Amicus Curiae Brief — The ERISA Industry Committee, Petitioner v. City of Seattle, Washington

No. 21-1019

================================================================================================================

In The

Supreme Court of the United States

---------------------------------♦--------------------------------THE ERISA INDUSTRY COMMITTEE,

Petitioner,

v.

CITY OF SEATTLE,

Respondent.

---------------------------------♦--------------------------------On Petition For Writ Of Certiorari

To The United States Court Of Appeals

For The Ninth Circuit

---------------------------------♦--------------------------------BRIEF OF AMICI CURIAE AMERICAN HOTEL

AND LODGING ASSOCIATION, ET AL.,

IN SUPPORT OF PETITIONER

---------------------------------♦--------------------------------RICHARD J. BIRMINGHAM*

HARRY KORRELL

DAVIS WRIGHT TREMAINE LLP

920 Fifth Avenue, Suite 3300

Seattle, WA 98104-1610

(206) 622-3150

richardbirmingham@dwt.com

Counsel for Amici Curiae

*Counsel of Record

================================================================================================================

COCKLE LEGAL BRIEFS (800) 225-6964

WWW.COCKLELEGALBRIEFS.COM

i

TABLE OF CONTENTS

Page

INTEREST OF AMICI CURIAE .........................

1

SUMMARY OF ARGUMENT ..............................

3

ARGUMENT ........................................................

6

CONCLUSION..................................................... 21

APPENDIX A—LIST OF AMICI CURIAE.............. A-1

ii

TABLE OF AUTHORITIES

Page

CASES

Alessi v. Raybestos–Manhattan, Inc., 451 U.S.

504 (1981) ..................................................................8

Cal. Div. of Labor Standards Enf ’t v. Dillingham, 519 U.S. 316 (1997) ...................................... 7, 9

De Buono v. NYSA–ILA Med. & Clinical Servs.

Fund, 520 U.S. 806 (1997) .........................................7

Egelhoff v. Egelhoff, 532 U.S. 141 (2001) .... 6, 8, 9, 16, 19

Fort Halifax Packing Co. v. Coyne, 482 U.S. 1

(1987) ................................................................... 9, 19

Gobeille v. Liberty Mutual Insurance Co., 577 U.S.

312 (2016) ...................................................... 3, 6, 16, 18

Greater Wash. Bd. of Trade v. Dist. of Columbia,

948 F.2d 1317 (D.C. Cir. 1991), aff ’d, 506 U.S.

125 (1992) ...................................................... 8, 14, 20

Ingersoll–Rand Co. v. McClendon, 498 U.S. 133

(1990) ................................................................... 8, 19

Metro. Life Ins. Co. v. Massachusetts, 471 U.S.

724 (1985) ..................................................................8

N.Y. State Conf. of Blue Cross & Blue Shield Plans

v. Travelers Ins. Co., 514 U.S. 645 (1995) .... 7, 8, 17, 19

Rutledge v. Pharmaceutical Care Management

Ass’n, 141 S. Ct. 474 (2020) ............................. passim

Shaw v. Delta Air Lines, Inc., 463 U.S. 85

(1983) ....................................................... 4, 14, 15, 20

iii

TABLE OF AUTHORITIES—Continued

Page

STATUTES

29 U.S.C. § 1144(a) ........................................................6

Employee Retirement Income Security Act of

1974 ................................................................. passim

Seattle Municipal Code § 14.28 ............................... 1, 9

Seattle Municipal Code § 14.28.025...........................18

Seattle Municipal Code § 14.28.060...........................11

Seattle Municipal Code § 14.28.060.A .......................10

Seattle Municipal Code § 14.28.060.A.1 ....................11

Seattle Municipal Code § 14.28.060.B .......................10

Seattle Municipal Code § 14.28.060.B.1 ....................10

Seattle Municipal Code § 14.28.060.B.2 ....................10

Seattle Municipal Code § 14.28.060.B.3 ....................10

Seattle Municipal Code § 14.28.060.C .......................11

Seattle Municipal Code § 14.28.060.D .......................11

Seattle Municipal Code § 14.28.060.D.1 ....................11

1

INTEREST OF AMICI CURIAE1

The American Hotel and Lodging Association

(“AHLA”) is the largest hotel association in the country

and represents all segments of the hotel industry.2 It

represents over 27,000 members. Three out of five U.S.

hotels are small businesses, totaling more than 33,000

properties nationwide.

