Amicus Curiae Brief — Golden Gate Restaurant Ass'n v. City & County of San Francisco

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Supteme Court, U.S.

FILED

lL JUL 10 2003

No. 08-1515 OFFICE OF THE CLERK

In the Supreme Court of the Anited States

GOLDEN GATE RESTAURANT ASSOCIATION,

PETITIONER

CITY AND COUNTY OF SAN FRANCISCO, ET AL.

RESPONDENTS.

ON PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF FOR THE WASHINGTON LEGAL

FOUNDATION AS AMICUS CURIAE

IN SUPPORT OF PETITIONERS

RICHARD A. SAMP GENE C. SCHAERR

DANIEL J. POPEO Counsel of Record

Washington Legal Foundation ROBERT SPAGAT

2009 Massachusetts Ave... NW Winston & Strawn LLP

Washington. DC 20036 1700 K Street, N.W.

(202) 588-0302 Washington, D.C. 20006

(202) 282-5000

LINDA T. COBELRY

Winston & Strawn LLP

35 W. WACKER DRIVE

CHICAGO, IL 60601

(312) 558 5600

Counsel for Amicus Curiae

WILSON-EPES PRINTING CO., INC. — (202) 789-0096 — WASHINGTON, D.C. 20002

QUESTION PRESENTED

Whether ERISA section 514(a), 29 U.S.C.

§ 1144(a), preempts local “pay-or-play” laws mandat-

ing that employers with ERISA-regulated benefit

plans: (1) pay specified amounts to obtain health

care benefits for employees employed within the lo-

cality, and (2) comply with detailed coverage and re-

cord-keeping requirements beyond those required by

ERISA?

TABLE OF CONTENTS

Page

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INTRODUCTION AND INTEREST OF

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REASONS FOR GRANTING THE PETITION.......... 4

I. The San Francisco Ordinance Imposes

Substantial Burdens On Employers In The

Provision Of Employee Health Care

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A. Covered Employers Must Undergo A

Detailed Analysis To Determine The

Required Contribution Levels For Each

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B. Covered Employers Must Comply With

Detailed Record-Keeping and Reporting

Requirements Separate And Apart

From Their Obligations Under ERISA.......... 9

C. Covered Employers Are Subject To The

Ordinance’s Enforcement Scheme

Separate And Apart From Their

Obligations Under ERISA........................... 10

IL. Unless The Court Acts Now, The Burden On

Employers In Providing Health Care

Benefits To Employees Will Expand

Exponentially As Other State And Local

Governments Enact Their Own Health Care

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A. States And Localities Already Have

Considered Scores Of “Pay-Or-Play”

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B. The Compliance Obligations Of

Nationwide Employers Will Expand

Dramatically As State And Local “Pay-

Or-Play” Laws Are Enacted. ....................068 12

C. Employers’ Record-Keeping And

Reporting Obligations Will Also Expand

EIPOURITIOIIEN | os éviccssncessscssartecet cc ee 16

III. “Pay-Or-Play” Laws Are Preempted Because

Their Cumulative Impact Will Undermine

The Uniform Administration Of Employee

Benefits That Is A Hallmark Of Erisa And

Will Likely Force Employers To Amend

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TABLE OF AUTHORITIES

Page(s)

CASES

Egelhoff v. Egelhoff,

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FMC Corp. v. Holliday,

BOS U.S. BZ (LEGO) ......cccreccccrscccccccceccccccsscnscccvccvescens 1

Fort Halifax Packing Co, Inc. v. Coyne,

482 U.S. 1 (1987) oo... ccc cccccccccceceescccceceveeueeucueess 19-21

Ingersoll-Rand Co. v. McClendon,

AOS U.S, 18S (1BGO) .....cccccccccccsescccsveccnvescccceeces 20, 23

Keystone Chapter Associated Builders &

Contractors, Inc. v. Foley,

37 F.3d 945 (3d Cir, 199A)... ccc cccceeceeeeenees 21-22

New York State Conference of Blue Cross &

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

514 U.S. G45 (1995) ooo. cc ccceeeeeeeceeeeeecess 18

Retail Industry Leaders Association v. Fielder,

Me LOU ivccdcccscccascccccecvcscsceveescnseccssccscecsecveccnccs 24

Shaw v. Delta Air Lines Inc.,

BGS Ur BG (IGBS) ...cccrcccccccccccccccvcrccssccveccsccessececcs 19

WSB Electric, Inc. v. Curry,

88 F.3d 788 (9th Cir, 1996) ooo... cccceccceecsecceeeeeeeeee 21

STATUTES

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TE RAMS occ ncnccacvansdtencseseccseccnbenseneescdoons 20

