Mostajo et al v. Nationwide Mutual Ins. Co.
Filing
48
ORDER signed by District Judge John A. Mendez on 11/13/18 GRANTING #29 Motion for Partial Summary Judgment and DENYING #39 Cross-Motion for Partial Summary Judgment. (Coll, A)
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UNITED STATES DISTRICT COURT
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EASTERN DISTRICT OF CALIFORNIA
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ANTHONY MARC MOSTAJO, and
ELAINE QUEDENS, on behalf of
himself and all others
similarly situated,
Plaintiffs,
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v.
NATIONWIDE MUTUAL INSURANCE
COMPANY, and Does 1 through
50, inclusive,
No.
2:17-cv-00350-JAM-AC
ORDER GRANTING PLAINTIFFS’
MOTION FOR PARTIAL SUMMARY
JUDGMENT AND DENYING DEFENDANT’S
CROSS-MOTION FOR PARTIAL SUMMARY
JUDGMENT
Defendants.
Anthony Marc Mostajo and Elaine Quedens (“Plaintiffs”) bring
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class claims against Nationwide Mutual Insurance Company
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(“Defendant” or “Nationwide”), their former employer, for
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Nationwide’s alleged failure to pay overtime and unused but
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accrued vacation time to claims adjusters in California.
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Am. Compl., ECF No. 23.
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Second
The parties filed cross-motions for summary judgment on a
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single issue: whether Nationwide’s “Your Time Program,” through
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which Nationwide provides a paid a time-off benefit to its
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employees, is regulated by ERISA.
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Nationwide Opp’n and Cross-Mot., ECF No. 39.
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the Your Time Program is an ERISA-exempt “payroll practice”;
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Mostajo Mot., ECF No. 29-1;
Plaintiffs argue
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Nationwide asserts the contrary.
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Id.
For the reasons set forth below, the Court GRANTS
Plaintiffs’ motion and DENIES Defendant’s cross-motion.1
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I.
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PROCEDURAL BACKGROUND
Defendant Nationwide is based in Columbus, Ohio and provides
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insurance and financial services throughout the United States.
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Plaintiffs Anthony Marc Mostajo (“Mostajo”) and Elaine Quedens
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(“Quedens”) worked for Nationwide as claims adjusters in
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California from 1998 to December 2015 and January 2016,
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respectively.
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ECF No. 29-7, at 1.
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Mostajo Decl., ECF No. 29-6, at 1; Quedens Decl.,
On January 9, 2017, Mostajo filed a Complaint against
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Nationwide in the Superior Court of the State of California,
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County of Sacramento (Case No. 34-2017-00206005-CU-OE-GDS),
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alleging, among other individual claims, class claims for
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Nationwide’s failure to pay overtime in violation of the
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California Labor Code and California Business and Professions
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Code.
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claims adjusters employed by Nationwide in California since
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January 2013.
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Quedens, amended the complaint to include a class claim for
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Compl., EFC No. 1-9.
Compl. ¶ 11.
The putative class consists of all
A month later, Mostajo, joined by
This motion was determined to be suitable for decision without
oral argument. E.D. Cal. L.R. 230(g). The hearing was
scheduled for October 2, 2018. Additionally, both Plaintiffs
(ECF No. 45-1) and Nationwide (ECF Nos. 39-7, 46-1) submitted
objections to evidence in support of the cross-motions. The
Court has reviewed these evidentiary objections, but declines to
individually rule on them as it is unnecessary to the
determination of this motion. See Judge William Shubb's
excellent discussion of evidentiary objections in Burch v.
Regents of the University of California, 433 F.Supp.2d 1110,
1118–1122 (E.D. Cal. 2006).
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failure to pay, upon termination, accrued but unused vacation
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time.
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removed the case to federal court.
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Am. Compl., ECF No. 1-11.
Shortly thereafter, Nationwide
Notice of Removal, ECF No. 1.
On February 15, 2018, Plaintiffs filed their Second Amended
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Class Action Complaint against Nationwide which includes, in
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relevant part, an allegation that that Nationwide “had in place a
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policy whereby it failed to pay for all accrued vacation time,
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precluding claims adjusters from carrying over all accrued
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vacation time from year to year” and “failed to pay all accrued
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vacation time at termination.”
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this policy, Plaintiffs allege that Nationwide violated
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California Labor Code Section 227.3, which requires employers to
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pay employees for all accrued vacation time.
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Second Am. Compl. ¶ 7.
Based on
Id. ¶¶ 41-50.