This industry is tremendously important for local

economies. For every $100 hotel guests spend on lodging, another $222 is spent at destinations, totaling approximately $278 billion per year on transportation,

dining, and shopping at local businesses during stays.

Every 100 occupied hotel rooms per night support

nearly 250 local jobs.

This is a case of great significance for amici and

their members who are composed of small and large

hotels nationwide. These hotels support more than 8.3

million American jobs and provide healthcare for those

workers under employee benefit plans subject to the

Employee Retirement Income Security Act of 1974, as

amended (“ERISA”). The Seattle ordinance at issue,

Seattle Municipal Code 14.28 (“SMC 14.28” or the

“Seattle Ordinance”), interferes with the regulatory

uniformity provided by ERISA’s sweeping preemption

1

We informed counsel for Respondent by email January 28,

2022, of our intent to file the brief and secured consent by email

on January 31, 2022.

2

No counsel for a party authored this brief in whole or in

part, and no person or entity other than amici and their counsel

made a monetary contribution to the preparation or submission

of this brief.

2

provision by effectively mandating a minimum premium value and a maximum cost-sharing of premiums

for ERISA health plans sponsored by hotels operating

within the city of Seattle.

As small business owners, hotels need to be efficient to remain in operation especially during this period of reduced hotel occupancy due to COVID-19. An

employer with hotels in three cities cannot afford the

time or the money to try to comply with three different

local healthcare mandates for its employees. ERISA

guaranteed that hotel owners could establish their

own health benefit plans with a uniform design and

operation both within the same state and across state

lines. The Ninth Circuit’s opinion in this case negates

this promise to small business owners and their employees.

Under the Ninth Circuit’s analysis, each state as

well as each city or municipality within each state

could mandate its own healthcare benefits. This is contrary to ERISA which imposes no substantive benefit

requirements on hotels who sponsor health plans, leaving the design of health benefits and the uniform administration of those health plans to the hotel owners.

If every city or state imposed a different healthcare

mandate, a small business owner would be forced to

comply with a patchwork of regulations, designs, and

administrative costs which would destroy the hotels’

efficiencies of operation, making it prohibitively expensive for companies with hotels in multiple jurisdictions

to operate.

3

The Ninth Circuit’s opinion nullifies ERISA by

providing a simple blueprint for an end run around

ERISA’s broad preemption scheme: so long as a state

or city allows, as one alternative mandated benefit, a

cash payment directly to the employee, preemption is

defeated. If ERISA’s purpose of uniformity of design

and operation is defeated, the increased administrative costs associated with different benefit mandates

for different states and municipalities will be borne

by hotels and, typically, shared at least in part by

their employees. Such mandates, if not preempted by

ERISA, will prevent hotels from fairly and equitably

extending health coverage and other employee benefits

to workers without regard to their place of residence or

employment.

These additional costs will force smaller hotels out

of business. The Ninth Circuit’s opinion, if left to stand,

will nullify ERISA’s central purposes of providing uniformity of administration and allowing the freedom to

choose the design of employer-sponsored health plans

and would affect business owners everywhere, both

large and small.

---------------------------------♦---------------------------------

SUMMARY OF ARGUMENT

Review should be granted by this Court because

the Ninth Circuit has adopted a Direct Payment Test

for ERISA preemption that directly conflicts with Supreme Court precedent, including Gobeille v. Liberty

Mutual Insurance Co., 577 U.S. 312 (2016), and Rutledge

4

v. Pharmaceutical Care Management Ass’n, 141 S. Ct.

474 (2020).