RUE ROOD oy skcsicisiatnadessdesdesdcesadvcarcnnscesill 1,18

OTHER AUTHORITIES

A. 2513, 212th Leg., 2007-2008 Sess. §2 (N.J.

ee Sin eee 13

A. 1966, 213th Leg., 2008-2009 Sess. (N.J. 2008) .... 13

A. 860, 2005-2006 Leg., 2005 Reg. Sess. (Wis.

Se Ps csi suid abate cues cibenensamn ber eniaeaedtaanteetaaad emacatersenel 14

Julia Contreras and Orly Lobel, Wal-

Martization and the Fair Share Health Care

Acts, 19 St. Thomas L. Rev. 105, 136 (2006)....... 12

H.D. 258, 2006 Leg., Reg. Sess. (Va. 2006).......... 13-14

H.D, 4024, 2006 Leg., Reg. Sess. (W.Va. 2006) ........ 14

H.R. 813/Sen. 1618,

Reg. Sess. (Fla. 2006) .............. gag Goo mare 13, 15, 17

H. R. 1316, 65th Gen. Assem.

BG THOM: HOO. (02000, BG) cocccccncedscescccccscecacncccesesss 14

H.R. 1703, 2006 Leg., Reg. Sess. (N.H. 2006)........... 13

H.R. 2517, 59th Leg. 2006 Reg. Sess.

Pe Se 2 ore ere ee eee a ee 15

New York City Admin. Code

N.Y.C. Admin Code § 22-506(b)(6)............0.cceeeee 13

N.Y.C. Admin. Code § 22-506(c¢)(3) .............0..000... 16

N.Y.C. Admin. Code § 22-506(f)(1).....00000.0.0cc cece. 18

San Francisco Admin. Code

S. F. Admin. Code, Ch. 14 (2008)....................... wee

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SD. Hw PACER. GIO DINE cecdenscckecincoccccencnsccscsececcusces 7

S. F. Admin. Code §14(b)(10) 2.0.0.0... cece ceeeseeeeeeerees 8

* Admin.

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S. F. Admin. Code § 14.1(6)(2)(a) 00... ccc ece ccc ee eee 7

S. F. Admin. Code § 14.1(b)(2)(b) ..... 0c cece. 7

S. F. Admin. Code § 14.1(B)(2)(€) ........ cece ccc cece ccc ece ee 7

S. F. Admin. Code §14.1(b)(2)() ...... 0c cee ce eeee es 7

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S. F. Admin. Code § 14. 1(b)(7) .....00..0....... Rea Pd 9

S. F. Admin. Code § 14.1(b)(8) ..0...0.0.0.0. cece 8

S. F. Admin. Code § 14.1(b)(11) .............0...c cece, 7

S. F. Admin. Code § 14.1(b)(12) ............ eee eee cena es 7

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S. F. Admin. Code § 14.4(d)...............ccccccscsscsssevess 10

San Francisco Ofiice of Labor Standards

Enforcement Regs.

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OLSE Reg. No. 7.2(A)(3) ..........ccccecccececeeeeceeeeneneeees 9

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San Francisco Security Ordinance (HSCO) 1

http://www.sfgov.org/site/uploadedfiles/olse/h

cso/Steps%20to%20Calculate%20HCE™%20flo

wehart(1).pdf (last visited Jul. 7, 2009)................. 6

Sen. 87, 2007-2008 Leg. Sess., Reg. Sess. (Mich.

(og ROE UTNE SAL Sab is elt ee SARA oe ad an i 15

Sen. 2684, Reg. Sess. 2006 (Miss. 2006) ................08. 13

INTRODUCTION AND

INTEREST OF AMICUS CURIAE!

