California Court of Appeal, First District, Fourth Division
AIRLINE PILOTS ASSOCIATION INTERNATIONAL et al., Plaintiffs and Respondents,
UNITED AIRLINES, INC., Defendant and Appellant.
Trial Court: City and County of San Francisco Superior Court, Trial Judge: Hon. Charlotte Woolard (City & County of San Francisco Super. Ct. No. CGC-07-468937).
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Seyfarth Shaw LLP, Robert W. Tollen, Eden Anderson, San Francisco, for Defendant and Appellant.
[167 Cal.Rptr.3d 470] Altshuler Berzon LLP, Stephen P. Berzon, Barbara J. Chisholm, San Francisco, Airline Pilots Association, International, Russell Woody, Elizabeth Ginsburg, for Respondents.
California's Kin Care Law (Lab.Code, § 233) requires employers, who provide paid sick leave to their employees, to allow employees to use sick leave to care for family members. United Airlines, Inc. (United) seeks to avoid this state law obligation by the creation of an employee sick leave plan and trust, which United holds out as being subject to the Employee Retirement Income Security Act (ERISA) (29 U.S.C. §§ 1001 et seq.) and, thus, exempt from state regulation.
In ruling on cross-motions for summary judgment, the trial court determined, among other things, that application of the Kin Care Law to California domiciled pilots was not preempted by ERISA. United appeals, contending the trial court erred by concluding the plan and trust were not within the scope of ERISA and by ruling that the Airline Pilots Association International (ALPA) had standing to prosecute this case. We affirm.
United maintains a paid sick leave plan for its pilot employees and has done so for at least ten years. The rate at which United's pilots accrue paid sick leave is established by the collective bargaining agreement (" CBA" ) between ALPA and United. United " does ‘ not permit[ ] pilot employees to use accrued sick leave to attend to an illness of a child, parent, spouse, or domestic partner.’ " Thus, for example, when plaintiff Captain Kathleen Wentworth (Wentworth) sought to use a portion of her accrued paid sick leave to care for her dying mother, United denied her request and instructed her to take time off without pay.
A. United's Sick Leave Plans and Trusts
In 1989, United created its Sick Leave Plan (" Plan" ) and Sick Leave Trust (" Trust" ). United asserts that the " ‘ primary reason that [it] maintains the sick leave plan as an ERISA plan is so that it could provide uniform benefits and uniform administration to all its employees,’ " without " ‘ having to comply with specific state laws applicable to sick leave[,]’ " including California's Kin Care Law. United's Plan was amended in 2003 and was largely revised, in
relevant part, after the instant action commenced. The revised Plan and Trust became effective July 2009.
The Plan is part of United's Employee Welfare Benefit Plan. The Plan was designed " to provide sick leave benefits [ ] to the United employees ... in the event of an employee's sickness...." The Plan states that it is intended to constitute an employee welfare benefit plan within the meaning of ERISA. Plan documents appoint a plan administrator and a fiduciary within the meaning of ERISA. From the beginning, the plan administrator has been a committee of United's employees. Since 2007, the plan administrator has been a committee called the Retirement and Welfare Administration Committee (" RAWAC" ), [167 Cal.Rptr.3d 471] comprised of United senior management employees.
The participants in the Plan include practically all of United's employee groups, including pilots. The Plan provides that sick leave benefits " ‘ shall be funded entirely’ by [the] Trust, which ‘ itself shall be funded solely by Company contributions.’ " The Plan also provides that sick leave will be paid at a pilot's " regular rate of pay ... up to the number of hours credited to [the pilot's] sick leave bank."
1. The Plan and Trust as it Existed Prior to 2009
The original Trust stated expressly that it was a " grantor trust."  According to the original Plan, United retained the ability to cease contributions to the Trust, if United decided it was impossible or inadvisable. Further, if United decided to cease making contributions, the Trust would attempt to pay out any sick leave owed to United employees. The original Plan also provided that if there were insufficient Trust assets to meet sick leave liability, United could " in its sole discretion, prescribe the rules for determining the priority of payment and allocation of available assets." Pursuant to the original Plan and Trust, assets held in the Trust would not " revert" to United. However, an exception existed, in the event United decided to terminate the Trust, and Trust assets exceeded the benefits to be paid, the Plan permitted the remaining assets to revert to United.
The original Trust also stated that the trustee had " no duty to require any contributions to be made to it or to determine that the contributions received
by it comply with the provisions of the Plan...." According to United, it had a funding policy under the original Trust, which used historical trends in sick leave usage to forecast the coming month's anticipated sick leave payments. United doubled this amount, and then added $1 million to determine its monthly contribution. This prior funding formula was not in writing.
2. The Plan and Trust Since 2009
United substantially revised the Trust in 2009. The revised Trust now provides that the trustee has a right to enforce a contribution obligation against United. United also hired an actuary to develop a funding formula and that funding policy was approved by the plan administrator. Under the revised Trust, United is required to make contributions to the Trust on a monthly basis in amounts calculated to ensure that the Trust will have sufficient money to cover one month's worth of sick leave payments.
However, the revised Plan still allows United, in its sole discretion, to cease making contributions to the Trust if it determines that contributions are impossible or inadvisable. United also retains a reversionary interest in trust assets, upon termination of the Trust and after all benefits owed are paid. According to the deposition testimony of Lincoln Lounsbury, United's senior counsel, the revised Trust, like the original Trust, is a grantor trust. Lounsbury further testified that United had not taken any steps to change the tax status of the Trust, and he confirmed that the Trust is " still a taxable trust."
3. Payment Scheme under Both Trusts
Pilots receive wage payments on the first and sixteenth days of each month. [167 Cal.Rptr.3d 472] Sick leave benefits are paid to United's pilots along with their regular pay from one of three payroll accounts owned by United. The payroll account from which a particular pilot is paid, depends solely on whether the pilot is paid through direct deposit, a physical paycheck, or credit union. United transfers money from its main operating account to cover all payments made out of its payroll accounts. The Trust transfers money to United's main operating account in an amount sufficient to cover the current month's sick leave liability.
Under the original Trust, any sick leave pay owed to the pilots was paid on the sixteenth day of the month following the month in which the leave was taken, and was combined with the pilots' regular wages in one paycheck.
The original Trust provided that the Trustee was authorized " ‘ [t]o make payments from the Trust Fund ... to [United] as reimbursement for payments
made to Plan participants or beneficiaries of the Plan’ " and permitted " ‘ the payment of Trust assets to [United] to reimburse [United] for plan benefits advanced to Plan participants or beneficiaries on behalf of the Plan or Trust.’ " Generally, the original Trust transferred money for benefits to United a day or so in advance of the date the benefits were paid out. In some instances, however, the benefits were first paid by United and then later reimbursed by the Trust. For example, during the 64-month period between January 2003 and April 2008, United received reimbursement from the Trust after it had paid sick leave to pilots on 29 occasions; and received reimbursement on the same day as it made sick leave payments on another 27 occasions.
Pursuant to the revised Trust, United is required to make its contribution to the Trust by the fifth business day of each month, and the Trust now transfers money to United before United makes sick leave payments to its employees. United retains any interest earned on money transferred from the Trust and uses it to help fund the next due payment. Similarly, when a pilot receives sick leave pay and later receives workers' compensation or state disability for his or her absence, the pilot is required to turn over any ...