Opinion ID: 758774
Heading Depth: 3
Heading Rank: 3

Heading: Standing Under PG & E's Pension and Retirement Plans

Text: 15 The district court concluded the plaintiffs have no colorable claim to vested benefits, and thus lacked standing to sue under the pension and retirement plans because the plaintiffs were expressly excluded from the plans' coverage. In reaching that conclusion, the district court found the plaintiffs satisfied the definition of leased employees set forth in I.R.C. § 414(n), 26 U.S.C. § 414(n) (1996). 16 The PG & E pension and retirement plans offer benefits to PG & E employees, but provides that a 'leased employee,' as defined in Section 414(n)(2) of the Internal Revenue Code, shall not be considered an EMPLOYEE eligible to become a PARTICIPANT in the PLAN. During the time in question, § 414(n) provided: 17 [T]he term leased employee means any person who is not an employee of the recipient and who provides services to the recipient if-- 18 (A) such services are provided pursuant to an agreement between the recipient and any other person (in this subsection referred to as the leasing organization), 19 (B) such person has performed such services for the recipient ... on a substantially full-time basis for a period of at least 1 year, and 20 (C) such services are of a type historically performed, in the business field of the recipient, by employees. 21 26 U.S.C. § 414(n) (1994) (emphasis added). 22 In 1996, Congress amended § 414(n) by replacing the historically performed language of subsection (C) with such services are performed under primary direction or control by the recipient. 26 U.S.C. § 414(n) (1996). Neither version of § 414(n) nor the Internal Revenue Code defines employee, and accordingly the common-law definition of employee should be used in its place. See Rev.Rul. 87-41, 1987-1 C.B. 298 (An individual is an employee ... if the individual has the status of an employee under the usual common law rules applicable in determining the employer-employee relationship.); Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 323, 112 S.Ct. 1344, 117 L.Ed.2d 581 (1992) ([W]e adopt a common-law test for determining who qualifies as an 'employee' under ERISA....). Therefore, under the plain meaning of § 414(n), a leased employee is any person who: (1) is not a common-law employee of the recipient, and (2) satisfies the three enumerated requirements. In other words, a common-law employee of the recipient cannot qualify as a leased employee under § 414(n). 23 The plain meaning of § 414(n) is supported by the legislative history of the 1996 amendment: 24 As under present law, the determination of whether someone is a leased employee is made after determining whether the individual is a common-law employee of the recipient. Thus, an individual who is not a common-law employee of the service recipient could nevertheless be a leased employee of the service recipient. Similarly, the fact that a person is or is not found to perform services under primary direction or control of the recipient for purposes of the employee leasing rules is not determinative of whether the person is or is not a common-law employee of the recipient. 4 25 S.Rep. No. 104-281, at 93, reprinted in 1996 U.S.C.C.A.N. 1567 (emphasis added). 26 The district court erroneously concluded that the plaintiffs were leased employees under § 414(n) even assuming they qualified as common-law employees. In so doing, the district court did not believe the term employee in § 414(n) was intended to include common-law employees. We think the plain wording of the statute contradicts this finding. Furthermore, the legislative history for the 1996 amendment to § 414(n) belies this conclusion. Congress expressly stated that the determination of whether an individual employee is a common-law employee must be made before the determination of whether the individual is a leased employee. Id. Additionally, the Supreme Court has held that to determine who is an employee under ERISA, courts should use the common-law test as set forth in Community for Creative Non-Violence v. Reid, 490 U.S. 730, 751-52, 109 S.Ct. 2166, 104 L.Ed.2d 811 (1989). See Darden, 503 U.S. at 323-24, 112 S.Ct. 1344. 5 27 The district court also concluded that to read employee to include common-law employee would create a resulting anomaly that Congress could not have intended. The district court stated: [I]f the plaintiffs' interpretation of § 414(n)(2) is to be accepted, the leased employee category is reduced to the virtual null set of those employees who work under the supervision and direction of an employer and yet are not common law employees of the employer. Burrey v. Pacific Gas & Electric Co., No. C-95-4638, slip op. at 11 (N.D.Cal. May 2, 1997). This, the district court found, could not have been Congress' intended result. 28 We believe the district court's reasoning is flawed in two ways. First, the primary direction or control requirement under § 414(n) was added in 1996; the plaintiffs' claims are for benefits allegedly owed to them between 1988 and 1994. Therefore, the wording of the prior § 414(n) is controlling in this analysis. Second, the district court mistakenly equates the common-law test of employee status with the primary direction and control element added by the 1996 amendment. 6 Whether an employer has primary direction and control over the individual is only one of the twenty factors used to determine common-law employment status. See Reid, 490 U.S. at 751, 109 S.Ct. 2166. Additionally, the district court's interpretation effectively renders superfluous the phrase who is not an employee in § 414(n). In interpreting a statutory provision, we must avoid any construction that renders some of its language superfluous. See Hearn v. Western Conference of Teamsters Pension Trust Fund, 68 F.3d 301, 304 (9th Cir.1995); see also Security Pacific Nat. Bank v. Resolution Trust Corp., 63 F.3d 900, 905 (9th Cir.1995). 29 We also reject the district court's interpretation of and reliance upon Abraham v. Exxon Corp., 85 F.3d 1126 (5th Cir.1996) to support its holding. The district court read Abraham to implicitly hold that common-law employees can be properly excluded from a benefit plan as leased employees. At issue in Abraham was whether employers are forbidden from discriminating against leased employees when designing an ERISA plan. The Fifth Circuit merely assumed that the individuals were leased employees, and concluded that an employer may bar leased employees from participating in its ERISA plan. Id. at 1130. In this case, the question is not whether PG & E can bar a leased employee from participating in its ERISA plans. Rather, the question is whether the plaintiffs qualify as common-law employees under § 414(n). 7 30 We hold that employee as used in § 414(n) means common-law employee and an individual's employment status under § 414(n) should be determined using the twenty-factor test adopted in Darden. We do not address here whether the plaintiffs could qualify as common-law employees. Instead, we merely conclude that the district court erred by not considering whether the plaintiffs qualified as common-law employees as a threshold determination of whether the plaintiffs were leased employees under § 414(n). We therefore reverse the district court's order and remand this issue in order that the district court may make a determination of the plaintiffs' employment status under § 414(n).