City Ordinance Requiring Minimum Health Care Expenditures for Employees is Not Preempted by ERISA
Golden Gate Restaurant Ass'n v. City and County of San Francisco, 546 F.3d 639 (9th Cir. 2008).
The city of San Francisco passed an ordinance requiring that most city-based employers make a certain level of health care expenditures on behalf of their covered employees. (Basically, employers were required to either provide health care benefits to employees or pay the City a certain amount of money per employer hour worked to fund a city-run Health Access Plan.) Employers argued that the ordinance was preempted by ERISA because it impermissibly created an ERISA plan, or related to employers’ existing ERISA plans. Citing a presumption against preemption, the Court of Appeals for the Ninth Circuit found that the ordinance was not preempted by ERISA.
First, the Court of Appeals took a close look at the ERISA and the intent behind the legislation, noting that ERISA is concerned with “benefit plans,” as opposed to simply “benefits.” The Ninth Circuit noted that, among the requirements to establish a “plan” under ERISA, an employer must have administrative duties and exercise “more than a modicum of discretion” in exercising those duties. Here, the Court rejected the employers’ argument that keeping track of the number of hours their employees worked and whether those hours were worked in San Francisco represented administrative duties requiring more than a modicum of discretion. The Court further noted that the ordinance did not guarantee any level or kind of “intended benefits,” nor did it “bind” plan administrators to a particular choice of rules for determining eligibility or entitlement to benefits. Instead, the ordinance only required a certain level of expenditures for each covered employee or comparable funding in traditional ERISA plan. Therefore, the ordinance did not create an employee welfare benefit plan.
The same logic factored into the Court’s inquiry as to whether the ordinance impermissibly relates to, has connection with or references previously established employer plans. The Court noted that unlike statutes rejected in past cases, the ordinance did not require that an employer create an ERISA plan or to provide specific benefits under an existing plan. The fact that the ordinance might influence an employer to modify an existing plan so as not to fall under the ordinance does not mean that the ordinance relates to the a plan. In addition, the Ninth Circuit explained that while employers were required to make payments to the City, the employer had no say in what the city did with the money after a payment was made. The lack of any control or input in how the money was handled was one of the justifications for holding that the ordinance did not have an impermissible connection to an ERISA plan. Accordingly, the Ninth Circuit upheld the ordinance.
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