Under ERISA, it is clear that a state or municipality cannot mandate that an employer adopt an

employee benefit plan with a minimum value or a required structure. Shaw v. Delta Air Lines, Inc., 463 U.S.

85, 96–97 (1983). Yet the Ninth Circuit’s decision in

this case permits states and municipalities to accomplish indirectly, by allowing a direct payment option,

what they are prohibited from regulating directly.

Under the Ninth Circuit’s Direct Payment Test, if

the employee benefits mandate of a challenged law can

be satisfied by a direct cash payment to an employee,

then ERISA and its central requirements of employer

design choice and uniform administration can be

avoided. For example, the Seattle Ordinance can be

satisfied by either paying an employee $459 per month

in cash or establishing an ERISA health plan with a

premium value of $459 per month. By requiring an employer to choose between providing a plan of a certain

value or paying the stipend, the Seattle Ordinance, according to the Ninth Circuit, avoids ERISA preemption. Likewise, under the Direct Payment Test, a local

ordinance could require that an employer add mental

health, or some other benefit, to the employer’s existing ERISA plan or alternatively pay the employee $459

per month, in cash, and thus, according to the Ninth

Circuit, avoid preemption.

Compliance with the Ninth’s Circuit’s Direct Payment Test would require a small business owner to find

5

an insurance carrier that was willing to underwrite

different coverage options for different cities or municipalities in the state. If a carrier was unwilling or unable to provide such coverage, the hotel would either

have to self-insure the benefit or make cash payments

(that are unrestricted in use) to its employees. Either

way, the hotel owner is forced to deal with additional

administrative costs and plan design choices that interfere with ERISA’s guarantee of free choice in plan

design and uniform administration.

The Ninth Circuit’s Direct Payment Test allows

states and cities to do an end run around ERISA, and

this Court’s traditional ERISA preemption analysis,

with the result that hotels and their employees will be

subjected to a nationwide patchwork of laws and regulations imposing varying coverage and other requirements on the ERISA plans they sponsor. The Ninth

Circuit’s Direct Payment Test will require modifications to ERISA plans, defeat ERISA’s central purpose

of a hotel owner’s choice in the uniformity of administration of employee benefit plans, and result in increased administrative and employee benefit plan

costs for hotel owners and their employees.

---------------------------------♦---------------------------------

6

ARGUMENT

A. Review is required because the Ninth Circuit’s Direct Payment Test nullifies this

Court’s preemption precedents.

1. ERISA preemption generally

As this Court indicated in Gobeille v. Liberty Mutual Insurance Co., 577 U.S. 312 (2016), the text of

ERISA’s express preemption clause is the necessary

starting point. ERISA preempts “any and all State

laws insofar as they may now or hereafter relate to any

employee benefit plan.” 29 U.S.C. § 1144(a).

This Court has found two categories of state laws

preempted by ERISA. First, ERISA preempts a state

law if it has a “reference to” ERISA plans. Second,

ERISA preempts a state law that has an impermissible

“connection with” ERISA plans. Gobeille, 577 U.S. at

319–20.

A state law is preempted under the “reference to”

test if either (i) the law acts immediately and exclusively upon ERISA plans, or (ii) the existence of an

ERISA plan is essential to the law’s operation. Id. at

320.

A state law is preempted under the “connected to”

test if (i) the law governs a central matter of plan administration; (ii) the law interferes with nationally

uniform plan administration, Egelhoff v. Egelhoff, 532

U.S. 141, 148 (2001); or (iii) if “acute, albeit indirect,

economic effect” of the state law forces an ERISA plan

to adopt a certain scheme of substantive coverage or

7

effectively restrict its choice . . . ,” N.Y. State Conf. of

Blue Cross & Blue Shield Plans v. Travelers Ins. Co.,

514 U.S. 645, 668 (1995). Under this third provision,

ERISA does not preempt state rate regulations that

(unlike the Seattle Ordinance at issue here) merely increase costs or alter incentives for ERISA plans without forcing plans to adopt any particular scheme of

substantive coverage. Id.; De Buono v. NYSA–ILA Med.

