San Francisco Health Care Ordinance Withstands ERISA Preemption Challenge

By Pessagno, Stephen | American Journal of Law & Medicine, October 1, 2009 | Go to article overview

San Francisco Health Care Ordinance Withstands ERISA Preemption Challenge


Pessagno, Stephen, American Journal of Law & Medicine


San Francisco Health Care Ordinance Withstands ERISA Preemption Challenge- Golden Gate Rest. Ass'n v. City & County of S.F.1- The United States Court of Appeals for the Ninth Circuit held that Section 514(a) of the federal Employee Retirement Income Security Act of 19742 ("ERISA") did not preempt the spending requirements of the San Francisco Health Care Security Ordinance3 ("Ordinance").4 Review of the Ninth Circuit's holding is now pending a grant of writ of certiorari from the United States Supreme Court.5

In July 2006, the City and County of San Francisco ("City") passed the Ordinance, a "pay-or-play" law with two primary components: (1) a cityadministered health care program called the "Health Access Plan" ("HAP"), and (2) employer spending requirements.6 The Ordinance requires that medium- and large-sized employers make minimum health care expenditures on behalf of covered employees,7 either by funding the employees' health benefits or by furnishing funds to the HAP.8 Under the "City-payment option," an employer may make payments directly to the City, and its employees then receive medical benefits from the HAP after enrolling in the program.9 The Ordinance also includes administrative requirements, such as mandating that employers maintain accurate records of health care expenditures and provide local officials "reasonable access" to these records.10

Golden Gate Restaurant Association ("Association"), a nonprofit trade association of restaurants, filed suit against the City in November 2006, alleging that ERISA preempted the Ordinance's spending requirements.11 The Association sought declaratory relief and a permanent injunction against enforcement of the spending provisions.12 The district court granted the Association's motion for summary judgment, declaring the spending requirements as preempted by ERISA and thereby enjoining enforcement of the provisions.13

On appeal, the Ninth Circuit reversed and remanded, finding that Section 514(a) of ERISA does not preempt the Ordinance's spending requirements.14 The Court began its analysis with the language of Section 514(a), which states that ERISA preempts "any and all State laws insofar as they . . . relate to any employee benefit plan" under the Act.15 A law "relates to" an employee benefit plan when "it [1] has a connection with or [2] reference to such a plan."16

The Association argued that the Ordinance's administrative requirements create an ERISA plan, and its amicus, the Secretary of Labor ("Secretary"), contended that the HAP itself is such a plan.17 Under either theory, the Ordinance creates an impermissible "reference to" an ERISA plan.18 Alternatively, the Association and the Secretary argued that an employer's requirement to make payments at a certain level- regardless of whether the payments are made to the City - "relates to" the ERISA plans of covered employers.19 Finally, the Association argued that ERISA preempts the Ordinance under the Fourth Circuit's analysis in Retail Industry Leaders Association v. Fielder20 and that to hold otherwise would create a circuit split among the federal Courts of Appeals.21

In rejecting the first argument, the Ninth Circuit held that the Citypayment option does not create an ERISA plan, defacto or otherwise.22 The first requirement of an employee welfare benefit plan under ERISA is the existence of a "plan, fund or program" because only such plans involve administrative activity vulnerable to employer abuse.23 Although the Ordinance requires employers to perform such tasks as tracking employee hours, these administrative obligations "amount to nothing more than the exercise of 'a modicum of discretion,'" posing little risk of employer abuse.24 Also, the Court declined to apply the criteria of Donovan v. Dillingham,'" which courts have used to analyze potential defacto ERISA plans rather than administrative obligations under state or local law.26

The Ninth Circuit also held that the HAP did not constitute an ERISA plan. …

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