Nationwide filed an answer with affirmative defenses on
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March 29, 2018.
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affirmative defense argues that the Plaintiffs’ California law-
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based causes of action related to the vacation time benefits are
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completely preempted by ERISA.
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Ans., ECF No. 26.
Nationwide’s twenty-first
Ans. at 16.
After a period of discovery, Plaintiffs filed a motion for
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summary judgment arguing that the Your Time Program is exempt
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from ERISA as a “payroll practice” and so Nationwide’s twenty-
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first affirmative defense fails as a matter of law.
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Mot.
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judgment as to ERISA’s applicability.
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Cross-Mot.
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See Mostajo
Nationwide opposed and brought a cross-motion for summary
II.
See Nationwide Opp’n and
FACTS
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The Nationwide Insurance Companies and Affiliates Plan for
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Your Time and Disability Income Benefits (“the Plan”), provides
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three benefits programs: (1) the Your Time Program; (2) the
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Short-Term Disability Income Benefit Program; and (3) the Long-
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Term Disability Income Benefit Program.
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Statement of Facts, ECF No. 45-4, ¶ 1.
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effective for California employees on October 24, 2005.
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Nationwide Responding Statement of Facts, ECF No. 39-5, ¶ 3; Plan
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Governing Document, ECF No. 44, Ex. B.
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provides a paid time-off benefit, including for vacation and sick
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days.
Mostajo Responding Statement of Facts ¶ 3; Mostajo Decl.
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at 1.
The Plan Administrator is the Nationwide Benefits
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Administrative Committee, which is composed exclusively of
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Nationwide officers.
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¶ 14.
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Mostajo Responding
The Plan first became
The Your Time Program
Nationwide Responding Statement of Facts
An Amended and Restated Directed Trust Agreement (“Trust
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Agreement”) was entered into between the Plan and Nationwide
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Trust Company, FSB in May 2014 and made effective as of January
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1, 2014.
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Agreement, ECF No. 44, Ex. E.
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Trust Company (“Trustee”) as trustee of the Nationwide Insurance
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Companies & Affiliates Employee Health Care Trust (“Trust”) and
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establishes the Trust as a voluntary employee beneficiary
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association account to be held and administered for the uses and
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purposes set forth in the Trust Agreement.
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Statement of Facts ¶¶ 7-8; Trust Agreement § 12.04.
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Agreement provides that the Trust “shall constitute the sole
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source of funds which may be used to pay benefits under the Plan,
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and the Participating Employers shall not be liable in any way or
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in any manner for any such benefits beyond those monies which
Nationwide Responding Statement of Facts ¶ 7; Trust
The Agreement appoints Nationwide
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Nationwide Responding
The Trust
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have been contributed to this trust.”
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Statement of Facts ¶ 10; Trust Agreement § 9.13.
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Mostajo Responding
The Trustee has no power or responsibility to determine
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employees’ entitlement to Your Time benefits.
Nationwide
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Responding Statement of Facts ¶ 10; Trust Agreement § 5.3.
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Trustee makes payments from the Trust to the claims administrator
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“from time to time at the Plan Administrator’s direction” and
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only “in such amounts and for such purposes as may be specified
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in the Plan Administrator’s direction.”
The
Nationwide Responding
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Statement of Facts ¶ 11; Trust Agreement § 3.4.
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power to require Nationwide to make any contributions to the
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Trust to fund Your Time benefits nor does the Trustee bear
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liability for inadequacy of any contributions Nationwide may make
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to the Trust or for their failure to fund the Trust fully.
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Nationwide Responding Statement of Facts ¶¶ 12-13; Trust
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Agreement § 3.4.
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The Trust has no
For each payroll period, Nationwide determines its
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contributions to the Trust to fund Your Time benefits.
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Nationwide Responding Statement of Facts ¶ 16.
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contributions to the Trust are not determined by an actuary.
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¶ 15.
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(“HRIS”) automatically calculates the total accrued Your Time
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hours for each eligible employee based on the Plan’s accrual
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schedule.
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calculates the dollar value of the total accrued hours for the
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payroll period based on employees’ current salary rates.
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Next, the benefits accounting group initiates an Automated
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Clearing House transfer of the dollar value of these total
Nationwide’s
Id.
Instead, Nationwide’s Human Resources Information System
Id. ¶ 16.
Nationwide’s benefits accounting group then
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Id.
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accrued hours, without regard to the actual paid time off used
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during the payroll period, from Nationwide’s main funding account
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to the Trust.
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Nationwide’s main funding account holds the general assets of the
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company.
