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Court: Local governments can create benefit-spending requirements

by on
in Employee Benefits Program,Human Resources

Many California employers are viewing a recent decision by a federal appeals court as a setback. The court upheld the right of local governments to pass ordinances that essentially force employers to provide a certain level of funding for employee benefits.

The court said a San Francisco ordinance requiring employer contributions to employee health care was legal and didn’t violate the federal Employee Retirement Income Security Act (ERISA), which regulates most employer benefits plans.

Recent case:
In 2006, San Francisco enacted the San Francisco Health Care Security Ordinance. One of the requirements of the law is that for-profit employers with 20 to 99 employees and nonprofit employers with 50 or more employees must contribute at least $1.17 per hour to employee health insurance. For-profit employers with 100 or more employees must contribute $1.76 per hour.

The Golden Gate Restaurant Association challenged the ordinance, contending that ERISA pre-empts the employer spending requirements either because those requirements create a “plan” within the meaning of ERISA or because they “relate to” employers’ ERISA plans.

The 9th Circuit Court of Appeals rejected that interpretation. The ordinance was legal and enforceable. (Golden Gate Restaurant Association v. City and County of San Francisco, No. 07-17370, 9th Cir., 2008)

Final note:
No doubt, other California municipalities will use the San Francisco ordinance as a template for their own laws mandating benefits levels.

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