A Ninth Circuit panel recently announced that it would stay a district court order and allow a San Francisco ordinance that requires private employers to provide health care coverage to their employees to go into effect. Golden Gate Restaurant v. City and County of San Francisco, No. 07-17370, 2008 U.S. App. LEXIS 364 (9th Cir. January 9, 2008).
The San Francisco Health Care Security Ordinance (the “ordinance”) requires private employers to pay a health care expenditure of up to $1.76 per hour per employee (depending on the number of employees). Any amount paid by an employer to employees or third parties on behalf of employees for the purposes of providing health care services for covered employees or reimbursing the cost of such services for covered employees constitutes an expenditure under the ordinance.
Essentially, the ordinance allows employers to keep their ERISA plans intact and, if the employer was not paying the amount of the health care expenditure for each employee into the ERISA plan, to pay the difference to the city. (The Court laid out in detail the various types of employer plans and how the law would affect each one.) If the employer does not have an ERISA plan, it can pay the entire expenditure directly to the city. The Court noted that the ordinance does not require employers to establish ERISA plans or change existing ERISA plan benefits.
By staying the decision of the district court, the Ninth Circuit effectively allowed the Ordinance to take effect, largely because it found that there was a strong likelihood that the law would not be preempted by ERISA. Under ERISA, a state statute is preempted if it “relates to” a covered employee benefit plan. Here, the Court said that the ordinance does not require an employer to adopt an ERISA plan or provide specific benefits through an ERISA plan. The fact that the ordinance may “influence” an employer to adopt an ERISA plan rather than pay money to the city was not, in the Ninth Circuit’s view, sufficient to establish the required relationship. The Court also noted that the law did not single out or specifically mention ERISA plans of any kind nor did an ERISA plan need to exist to enforce the law. Although this decision allows the San Francisco ordinance to go into effect for the time being, the case will still have to be decided on the merits by the Ninth Circuit to determine whether the ordinance is, in fact, preempted by ERISA.
This case comes on the heels of a Fourth Circuit case that struck down a Maryland law that was very similar in its operation to the San Francisco ordinance. Retail Industry Leaders Assoc. v. Fielder, 475 F.3d 180 (4th Cir. 2007). In Retail Industry Leaders, the Maryland General Assembly enacted the Fair Share Health Care Fund Act, which required employers with 10,000 or more Maryland employees to spend at least 8% of their total payrolls on employees’ health insurance costs or make up the difference in payments to the State of Maryland.
The Fourth Circuit took the same analytical approach as the Ninth Circuit yet came to the opposite conclusion- that the law was preempted. Although the Ninth Circuit found that the law gave employers a choice between paying the city and paying for a benefit plan, the Fourth Circuit said this “choice” was no choice at all because the only reasonable approach was to provide an ERISA plan and reap the benefits of improved employee morale. Although the Ninth Circuit found that requiring employers to pay money to the state would not disrupt the uniform governance of employer plans nationwide – a key purpose of ERISA – the Fourth Circuit found that the laws effectively mandated different benefits in different states. Although the Ninth Circuit said that the law could exist with or without an ERISA plan, the Fourth Circuit said that, because the vast majority of any employer’s health care spending occurs through ERISA plans, the primary subject of the Act was ERISA plans.
Clearly there is disagreement as to whether these types of state or local laws are preempted by ERISA. We will have to wait and see how the United States Supreme Court decides this issue, should it eventually take such a case. If the Supreme Court ultimately holds that legislative efforts like the San Francisco ordinance are not preempted, other jurisdictions will likely enact similar legislation, thereby mandating employer-provided benefits. Such initiatives could prove quite costly and burdensome for employers.