N.D.Cal: ERISA preempts SF health plan
Keywords
The court concluded that the program was preempted because it requires mandatory levels of health coverage; imposes recordkeeping and inspection requirements in relation to employee benefits; affects the structure and administration of benefit plans; and improperly refers to those plans in determining employer liability. The district court denied a stay, and the city is seeking a stay from the Ninth Circuit.
San Francisco’s plan requires that medium and large businesses make minimum expenditures for employee health care, either in the form of benefits directly to employees, or through payments to the city’s health care program. Employers could face significant penalties for failure to make such expenditures, for failure to keep and allow access to records, or for reducing their workforce to avoid the requirement.
Businesses sought to block the plan under 29 U.S.C. § 1144(a), which “supercede[s] any and all State laws insofar as they now or hereafter relate to any employee benefits plan.” Citing the extensive jurisprudence that has grown up around ERISA, the court observed that this preemption provision is both breathtakingly broad and immensely confusing to apply. The court set out the following factors identified by the Ninth Circuit for determining whether a law “relates to” ERISA plans:
(1) whether the state law regulates the types of benefits of ERISA employee welfare plans;
(2) whether the state law requires the establishment of a separate employee benefit plan to comply with the law;
(3) whether the state law imposes reporting, disclosure, funding, or vesting requirements for ERISA plans; and
(4) whether the state law regulated certain ERISA relationships, including relationships between an ERISA plan and employer and, to the extent an employee benefit plan is involved, between the employer and the employee.
Operating Engineers Health and Welfare Trust Fund v. JWJ Contracting Co., 135 F.3d 671, 678 (9th Cir.1998). The court held that all but the second of these factors applied to the San Francisco plan.
Regarding the first factor, it stated that “the provisions of the Ordinance requiring certain mandatory levels of health care coverage for covered San Francisco employees regulates the types of benefits of ERISA employee welfare plans. The provisions require private employers to meet a certain level of benefits; and those benefits are the type regularly provided by employer ERISA plans.”
Regarding the second factor, the court
stated that while the city’s public health care plan “resembles an alternate
ERISA plan in some ways, the Court is not persuaded that the separate public
health care plan envisioned by the Ordinance actually creates a separate
de facto ERISA
plan.”
Regarding the third factor, the court stated
that the law’s administrative provisions “have an impermissible connection with
employee benefit plans because they impose on employers specific recordkeeping,
inspection and other administrative burdens related to the administration of
their private healthcare expenditures.” The city argued that the provisions
were not difficult to follow, but the court stated that regardless of how
“complex or simple” the necessary accounting might be, “the requirements on
employers under the Ordinance are ongoing and directly affect the administrative
scheme of providing healthcare benefits.”
Regarding the fourth factor, the court stated that the city’s plan “directly and indirectly affects the structure and administration of ERISA plans. The expenditure requirements affect the structure of private employers' already existing plans by requiring that… employers either modify the administration of their existing ERISA plans or structure their additional payments with reference to the amounts paid under the existing plans.”
The court also noted that under the various tests employed in the Ninth Circuit, “a core factor leading to the conclusion that a state law is preempted is that the claim bears on an ERISA-regulated relationship.” Rutledge v. Seyfarth, Shaw, Fairweather & Geraldson, 201 F.3d 1212, 1219 (9th Cir.2000). It concluded that “the Ordinance requires the modification of the core relationship between the private employers and their intended health care beneficiaries,” since employers “would either have to modify the administration of their existing ERISA plans …or structure their additional payments by making unlawful reference to the amounts paid under existing ERISA plans.”
The court further stated that the city’s plan “interferes with nationally uniform plan administration” by subjecting employers to different requirements across the state and nation.
Finally, the court held that the law was preempted because it “make[s] unlawful reference to employee benefit plans” by referring to such plans in determining employer liability. The court likened the plan to one invalidated by the Supreme Court that required employers to provide equal health care coverage to workers eligible for workers compensation. See District of Columbia v. Greater Wash. Bd. of Trade, 506 U.S. 125, 128 (1992).
In closing, the court lauded the city’s goal of providing universal coverage, but said it was
not convinced that other alternatives for creating a program for providing public health care are not viable. Defendants propose an increased general tax requirement, but state the unfairness of not taking existing health care expenditures into account. Without wading into the legislative dominion, the Court can envision such a tax program that takes existing health care expenditures by private employers into account in the form of tax credits. Further, as the parties allude, there are alternatives such as funding a public health care system by requiring a[n] hourly rate paid to the City.
This decision follows one by the Fourth Circuit last year – cited repeatedly in this decision – that held preempted Maryland’s “pay or play” requirement for large employers, and another by a New York district court invalidating Suffolk County’s health care plan. See Retail Industry Leaders Association v. Fielder, 475 F.3d 180, 191 (4th Cir.2007) (summary here); Retail Industry Leaders Assn. v. Suffolk County, 497 F.Supp.2d 403 (E.D.N.Y. 2007) (summary here).