A San Francisco law that requires employers to spend a set amount
on employee health care costs is not pre-empted by the Employee
Retirement Income Security Act of 1974, the 9th U.S. Circuit Court
of Appeals has ruled.
The 9th Circuit reasoned that the
ordinance does not conflict with ERISA because it does not require
the creation of an "employee welfare benefit plan" within the
meaning of that federal law. In its Tuesday, September 30, decision,
the court cited two U.S. Supreme Court cases that found "an
employer's obligation to make monetary payments based on the amount
of time worked by an employee, over and above ordinary raises, does
not necessarily create an ERISA plan."
However, because the San Francisco decision conflicts with a 2007
4th U.S. Circuit Court of Appeals ruling that had held a similar law
in Maryland was pre-empted by ERISA, the issue ultimately may be
decided by the U.S. Supreme Court, ERISA experts predict.
"This would unwind the fabric of ERISA if it were allowed to
stand, because you'd have states, cities and even local
municipalities setting different levels of requirements for health
care benefits in each of their jurisdictions. It goes against the
very policy ERISA put in place," said J.D. Piro, an attorney with
Hewitt Associates Inc. in Norwalk, Conn.
In Golden Gate Restaurant Assn. v. City and County of San
Francisco, the restaurant owners group had successfully challenged
the 2006 San Francisco ordinance, arguing that its spending
requirements were pre-empted by ERISA, which precludes state and
local governments from enacting laws dictating the contents of
employee benefit plans. Although the U.S. District Court on December
26, 2007, ruled in favor of the restaurant group, its decision had
been stayed pending the outcome of the appeal.
The case has received national attention, and the U.S. Department
of Labor filed an amicus brief warning that upholding the San
Francisco law would "open plan sponsors to a potentially bewildering
and conflicting array of mandates."
Under the San Francisco law, employers with 100 or more employees
have to make health care expenditures of at least $1.76 per hour for
every eligible employee working in the city for at 10 or more hours
per week. For-profit employers with 20 to 99 employees and nonprofit
employers with 50 or more employees have to spend $1.17 per hour for
eligible workers.
Employers that fail to comply with the ordinance are subject to
fines equal to 150 percent of the amount they are mandated to spend
on employee health care.
Calls to the restaurant association
and the city and county of San Francisco were not immediately
returned.
Filed by Joanne Wojcik of Business Insurance, a
sister publication of Workforce Management.
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