit closely held corporation must comply with RFRA." The term "closely held" corporation will be contained in state and federal corporate law. In this case, the companies were owned and operated by one family. Publicly traded corporations, private corporations owned by unrelated shareholders who have no day-to-day responsibilities to operate the business, etc. are not covered by this decision.
2. The ruling applies only to those closely held corporations that operate under sincerely held religious beliefs that conflict with a law that burdens those beliefs. Closely held corporations that do not operate under religious tenets will not be covered. Still, this is a broad standard. But the Court majority pointed out that federal courts must ferret out insincere religious beliefs in a variety of contexts. Larger corporations, with diverse shareholders, likely will not be able to establish a common religious belief, or that its belief governs the operation of the business.
3. As the majority points out, the law and regulations already provide full access to contraceptives for religious entities and non-profits, even though the contraceptive mandate does not apply. So, the administration and/or Congress can still ensure women who want the 4 contraceptives at issue, and who work for closely held corporations with religious objections to them, can obtain them free of charge.
The employees of these religious nonprofit corporations still have access to insurance coverage without cost sharing for all FDA-approved contraceptives; and according to HHS, this system imposes no net economic burden on the insurance companies that are required to provide or secure the coverage. ****
Although HHS has made this system available to religious nonprofits that have religious objections to the contraceptive mandate, HHS has provided no reason why the same system cannot be made available when the owners of for-profit corporations have similar religious objections.
4. The Hobby Lobby opinion therefore does not apply to most employers or most workers. Smaller businesses are grandfathered in old plans, do not offer health insurance, and are exempt from ACA's penalties. Even if the ACA fully applies to a business, some businesses offer no coverage and pay the penalties, allowing employees to buy individual coverage via the health exchanges. It remains to be seen whether the HHS will modify its regulations, or if the insurance companies will change coverage options to provide contraception coverage to affected workers as it does to employees of religious organizations and non-profits.
There are several dissents, with the lead dissent penned by Justice Ginsburg. Two dissenters (Justice Ginsburg and Sotomayor) would not confer RFRA protections to for-profit corporations. Justices Kagan and Breyer would not reach that issue. Justice Ginsburg also argued that the contraception mandate did not burden the employers' owners' religious beliefs because it was up to employees whether or not to use the contraceptives involved. Finally, Justice Ginsburg warned of a flood of claims for religious exemption.