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Mostajo Responding Statement of Facts ¶ 13.
Nationwide Responding Statement of Facts ¶ 17.
At each two week payroll period, at the same time HRIS
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determines the total accrued Your Time hours, HRIS also
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determines the amount of Your Time hours that employees
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reportedly used during that period.
Nationwide Responding
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Statement of Facts ¶ 22.
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group again calculates the dollar value of the Your Time hours
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used for the payroll period based on employees’ current salary
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rates.
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Automated Clearing House transfer of this total amount of funds
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needed to pay the benefits for the payroll period from the Trust
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back to Nationwide’s main funding account.
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Statement of Facts ¶ 23; Mostajo Responding Statement of Facts
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¶ 17.
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funds move directly from the main funding account through a
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payroll cash account and to the employees.
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Statement of Facts ¶ 24; Mostajo Responding Statement of Facts
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¶¶ 17-18.
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payroll period which includes both normal pay and any payment of
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the Your Time benefit, but the two are reflected as separate line
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items on the paystub.
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¶ 20.
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///
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///
Id.
The Nationwide benefits accounting
The benefits accounting group then initiates another
Nationwide Responding
Finally, that same day, the transferred Your Time benefit
Nationwide Responding
The employees receive a single paycheck for each
Mostajo Responding Statement of Facts
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III.
OPINION
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A.
Legal Standard
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“The court shall grant summary judgment if the movant shows
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that there is no genuine dispute as to any material fact and the
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movant is entitled to judgment as a matter of law.”
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Civ. P. 56(a).
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evidence demonstrating the absence of any genuine dispute of
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material fact.
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24 (1986).
Fed. R.
Initially, the moving party must provide
See Celotex Corp. v. Catrett, 477 U.S. 317, 323-
The burden then shifts to the opposing party to
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establish a genuine dispute.
See Matsushita Elec. Indus. Co. v.
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Zenith Radio Corp., 475 U.S. 574, 586 (1986).
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summary judgment, the party cannot rely on allegations in its
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pleadings but instead must tender evidence in the form of
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affidavits and/or other admissible evidence.
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P. 56(c); Matsushita, 475 U.S. at 586 n.11 (1986).
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party must also demonstrate that a disputed fact is material,
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that it makes a difference in the outcome of the case.
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Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
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the party must show that the dispute is genuine, that a
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reasonable trier of fact could return a verdict in its favor.
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See Wool v. Tandem Computers, Inc., 818 F.2d 1433, 1436 (9th
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Cir. 1987). Neither Plaintiffs or Nationwide contend that there
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is a genuine dispute as to any material fact which prevents this
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Court from granting summary judgment on the issue that is the
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subject of the instant motion/cross motion.
In opposing
See Fed. R. Civ.
The opposing
See
And
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B.
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First, Nationwide asserts that a consent decree entered in a
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Preclusion
case in the United States District Court for the Southern
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District of Ohio conclusively determines that the Plan and Your
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Time Program are governed by ERISA.
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Mot. at 8-9, 33; McGoldrick v. Angela Bradstreet, No. 2:08-cv-
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0001-JLG-MRA (S.D. Ohio Sept. 26, 2008).
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that because the California Labor Commissioner was a party to the
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consent decree the Plaintiffs here are also bound, and the
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determination there goes “beyond res judicata” and requires this
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Court to find that ERISA governs.
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Nationwide Opp’n and Cross-
Nationwide contends
Id. at 33.
The consent decree in McGoldrick has no such preclusive
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effect.
Res judicata (claim preclusion) applies when there is
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(1) an identity of claims, (2) a final judgment on the merits,
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and (3) privity between the parties.
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Lash Grp., Inc., 586 F.3d 1204, 1212 (9th Cir. 2009), as amended
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on denial of reh’g and reh’g en banc (Jan. 6, 2010).
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Plaintiffs here were not party to the McGoldrick case.
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Collateral estoppel (issue preclusion) applies when “(1) the
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issue at stake was identical in both proceedings; (2) the issue
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was actually litigated and decided in the prior proceedings;
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(3) there was a full and fair opportunity to litigate the issue;
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and (4) the issue was necessary to decide the merits.”
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v. Holder, 672 F.3d 800, 806-07 (9th Cir. 2012), as amended (May
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3, 2012).
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preclusion is asserted) did not have a “full and fair
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opportunity” to litigate this issue in the McGoldrick case.
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Additionally, because this is a consent order, the issue of
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whether the “payroll practices” exemption applies (and even
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whether ERISA preemption applies) was never “actually litigated.”
