Effective January 1, 2008, San Francisco enacted an ordinance that requires private employers with twenty or more employees to make minimum health-care expenditures on behalf of their employees, such as paying employees’ health insurance premiums and contributing to their health savings accounts. The Golden Gate Restaurant Association challenged the ordinance in federal court on the basis that the employer mandates are preempted by the Employee Retirement Income Security Act (ERISA). The federal district court granted an injunction, holding that San Francisco’s ordinance is preempted because it has an impermissible connection with employee benefit plans and its expenditure requirements make unlawful reference to employee benefit plans.
On Jan. 9, the Ninth Circuit granted a stay to the district court’s injunction during the appeals process, reasoning that the city has a “strong likelihood of success on the merits,” that the “balance of hardships tips sharply in favor of the City,” and that the “public interest is served by granting a stay.” As a result, San Francisco could enforce its ordinance while the issue was on appeal to the Ninth Circuit for a final decision.
The NAM joined with the Society for Human Resource Management and the International Franchise Association in filing an amicus brief on Mar. 28, arguing that the minimum health-care spending requirement conflicts with long-settled federal law that governs employee benefits. ERISA was designed in part “to protect employers from conflicting and inconsistent state and local regulation” of pension and welfare benefit plans, and upholding the ordinance would encourage an expensive and unworkable array of state and local laws governing employer-provided benefits.
On Sept. 30, the Ninth Circuit reversed the lower court and ruled that the San Francisco ordinance was not preempted by ERISA. It found that the ordinance does not require employers to establish their own ERISA plans or to make any changes to any existing ERISA plans. They may choose to alter their plans, or may make payments directly to the city to cover the difference between what they provide employees through their existing ERISA plans and the minimum they must provide under the ordinance. In addition, the ordinance is not concerned with the nature of the health care benefits in a company's ERISA plan, just the amount spent for whatever benefits it wants. The court ruled that the ordinance does not create an ERISA plan, since it is merely a funding mechanism without allowing companies the kind of discretion that ERISA was designed to control. An employer electing to use the "City-payment" option does not establish an ERISA plan and does not control eligibility or benefits levels. The payment requirement does not have a "connection" with or a "reference to" an ERISA plan.
The case was appealed to the Supreme Court, and the NAM supported the appeal on 7/7/09 with an amicus brief, here. Unfortunately, on 6/26/2010, the Court declined to hear this appeal. Because there are conflicting decisions by federal appeals courts, we expect this issue to be litigated again, and ultimately will be reviewed by the Supreme Court.