& Clinical Servs. Fund, 520 U.S. 806, 816 (1997) (concluding that ERISA did not preempt a state tax on

gross receipts for patient services that simply increased the cost of providing benefits); Cal. Div. of Labor Standards Enf ’t v. Dillingham, 519 U.S. 316, 332

(1997) (holding that ERISA did not preempt a California statute that incentivized, but did not require, plans

to follow certain standards for apprenticeship programs).

When presented with preemption claims in earlier

cases, this Court has indicated that preemption turns

on Congress’ intent. Travelers, 514 U.S. at 655. The

purpose of a state law is relevant to determine if the

state law is within the scope of provisions that would

survive, after examining its effect on ERISA plans. Id.

at 656; Dillingham, 519 U.S. at 325. In Travelers, for

example, the Court noted that “[b]oth the purpose and

the effects of ” the state law at issue “distinguish[ed] it

from” laws that “function as a regulation of an ERISA

plan itself.” 514 U.S. at 658–59.

As a shorthand for these considerations, this

Court in Rutledge v. Pharmaceutical Care Management Ass’n, 141 S. Ct. 474 (2020) noted: (i) where a

8

state law governs a central matter of plan administration or (ii) interferes with nationally uniform

plan administration or (iii) forces plans to adopt any

particular scheme of substantive coverage, the state

law will be found to be preempted. Id. at 480.

ERISA does not guarantee substantive benefits.

Therefore, a hotel owner is free to design its self-insured plan without interference from the state, and a

hotel owner’s insured plan design is only limited by

state laws that regulate insurance, as ERISA does not

preempt the power of the state insurance commissioner. Greater Wash. Bd. of Trade v. Dist. of Columbia,

948 F.2d 1317, 1325 (D.C. Cir. 1991), aff ’d, 506 U.S. 125

(1992); Metro. Life Ins. Co. v. Massachusetts, 471 U.S.

724 (1985). ERISA, instead, seeks to make the benefits

promised by a hotel owner more secure by mandating

certain oversight systems and other standard procedures. Travelers, 514 U.S. at 651. Those systems and

procedures are intended to be uniform. Id. at 656

(ERISA’s preemption clause “indicates Congress’s intent to establish the regulation of employee welfare

benefit plans ‘as exclusively a federal concern’ ” (quoting Alessi v. Raybestos–Manhattan, Inc., 451 U.S. 504

(1981)). Requiring ERISA administrators and hotel

owners to master the relevant laws of 50 states and

many more municipalities and to contend with litigation would undermine the congressional goal of minimizing the administrative and financial burdens on

plan administrators—burdens ultimately borne by the

employees when increased costs are inevitably passed

on. Egelhoff, 532 U.S. at 149–50; Ingersoll–Rand Co. v.

9

McClendon, 498 U.S. 133, 142 (1990); see also Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 9 (1987).

A state law cannot be saved from preemption by

simply invoking the state’s traditional power to regulate in the area of public health. ERISA contemplated

the preemption of substantial areas of traditional

state regulation. Dillingham, 519 U.S. at 330. ERISA

preempts a state law that regulates a key facet of plan

administration or plan design even if the state law exercises a traditional state power. See Egelhoff, 532 U.S.

at 151–52.

2. The Seattle Ordinance references ERISA

plans

An examination of the Seattle Ordinance reveals

that it is preempted under the “reference to” test of

ERISA preemption. As explained in more detail below,

the Seattle Ordinance operates immediately and extensively on ERISA plans, and ERISA plans are essential to the operation of the Seattle Ordinance’s

payment scheme. The Seattle Ordinance is also preempted as it forces a hotel owner into a particular benefit design and, as noted above, is not saved from

preemption merely because the state has historically

regulated in the health industry.

The Seattle Ordinance, SMC 14.28, requires covered hotels to make, each month, payments for required

“healthcare expenditures” for covered employees of

$459 if an employee has no spouse, domestic partner,

or dependents and up to $1,375 for an employee

10

with spouse, domestic partner, and dependents. Id.