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Arizona v. California, 530 U.S. 392, 414 (2000) (consent
Cell Therapeutics, Inc. v.
The
Oyeniran
Again, the Plaintiffs here (against whom issue
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judgments “ordinarily occasion no issue preclusion. . .”).
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Thus,
neither issue preclusion nor claim preclusion apply.
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Second, Nationwide argues that a decision in the United
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States District Court for the District of New Hampshire, as well
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as certain determinations by state-level administrative entities,
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that the Plan is governed by ERISA should persuade this Court to
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find the same.
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While the Court may consider these decisions for persuasive
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value, the Court is not bound by decisions of sister District
Nationwide Opp’n and Cross-Mot. at 9-10, 33-35.
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Courts, nor state administrative agencies.
This Court
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necessarily adjudicates disputes pursuant to the applicable legal
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framework and specific facts of the case.
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C.
ERISA Payroll Practices Exemption
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ERISA regulates “employee welfare benefit plans,” which
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include “any plan, fund, or program ... maintained for the
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purpose of providing ... vacation benefits ...”
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§ 1002(1).
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program’ or ‘vacation benefits,’ and does not specify whether
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every policy to provide vacation benefits falls within its
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ambit.”
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However, Department of Labor regulation 29 C.F.R. § 2510.3-(1)(b)
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excludes from the reach of ERISA certain “payroll practices”
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including the “[p]ayment of compensation, out of the employer’s
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general assets, on account of periods of time during which the
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employee . . . is on vacation . . .” 29 C.F.R. § 2510.3–1(b)(3);
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Morash, 490 U.S. 107 (finding employer’s policy of paying
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employees for unused vacation time an ERISA-exempt “payroll
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practice” where benefits were paid from the employer’s general
29 U.S.C.
“[ERISA] does not further define ‘plan, fund, or
Massachusetts v. Morash, 490 U.S. 107, 109 (1989).
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assets).
The payroll practices exemption applies here if the Your
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Time Program vacation benefits are paid from Nationwide’s
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“general assets.”
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1.
Benefits Reviewed Individually
As a preliminary issue, Nationwide argues the Court should
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examine the Plan as a whole (the Your Time Program together with
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the short-term and long-term disability benefits) in determining
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whether ERISA applies.
Nationwide Opp’n and Cross-Mot. 1-2.
On
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the contrary, Ninth Circuit case law suggests that the inquiry of
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whether the payroll practices exemption applies is focused on the
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particular benefit at issue.
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v. Oregon Bureau of Labor, 122 F.3d 812 (9th Cir. 1997)
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(analyzing whether payroll practice exemption applies to
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employer’s system for payment of sick leave); Bassiri v. Xerox
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Corp., 463 F.3d 927 (9th Cir. 2006) (analyzing whether payroll
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practice exemption applies to employer’s plan for payment of
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long-term disability benefits); see also Clay v. AT & T Commc’ns
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of California, Inc., No. 2:12-CV-2027-JAM-KJN, 2012 WL 5868767,
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at *5 (E.D. Cal. Nov. 19, 2012), report and recommendation
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adopted, No. 2:12-CV-2027-JAM-KJN, 2012 WL 6560729 (E.D. Cal.
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Dec. 14, 2012) (holding that while the defendant’s “Umbrella Plan
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and the Disability Program f[e]ll squarely within ERISA” the
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“appropriate focus of the [payroll practice exemption] analysis
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is the particular benefit at issue.”).
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its inquiry on the vacation benefits of the Your Time Program.
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2.
See, e.g., Alaska Airlines, Inc.,
The Court thus focuses
Payment of Benefits from General Assets
In Massachusetts v. Morash, 490 U.S. 107 (1989), the Supreme
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Court held that an employer’s practice of paying employees’
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vacation benefits from the employer’s “general assets” was an
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exempted payroll practice under 29 C.F.R. § 2510.3-(1)(b)(3) and
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therefore did not implicate ERISA.
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observed, however, that “the creation of a separate fund to pay
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employees vacations benefits” would be subject to ERISA.
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490 U.S. at 114.
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The Morash court also
Morash,
The Ninth Circuit clarified that an employer must do more
than simply create a separate trust for the benefits payments to
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be regulated by ERISA; that separate trust must actually be
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liable for and pay the benefits.
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Oregon Bureau of Labor, 122 F.3d 812 (9th Cir. 1997).
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Airlines, the airline established a trust for the payment of
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benefits but made the benefits payments directly to the employees
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from its general assets and then sought reimbursement from the
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trust.
