Unce more unto the breach: Court revisits preemption in labor cases

On Aug. 9, the 9th U.S. Circuit Court of Appeals issued its opinion in Kobold v. Good Samaritan Regional Medical Center, 2016 DJDAR 8141, which considered whether Section 301 of the federal Labor Management Relations Act preempted various state law claims brought by unionized employees and provided a basis for removing those claims to federal court. Kobold was the consolidated appeal of three separate cases that involved different parties and facts, but which had several key commonalities. All three involved union-represented employees who filed grievances pursuant to the grievance and arbitration procedure in their collective bargaining agreements (CBAs), but turned to the state courts when they did not obtain full relief. In turn, all three employers removed the cases under Section 301 and, in all three cases, the district courts found the claims to be preempted and denied the plaintiffs' motions for remand.

As a preface, the panel stated that "although § 301 preemption cases arise fairly frequently, [f]amiliarity ... has not bred facility," but hoped that its opinion "will illuminate the parameters of § 301 preemption analysis, and so help '[breed] facility.'" The panel noted that Section 301 has long been "understood ... as a congressional mandate to the federal courts to fashion a body of federal common law to be used to address disputes arising out of labor contracts" and "that this federal common law preempts the use of state contract law in CBA interpretation and enforcement." It further noted that "The Supreme Court has expanded 'the pre-emptive effect of § 301 ... beyond suits alleging contract violations' to state law claims grounded in the provisions of a CBA or requiring interpretation of a CBA.'" The question that has long vexed practitioners and the courts, however, is determining which disputes fall within that formulation.

Kobold begins by reiterating the two-step inquiry from Burnside v. Kiewit Pacific Corp., 491 F. 3d 1053 (9th Cir. 2007), for identifying whether a state law claim is subject to preemption under Section 301: First, does the asserted claim involve a right conferred upon an employee by virtue of state law (as opposed to the applicable CBA)? If so, does that right substantially depend on the analysis of a CBA? Where there is substantial dependence, the state claim is preempted; where there is not, the claims may proceed under state law.

The plaintiff in the first case, Kobold v. Good Samaritan Regional Medical Center, brought Oregon state law claims for failure to pay all wages owed at each pay period and improper withholding of her wages, arguing she was improperly denied premium pay for extra shifts worked. The plaintiffs in the second case, Barr v. Ross Island Sand & Gravel Co., brought state law claims alleging their employer had improperly retained CBA-authorized paycheck deductions for too long, breach of fiduciary duty, and money had and received, arguing their employer did not timely transmit withholdings to their health insurance provider, causing their benefits to lapse. In seeking to overturn an arbitration award, the plaintiff in the third case, Allen v. Northwest Permanente, P.C., alleged intentional interference with economic relations/contract, breach of contract, and breach of the duty of good faith, arguing she was improperly terminated for failure to maintain necessary credentials.

The panel affirmed the preemption of Kobold's claim for premium pay for extra shifts worked, reasoning it could not calculate damages without evaluating which shifts qualified for premium pay. This, in turn, required analyzing the CBA and rendered Kobold's claim substantially dependent upon a CBA. Similarly, Barr plaintiffs' claim for money had and received was held to be preempted, as the employer's authority to withhold funds and apply them towards health insurance premiums was purely a contractual entitlement, and not conferred by a state law as required by Burnside.

However, the panel held that the Barr plaintiffs' other claims were not subject to Section 301. Although the right to apply pay towards premiums was one arising out of the CBA, the amount of time an employer could lawfully retain those withholdings was directly subject to state law - the panel only needed only to refer to a calendar, not the CBA, to find a violation. Similarly, the breach of fiduciary duty claim turned on whether the employer kept deducted funds in a separate account, remitted them to the necessary recipients, and did not use them for its own benefit - none of which required review of the CBA.

The panel found that Allen's claims were barred in state court, but its holding was not strictly tied to a Burnside analysis. Rather, the panel relied upon the arbitrator's decision that Allen's claim - that the termination decision was made by a third-party credentialing committee that was not a party to the CBA - nevertheless arose out of the CBA (which satisfied the first Burnside factor). The panel also highlighted the finality of an arbitrator's decision, stating a reviewing court could not second-guess the decision - even if it were convinced the arbitrator misread the contract or erred in interpreting it.

Although the panel did not uniformly decide for or against preemption for all the claims presented, practitioners can still gain a sense for when claims are preempted by and may be removed under Section 301. First, evaluate whether the employee's right is derived from state law or a CBA. If the former, employers should evaluate whether the right requires substantial analysis of the CBA before attempting to remove it to federal court. Lastly, remember the need to prepare carefully for arbitration, as the arbitrator's decision will almost certainly be the last word on the interpretation of a CBA.

Hal Brody is a partner and Elaine Lee an associate in the Labor and Employment Department of the Los Angeles office of Proskauer Rose LLP.