§ 14.28.060.A. These are the rates in effect for 2022

and are “subject to annual adjustments based on the

medical inflation rate.” Id. § 14.28.060.A.

Covered hotels have discretion as to the form of

the monthly required healthcare expenditures they

choose to make for their covered employees. SMC

§ 14.28.060.B. Hotels may satisfy their monthly obligations through any one or more of the following options,

either individually or in combination:

•

First option: Direct Compensation. Additional compensation can be paid directly to

the covered employee (id. § 14.28.060.B.1);

•

Second option: ERISA insured or funded

benefit option. Payments to a third party,

such as to an insurance carrier or trust, or into

tax favored health programs (including health

savings accounts, medical savings accounts,

health flexible spending arrangements, and

health reimbursement arrangements) for the

purpose of providing healthcare services to

the employee or the spouse, domestic partner,

or dependents of the covered employee (if applicable) (id. § 14.28.060.B.2); and

•

Third option: ERISA self-insured option.

Average per-capita monthly expenditures for

healthcare services made to or on behalf of

covered employees or (the spouse, partner, or

dependents) by the employer’s self-insured

and/or self-funded insurance program(s). Id.

§ 14.28.060.B.3.

11

Under all of the options, there is a potential delay

in the Seattle Ordinance’s application for new hires. If

the hotel’s health plan imposes a waiting period, the

hotel owner will not be required to satisfy the health

expenditures described in SMC § 14.28.060 until the

sooner of 60 days from the date of hire or the expiration

of the waiting period. Id. § 14.28.060.C.

The Seattle Ordinance contains several exceptions. One exception provides that a hotel owner will

be “deemed to have satisfied” its monthly obligations

under any of the three options if “an employee voluntarily declines an employer’s offer” of compliance

through the second and third options—i.e., an offer of

coverage under the hotel’s insured or self-funded

ERISA health plan. SMC § 14.28.060.D. For the offer

to be valid, the hotel owner “must not require the employee to pay more than a dollar amount equivalent to

20 percent of the monthly required healthcare amount

described in subsection 14.28.060.A.1,” through the

employee’s portion of an insurance premium or costsharing. Id. § 14.28.060.D.1. For example, for an employee entitled to a healthcare expenditure just for

him- or herself, the employee shall not be required to

pay more than an amount equaling 20 percent of the

single employee healthcare expenditure rate of $459,

i.e., $91.80/month towards the hotel-sponsored health

insurance plan.

12

3. The dollar amount of the healthcare expenditure required to comply with the

Seattle Ordinance cannot be determined

without reference to an ERISA plan

As a practical matter, under the Seattle Ordinance

the required healthcare expenditure payment to the

employee cannot be determined without reference to

the hotel’s ERISA healthcare plan. If an employee, who

has no dependents, has a premium for healthcare coverage of greater than $459 per month under the hotel’s

medical plan, then no payment is required. However,

even if no payment is made, an examination of the

hotel’s ERISA plan is still necessary to determine if the

employer complied or a penalty is owed.

If no payment was made because the employee

opted out of such coverage, an examination of the hotel’s plan and the cost-sharing would be required to determine the premium and whether the cost-sharing of

the employee is more than 20 percent of the premium.

If the employee is a new hire, an examination of the

hotel’s plan is required to see if there is a waiting period of 60 days. If so, no healthcare expenditure needs

to be made for the employee during that period of time.

If the value of the health premium is not sufficient,

then the hotel must either increase benefits under the

plan or pay the employee in cash. If a hotel must increase benefits, the Seattle Ordinance encourages the

hotel to impose a 60-day waiting period and a 20 percent cost-sharing of the premium in order to offset the

13

costs of the additional benefit that must be provided

under the Seattle Ordinance.

Because an examination of the hotel’s healthcare

plan is required, the “reference to” test is satisfied because a hotel’s health plan is an essential element of

demonstrating compliance with the ordinance.