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(called “advance and recapture”) to be a payroll practice under
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the “plain words” of 29 C.F.R. § 2510.3-(1)(b) because the
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payment was made from the airline’s general assets.
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Id. at 813.
Alaska Airlines, Inc., v.
In Alaska
The Ninth Circuit found this practice
Id. at 814.
It is undisputed that Nationwide pays the Your Time Program
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vacation benefits from its main funding account via a payroll
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cash account.
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Mostajo Responding Statement of Facts ¶¶ 17-18.
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the plain words of 29 C.F.R. § 2510.3-(1)(b), the Your Time
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Program is an ERISA-exempt payroll practice because the vacation
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benefits are ultimately paid from Nationwide’s general assets,
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rather than a separate trust.
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814 (instructing that courts “must focus on the actual methods of
Nationwide Responding Statement of Facts ¶ 24;
Therefore, under
See Alaska Airlines, 122 F.3d at
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payment”).
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However, in Alaska Airlines the Ninth Circuit also suggested
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that courts must look at the substance of the payment procedure
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in determining whether a literal application of the regulation is
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proper in each case.
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Alaska Airlines does not defeat the purposes of ERISA, because
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Alaska’s system has more of the characteristics of an unfunded
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payment than of an ERISA trust fund payment.”).
Id.
(“Applying the regulation literally to
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In this case, the substance of Nationwide’s vacation
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benefits payment procedure bears more similarity to an unfunded
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benefit program with the true source of payments being
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Nationwide’s general assets.
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benefits payment method is not an “advance and recapture”
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practice per se, Nationwide’s main funding account remains the
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true proximate source of funding.
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Nationwide funds the trust account from its general assets and
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that same day a portion of those funds return to Nationwide’s
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general assets, from which Nationwide pays the vacation benefits.
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The Trust has no other source of funding beyond Nationwide, the
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Nationwide Benefits Administrative Committee determines the
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payments to be made to the Trust and by the Trust, and the Trust
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has no independent recourse against Nationwide for failure to
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pay.
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entirely on Nationwide’s, not the trust’s, financial health
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because Nationwide is essentially funding the account on a
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fortnightly basis in relation to its anticipated payments.
Even though Nationwide’s vacation
On a fortnightly basis,
Thus, the vacation benefits payments here rely almost
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Under Ninth Circuit precedent, the plain language of 29
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C.F.R. § 2510.3-(1)(b) controls this inquiry, and the Court finds
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the payroll practice exemption applies to the vacation benefits
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payments from the Your Time Program because the undisputed facts
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demonstrate Nationwide pays the benefit from its general assets.
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3.
Department of Labor Four-Factor Guidance
Since the Court has found the Your Time Program exempt from
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ERISA as a payroll practice, it need not reach the parties’
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arguments regarding whether the Your Time Program is also exempt
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under the Department of Labor’s four-factor guidance.
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Advisory Opn. No. 2004-08A (July 2, 2004) 2004 WL 2074325
See DOL
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(Denny’s Opinion), at *3 (“Vacation pay programs that fail to
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satisfy all of the conditions of [exemption under 29 C.F.R.
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§ 2510.3–1], however, are not necessarily covered by Title I of
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ERISA.”); see also Bassiri v. Xerox Corp., 463 F.3d 927, 933 (9th
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Cir. 2006); Gilbert v. Securitas Sec. Servs. USA, Inc., No.
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CV 06-1981 CAS MANX, 2007 WL 7648314, at *5 (C.D. Cal. Feb. 26,
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2007).
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D.
ERISA Preemption
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ERISA broadly preempts state laws relating to employee
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benefit plans.
29 U.S.C. § 1144(a).
Plaintiffs bring their
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claims for Nationwide’s alleged failure to pay, upon termination,
21
unused vacation time accrued through the Your Time Program as
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violations of California law.
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these state law claims.
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vacation benefits payments for the Your Time Program constitute a
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“payroll practice” within the meaning of 29 C.F.R. § 2510.3–1,
26
rather than an employee welfare benefit plan covered by ERISA.
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Thus, ERISA does not preempt Plaintiffs’ state law claims as to
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the vacation benefits.
Nationwide alleges ERISA preempts
However, as discussed above, the
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IV.
ORDER
For the reasons set forth above, the Court GRANTS
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Plaintiffs’ motion for partial summary judgment (ECF No. 29) and
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DENIES Defendant’s cross-motion for partial summary judgment (ECF
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No. 39).
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IT IS SO ORDERED.
Dated: November 13, 2018
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