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ERISA doesn't pre-empt San Francisco health mandate


SAN FRANCISCO—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 Sept. 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.

"A lot of states and cities have been waiting for this case to see whether it's a blueprint or not. Frankly I don't think we learned too much more today. We don't have the definitive answer, which I think will only come from the Supreme Court around whether this works or not," observed Andy Anderson, of counsel at Morgan, Lewis & Bockius L.L.P. in Chicago.

In Golden Gate Restaurant Assn. vs. 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 Dec. 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 between 20 and 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% of the amount they are mandated to spend on employee health care.

Kevin Westlye, president of the restaurant association, said it is considering its options, which include either requesting an en banc hearing of the entire 9th Circuit or appealing the decision to the U.S. Supreme Court.

"ERISA is something that Congress passed to allow uniform administration of employee benefit programs," Mr. Westlye said. "We think the practical application of this will certainly be the end of ERISA, because if San Francisco is allowed to establish an employer mandate for health care, then other municipalities both in California and in the rest of the country will be allowed to also establish an employer mandate for health care, and the idea for national uniformity of health care will go away."