4. The Seattle Ordinance has an impermissible “connection with” ERISA plans

The Seattle Ordinance also satisfies the impermissible “connection with” test because it interferes with

the administration of the plan by imposing a maximum cost-sharing, a maximum waiting period, and a

minimum value on the premium under the plan. The

Seattle Ordinance effectively mandates that hotels

structure their health plans with a certain dollar level

of benefits and a certain maximum cost-sharing with

employees. A hotel with an insured plan would have to

convince an insurance carrier to file modified insurance contracts with the Washington State Insurance

Commissioner just to satisfy the needs of a few hotels

within the City of Seattle. If that process fails, the hotel would need to explore the redesign of its plan to

self-insure or pay the employees in cash, again with a

modification to the hotel’s medical plan to prevent double benefits to the employee.

The Ninth Circuit’s response to the arguments that

the employer can merely pay the entire $459 monthly

without referring to the ERISA plan is a Hobson’s

choice as it is a substantial cost that would more than

14

double a hotel’s healthcare cost. For example, if the hotel is already paying $410 as a medical premium for an

employee, with no dependents, the hotel would have to

pay another $459 if no reference is made to the hotel’s

plan and only $49 if reference is made to the hotel’s

plan. The additional $459 per month per employee,

with no dependents, is a prohibitively expensive payment and not a real choice for the hotel. Moreover, the

Ninth Circuit’s Direct Payment Test—the hotel owner

can simply pay the full cost without referencing the hotel’s health plan—simply ignores the “reference to” and

the “connection with” preemption tests and permits

the city to accomplish indirectly what ERISA forbids

directly. ERISA prohibits the City of Seattle from requiring hotels to offer health benefits that have a minimum value, and ERISA also prohibits a city from

imposing a minimum cost-sharing on premiums or requiring a maximum waiting period before benefits

could commence:

ERISA reserves to the federal government the

sole power to regulate the field of employee

benefit plans to eliminate any threat of conflicting state and local regulation.

Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 99 (1983).

Thus, in Shaw, this Court held that a New York

state law that required a provision for sick leave benefits to pregnant workers was preempted. In Greater

Washington Board of Trade, 948 F.2d at 1324–25, the

court held that a state mandate to provide health

15

insurance to employees that were receiving workers’

compensation was preempted.

The City of Seattle cannot be permitted to accomplish indirectly that which it is forbidden to regulate

directly. Because the Seattle Ordinance is tantamount

to a mandated benefit design, it is prohibited by this

Court’s decision in Shaw. As this Court’s shorthand

preemption test indicates, the Seattle Ordinance interferes with the uniform administration of employee

benefit plans and interferes with a hotel owners’ free

choice of plan design, and therefore, the Ordinance

should be preempted. The Seattle Ordinance should

also be preempted because it has a reference to ERISA

plans and operates immediately on such plans, and a

hotel’s ERISA plan is essential to the operation of the

Seattle Ordinance because the premium under the

plan determines how much the employee must be paid

directly in cash.

The Direct Payment Test formulated by the Ninth

Circuit is contrary to this Court’s precedent, and this

Court should grant review and reverse the decision by

the Ninth Circuit by applying the traditional “reference to” test of ERISA preemption.

16

B. Review is required because the Ninth Circuit’s Direct Payment Test is an erroneous

interpretation of the Supreme Court’s opinion in Rutledge v. Pharmaceutical Care Management Ass’n, 141 S. Ct. 447 (2020).

In this case, the Ninth Circuit stated that a direct

payment to an employee is not an ERISA plan and does

not implicate an ERISA plan. The Ninth Circuit suggests that this Court’s traditional preemption analysis

is not applicable and that there is a new paradigm of

preemption analysis when there is merely a cost paid

to the employee and no payment is required to be made

to the ERISA plan. Not so. This Court has held that,

where a payment or cost is designed to influence employer choice with respect to the design of an ERISA

plan or interferes with the uniform administration of

such plan, ERISA is implicated.

