Ninth Circuit Court of Appeals Upholds Employer Funding Provisions
of San Francisco's Health Care Security Ordinance

September 30, 2008

Today, the Ninth Circuit Court of Appeals upheld the employer funding provisions of San Francisco’s Health Care Security Ordinance (HCSO), finding that the HCSO is not pre-empted by the Employee Retirement Income Security Act (ERISA). This ruling means that employers subject to the Ordinance will be required to continue to make health care expenditures on behalf of covered employees.

The long-awaited Court of Appeals decision is the latest development in litigation over the HCSO between a local restaurant association and the City and County of San Francisco. The decision overturns the opinion of a lower court, which found that the employer funding provisions of the HCSO were preempted by ERISA and therefore unlawful. The Court of Appeals rejected the lower court’s opinion and determined that ERISA preemption was not applicable because, among other reasons, the employer could fully discharge its expenditure obligations by making payments directly to the City of San Francisco rather than to any health and welfare benefit plan. Even though it upheld the law, the Court took special care to not specifically endorse the HCSO. In the decision, the Court noted, “[t]here may be better ways to provide health care than require employers in the City of San Francisco to foot the bill.”

In light of this decision, Employers must continue complying with the employer funding provisions of the HCSO. Those provisions require covered employers (those with 20 or more employees) to make minimum healthcare expenditures on behalf of most employees working 10 or more hours a week within the City and County of San Francisco. Employers must pay up to an additional $1.76 for each hour a covered employee receives compensation, including wages, vacation pay and sick pay, up to a cap of 172 hours per month or 516 hours per quarter. Payments may be made in a variety of forms, including directly purchasing health insurance for covered employees, making contributions to health savings accounts, providing direct reimbursement to employees for some of the expenses incurred in the purchase of healthcare services, making payments to third parties for the purpose of providing healthcare services, or making payments directly to the City.

If you have employees in San Francisco and need more detailed information on how to comply with this new law, please contact us.  Click here to access the complete the opinion to Golden Gate Restaurant Association v. City and County of San Francisco.

This E-Update was authored by Brenda Kasper.  For more information, please contact Ms. Kasper or any Paul, Plevin attorney at (619) 237-5200.

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