Opinion ID: 759514
Heading Depth: 3
Heading Rank: 2

Heading: Employee Issue

Text: 16 Petitioner claims, to repeat, that he is an employee for purposes of ERISA-qualification. An ERISA employee benefit plan must have participants which are present or former employees of an employer. 4 29 U.S.C. § 1002(6). The Department of Labor regulations, issued pursuant to 29 U.S.C. § 1135, provide in pertinent part: 17 (b) Plans without employees. For purposes of Title I of [ERISA], the term employee benefit plan shall not include any plan, fund or program, other than an apprenticeship or other training program, under which no employees are participants covered under the plan, as defined in paragraph (d) of this section. For example, a so-called Keogh or H.R. 10 plan under which only partners or only a sole proprietor are participants covered under the plan will not be covered under Title I. However, a Keogh plan under which one or more common law employees, in addition to the self-employed individuals, are participants covered under the plan, will be covered under Title I.... 18 29 C.F.R. § 2510.3-3(b) (1998) (emphasis added). 19 While it is clear that ERISA-qualified plans must have employee participants, the statute does not adequately define the term employee. Under ERISA, an employee is any individual employed by an employer, 29 U.S.C. § 1002(6), but this definition is completely circular and explains nothing. Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 323, 112 S.Ct. 1344, 1348, 117 L.Ed.2d 581 (1992). Therefore, the text of ERISA alone does not resolve the issue now before us, i.e., whether a dual status employer/employee is considered an employee for purposes of ERISA-qualification. 20 For the answer to that query, we turn instead to the Department of Labor regulations. Congress authorized the Secretary of Labor to prescribe such regulations as he finds necessary or appropriate to carry out the provisions of this [ERISA] subchapter. 29 U.S.C. § 1135. Pursuant to that grant of authority, the Secretary promulgated regulations which have been in effect for over twenty years. The regulations provide, in pertinent part, that: [a]n individual and his or her spouse shall not be deemed to be employees with respect to a trade or business, whether incorporated or unincorporated, which is wholly owned by the individual and his or her spouse.... 29 C.F.R. § 2510.3-3(c)(1) (1998) (emphasis added). Inasmuch as Watson wholly owns his own medical corporation, under the regulations, he is not an employee for purposes of ERISA. 21 Watson must therefore attack the legitimacy of the regulations to the extent they preclude qualification of his Plan under ERISA. He contends that Darden, 503 U.S. at 323, 112 S.Ct. at 1348, 117 L.Ed.2d 581, effectively replaces the Department of Labor definition of employee with the traditional agency law definition. Darden has no such effect. 22 In Darden, the Supreme Court addressed a different issue. Whereas here, the issue is one of a dual status employer-employee, in Darden the issue involved the distinction between employees and independent contractors. Darden, an insurance salesman, contracted with Nationwide Mutual Insurance Company, promising to sell only Nationwide policies. In deciding whether Darden could properly be considered Nationwide's employee for purposes of ERISA, the Court held that the term employee as it appears in ERISA, 29 U.S.C. § 1002(6), incorporates traditional agency law criteria for identifying master-servant relationships. Darden, 503 U.S. at 319, 112 S.Ct. at 1346, 117 L.Ed.2d 581 (emphasis added). 23 The traditional agency criteria can be applied logically only in situations involving relationships between two different persons, i.e., those who employ persons and those who are so employed. Accordingly, Darden instructs that we apply the traditional agency definition of employee when confronted with the question of whether a specific individual is, in relation to another, an employee or an independent contractor for purposes of ERISA. 503 U.S. at 325, 112 S.Ct. 1344. The issue we confront here is different. It is whether a self-employed owner is also his own employee for purposes of qualifying his Plan under ERISA. Traditional agency law criteria provide no answer. Thus, we cannot logically apply Darden in this case. 5 24 Kennedy v. Allied Mutual Insurance Company, 952 F.2d 262 (9th Cir.1991), on the other hand, addresses the very issue raised here. In that case, the Kennedy brothers owned an advertising company and established a pension plan in which they were the only participants. The Kennedy brothers, like Watson, argued that their plan was ERISA-qualified, but this Court disagreed, holding that self-employed owners of a corporation are not employees for purposes of ERISA. See id. at 264. Here, the facts are much the same. Watson owned his own corporation and, like the Kennedys, was self-employed. Watson, like the Kennedys, was the sole participant in his own pension plan. Thus, the BAP correctly acknowledged that Kennedy controls this case and held that Watson was not considered an employee for purposes of ERISA. 6