In Hansen v. Laboratory Corporation of America, 2024 U.S. Dist. LEXIS 193350 (E.D. Wis. 2024), the U.S. District Court for the Eastern District of Wisconsin rejected a challenge to the authority of the Department of Labor (DOL) to promulgate a “payroll practice” exemption to the definition of plans covered by the Employee Retirement Income Security Act of 1974 (ERISA).  The District Court’s decision stands as an early example of the application of the analytical framework within which courts will evaluate challenged regulations — including the recently challenged final Mental Health Parity and Addiction Equity Act rule — following the demise of Chevron deference.

Background

In Hansen, the District Court examined whether the DOL’s exemption of certain payroll practices from coverage under ERISA exceeded its rulemaking authority. The argument arose in the context of a lawsuit filed by Plaintiff alleging that Defendant, her employer, violated state law when it denied her claim for benefits under its short-term disability (STD) policy.

The case was originally filed in state court but was subsequently removed to federal court on Defendant’s motion which asserted federal question jurisdiction because Hansen’s claims were for benefits under an ERISA plan.  Following removal, Plaintiff moved the District Court to remand the case to state court on the grounds that the STD policy amounted to a payroll practice exempt from ERISA under 29 C.F.R. § 2510.3-1(b)(2), and that no federal question existed.

Defendant opposed Plaintiff’s motion, arguing, among other things, that the exemption should be disregarded because (1) the DOL lacked statutory authority to issue the payroll practice exemption, and (2) the payroll practice exemption was inconsistent with the plain language of ERISA.

The Court’s Analysis

The District Court rejected Defendant’s argument and remanded the case to state court.  The District Court rejected Labcorp’s broad reading of Loper noting that the holding in Loper set aside Chevron deference previously accorded to federal agencies but did not stand for the proposition that all federal regulations must be disregarded. As an initial matter, the District Court rejected Defendant’s assertion that the DOL lacked statutory authority to issue the exemption, noting that “ERISA specifically confers on the Department of Labor the authority to prescribe regulations the Secretary finds ‘necessary or appropriate to carry out the provisions of this subchapter.’” 

The District Court next noted that under Loper, when a reviewing court finds that a statute confers rulemaking authority on an agency, a reviewing court’s role requires it to (1) acknowledge constitutional delegations, (2) set boundaries of delegated authority, and (3) ensure that the agency being reviewed has engaged in “reasoned decision making” within those defined boundaries.

Finally, the District Court discussed Massachusetts v. Morash, 490 U.S. 107 (1989) in which the U.S. Supreme Court considered and rejected challenges to the DOL’s authority to promulgate the payroll practice exemption.  Noting that the Loper decision specifically provided that it did not call into question cases that relied on the Chevron framework, the District Court held that Defendant failed to show that the payroll practice exemption is unlawful.  

Impact

Hansen serves as an important reminder that the Loper decision did not serve as a death knell for all federal regulations.  Instead, the decision shifted back to the courts the responsibility to exercise independent judgment in deciding whether a federal agency has acted within its statutory authority.  Only time will tell the full impact of the Loper decision on federal agencies with authority under ERISA, and whether other District Courts will follow the Hansen court’s example.