When analyzing cost implications of a law on

ERISA plans, this Court confirmed the appropriate

test for preemption is the two-part test applied in Gobeille and Egelhoff: does the law have a “reference to”

or a “connection with” an ERISA plan. Rutledge, 114

S. Ct. at 479. In applying these tests, this Court reaffirmed that a court must consider ERISA objectives as

a guide as to the scope of state law that Congress understood would survive. Id. at 480. As a shorthand for

these considerations, a court must ask whether a state

law governs a central matter of plan administration,

interferes with nationally uniform administration, or

forces the plan to adopt a certain scheme of coverage.

Id. at 480; Gobeille, 577 U.S. at 320.

17

In Rutledge, the Court did, however, indicate that

laws that just affect costs, when such laws are not

aimed at employee benefit plans and only have an indirect effect on such plans, are not preempted. Examples of laws that have been found not preempted

include a tax provision that was not aimed at employee

benefit plans and only indirectly increased the cost of

administration of an employee benefit plan, N.Y. State

Conf. of Blue Cross & Blue Shield Plans v. Travelers

Ins. Co., 514 U.S. 645 (1995), and in Rutledge, a law

that required pharmacy benefit managers to reimburse pharmacies at a rate equal to or higher than the

pharmacy’s wholesale cost. Although Rutledge found

indirect cost regulations permissible, this Court went

on to state that if the cost binds an administrator to a

particular administrative choice or forces the plan to

adopt any particular substantive scheme, the cost regulation would nevertheless be preempted. 114 S. Ct. at

480–81.

The logic of Rutledge and Travelers is not, as suggested by the Ninth Circuit, that costs imposed on entities other than ERISA plans can never result in

preemption. Rather, these cases hold that ERISA is not

implicated by a general cost regulation that is not

aimed at an employee benefit plan and only has an indirect effect on the administration of employee benefit

plans. The Seattle Ordinance, however, is not an indirect cost regulation similar to that in Rutledge or Travelers. The Seattle Ordinance is a healthcare measure

that can only be satisfied by payments of healthcare

expenditures with reference to an ERISA plan. The

18

stated intent of the Seattle Ordinance is to provide

high-quality healthcare coverage (healthcare coverage

through a health plan with a minimum value) to employees. SMC § 14.28.025. The Seattle Ordinance is

aimed at ERISA plans as the expenditures can only be

satisfied by an ERISA plan or by a direct payment to

the employee after the value of the ERISA plan is

taken into consideration. Under the Seattle Ordinance,

health plans are required to have a specified minimum

value with a specified maximum premium cost-sharing

of no more than 20 percent or the hotel owner is required to make a cash payment to the employee equal

to the difference in value.

Rutledge did not establish or endorse the standalone Direct Payment Test as a new paradigm of

ERISA preemption as formulated by the Ninth Circuit.

Rutledge did not give approval to a new test for ERISA

preemption. Rutledge confirmed that the test for ERISA

preemption is the “reference to” or the impermissible

“connection with” tests that have long been used by

this Court.

The Ninth Circuit’s Direct Payment Test is at variance with this Court’s analysis of costs in Rutledge.

Under Rutledge and Gobeille, the Seattle Ordinance is

preempted because it is aimed at ERISA plans, forces

a particular plan design, and interferes with the uniform administration of the hotel’s ERISA medical

plans. Applying this Court’s shorthand guidance to giving effect to congressional intent, the Seattle Ordinance is preempted because it both interferes with the

national uniform administration of the plan and is

19

designed to force a particular coverage scheme. This

Court should grant review and reverse the Ninth

Circuit’s erroneous Direct Payment Test for ERISA

preemption. This Court should find that the Seattle

Ordinance is preempted under the “reference to” test

for ERISA preemption and is not an indirect regulation

of costs as authorized by Rutledge and Travelers.

C. Review is required because the Ninth Circuit’s Direct Payment Test provides an end

run around ERISA and effectively nullifies

its goals of uniform administration and employer choice in providing welfare benefits.

