California Division of Labor Standards Enforcement, et al., v. Dillingham Construction, N.A., Inc., 19 U.S. 316 (1997).

This was another preemption case, this time one in which the Court held that ERISA does not preempt California’s prevailing wage law to the extent that law prohibits payment of an apprentice wage to an apprentice trained in an unapproved program.  Respondents were paying apprentice wages rather than the prevailing wage to apprentices from a program not approved by the California Apprenticeship Council.  Other unions went to the appropriate state board to complain.  Respondents sued in federal court to stop the interference, arguing that the program was an employee welfare benefit program and that ERISA pre-empted the state law. 

The SJC used its two pronged inquiry to determine whether a law relates to an employee benefit plan and is therefore pre-empted: it relates to it if it (1) has a connection with or (2) has a reference to the plan.  The Court found that the California law did not have a “reference to” ERISA plans because approved apprenticeship programs need not necessarily be ERISA plans.  An individual employer can maintain an apprenticeship committee, defraying the costs of out of its general assets, and an employee benefit program not funded through a separate fund is not an ERISA plan.  The Court found that the law also did not have a “connection with” ERISA plans.  Addressing the substance of the statute with the presumption that ERISA did not intend to supplant it, the Court found the effect of the prevailing wage statute on ERISA-covered apprenticeship plans to be substantially similar to the effect of the surcharge program at issue in Travelers.   It alters the incentives, but does not dictate choices, facing ERISA plans.  It is no different in that sense from myriad state laws in areas traditionally subject to local regulation that Congress could not have intended to regulate.