As the Court is aware, ERISA imposes no substantive requirement to provide any particular welfare

benefits. ERISA is designed to encourage hotel owners

to provide welfare benefits by ensuring that such benefits could be uniform in their design and administration. Requiring ERISA administrators and hotel

owners to master the relevant laws of 50 states and

hundreds of municipalities and to contend with litigation over those requirements would undermine the

congressional goal of “ ‘minimiz[ing] the administrative and financial burden[s]’ on plan administrators—

burdens ultimately borne by the beneficiaries.” Egelhoff,

532 U.S. at 149–50 (quoting Ingersoll–Rand Co. v.

McClendon, 498 U.S. 133, 142 (1990)); see also Fort

Halifax Packing Co. v. Coyne, 482 U.S. 1, 9 (1987).

Adherence to the Ninth Circuit’s Direct Payment

Test would invite cities like Seattle to make an end run

20

around the statute and nullify the central purpose of

ERISA—the hotel owner’s control over uniform benefit

design and uniform administration. As explained in

more detail above, the Seattle Ordinance requires a

health plan to provide an employee, without dependents, health plan coverage at a value of at least $459

per month (coverage for families is $1,375 per month),

with no more than a 60-day waiting period and no

more than a 20 percent cost-sharing of the premium.

Suppose the City of Yakima, Washington also adopts

an ordinance requiring no cost-sharing with employees

or requiring a payment to the employee of $300 per

month. Suppose the City of Kent, Washington also requires a health plan to provide family coverage equal

in value to $1,500 per month or to pay that amount

directly to the employee. Suppose the City of Portland,

Oregon further requires a mental health therapy benefit of $2,500 per month or payment of that amount to

the employee. Suppose the City of San Francisco, California prohibits requiring any waiting period on health

coverage or requires a payment to employees of $1,000

per month. Each of these benefit requirements would

be an impermissible regulation of a hotel’s employee

benefit plan if imposed directly. See discussion of

Shaw, and Greater Washington Board of Trade, supra

at pp. 14-15. The Ninth Circuit’s Direct Payment Test

allows a city or state to accomplish indirectly what it

could not accomplish directly, by merely including a

stand-alone direct pay option, that is, by allowing

payment of a set amount to the employee in cash in

lieu of the required benefit. As illustrated by this proposed patchwork of laws, the Ninth Circuit’s opinion

21

would interfere with the uniform administration of

benefits plan and would force a hotel to adopt certain

benefit and cost-sharing provisions in its ERISA employee benefit plans, the expense of which is borne by

employees. This Court should grant review in order

that hotels and their employees can avoid the patchwork of laws that will proliferate if the Ninth Circuit’s

Direct Payment Test for ERISA preemption is allowed

to stand.

---------------------------------♦---------------------------------

CONCLUSION

Review by this Court is necessary because the

Ninth Circuit’s Direct Payment Test is an erroneous

interpretation of this Court’s precedent and if left to

stand will become a blueprint for nullifying ERISA

preemption. It provides a simple method for states and

municipalities to do an end run around the protections

afforded to hotels and their employees under ERISA.

States and municipalities could impose mandated benefits and administrative schemes by simply having an

alternative cost that must be paid directly to the employee in lieu of the mandated design changes. Such an

alternative direct payment approach does not avoid

preemption under the “reference to” and impermissible

“connection with” tests adopted by this Court.

The Ninth Circuit’s opinion, if not overturned, will

lead to an unworkable patchwork of laws and regulations that will drive up hotel and employee costs as

well as the costs of plan administration. The Ninth

22

Circuit’s opinion interferes with the equitable treatment of employees that are working across state lines

or even within different counties or cities within a single state. Review should be granted and the decision of

the Ninth Circuit should be reversed, finding that the

Seattle Ordinance is preempted by ERISA.

Respectfully submitted,

RICHARD J. BIRMINGHAM*

HARRY KORRELL

DAVIS WRIGHT TREMAINE LLP

920 Fifth Avenue, Suite 3300

Seattle, WA 98104-1610

(206) 622-3150

richardbirmingham@dwt.com

Counsel for Amici Curiae

*Counsel of Record