The decision below poses a serious threat to the

viability of the voluntary employer-provided benefit

systems relied upon by an estimated 177 million U.S.

residents for, among other things, their health care

needs. These plans are generally regulated by the

federal Employee Retirement Income Security Act

(“ERISA”), 29 U.S.C. § 1001 et seg., which encourages

employers to provide health and welfare benefits

through an efficient, uniform regulatory structure,

backed by a preemption provision that this Court has

aptly characterized as “conspicuous for its breadth.”

FMC Corp. v. Holliday, 498 U.S. 52, 58 (1990); see

ERISA section 514(a), 29 U.S.C. § 1144(a).

Notwithstanding ERISA’s broad preemption pro-

vision, in recent years numerous state and local gov-

ernments have attempted to mandate bencfits or

benefit levels for employees at private companies

through so-called “pay-or-play” laws. These laws

generally require employers to spend _ specified

amounts on health care on behalf of their employees,

either by providing those benefits directly through

their ERISA-governed plans (“play”), or by paying the

state or local government to provide such benefits

(“pay”). These attempts generally have failed, in

1 Pursuant to Supreme Court Rule 37.6, no counsel for a

party authored this brief in whole or in part. No person or

entity, other than the Washington Legal Foundation and

its counsel, made a monetary contribution intended to

fund the preparation and submission of this brief. WLF is

filing its brief with the consent of all parties. Letters of

consent have been lodged with the Court.

large part because legislators have believed, and

courts (including the Fourth Circuit) have found, that

such mandated benefit programs are preempted by

ERISA.

In the decision below, however, the Ninth Circuit

ruled that a typical “pay-or-play” scheme—this one

imposed by the San Francisco Health Care Security

Ordinance—is not preempted by ERISA. That deci-

sion will now permit the enactment of similar

schemes throughout the Ninth Circuit—which covers

some twenty percent of the U.S. population. And the

decision, unless reversed, is likely to open the flood-

gates to massive waves of state and local regulation

of ERISA-governed health plans in other circuits as

well—regulation that will dramatically increase the

cost and administrative burden associated with pro-

viding health care benefits. Such a patchwork quilt

of regulation — which is precisely what Congress in-

tended to prevent with the enactment of ERISA — will

have far-reaching, adverse consequences for the cost

of employer-sponsored health care benefits. It will

also adversely affect the provision of retirement and

other ERISA benefits, which many employers may

scale back or eliminate as a result of the increased

financial burdens created by “pay-or-play” schemes

like the one at issue here.

Such a result would seriously disserve the inter-

ests of amicus curiae, the Washington Legal Founda-

tion (“WLF”’). WLEF is a non-profit public interest law

and policy center based in Washington, D.C., with

supporters in all 50 states. WLF devotes a substan-

tial portion of its resources to defending and promot-

ing free enterprise, individual rights, and a limited,

accountable government. WLF regularly appears in

this Court and other federal courts to express its view

that government should avoid over-regulation of

business. WLF further believes that “pay-or-play”

laws like the one at issue here do just that.

STATEMENT

The San Francisco Health Care Security Ordi-

nance (the “Ordinance”), S.F. Cal. Admin. Code, Ch.

14 (2008), has two key components: an employer

health spending requirement, and the Health Access

Program (“Program”), a city-run health care program

funded in part by employer contributions. App. 84a—

85a. The Ordinance requires employers to meet

minimum health care spending levels for each cov-

ered employee—either by making direct payments to

the City and County of San Francisco (“City”) “to be

used on behalf of covered employees” through the

Program, or by paying for qualifying health care

benefits through other means. Jd. at 84a. The Ordi-

nance imposes detailed reporting requirements for

each covered employee. Jd. at 85a. The Ordinance

creates a new administrative regime to enforce com-

pliance. Id. at 85a.

Golden Gate Restaurant Association (“GGRA”), a

non-profit association that promotes te interests of

the restaurant industry, filed suit in district court

seeking an injunction against the enforcement of the

Ordinance’s employer health spending requirements.

Id. at 85a—-86a. The U.S. District Court for the

Northern District of California granted summary

judgment in favor of GGRA. /d. at 93a. The district

court found the Ordinance had “an impermissible

connection with employee welfare benefit plans,” and

therefore was preempted. The court concluded that

the Ordinance, inter alia, interfered with the nation-

ally uniform administration of ERISA plans, and it

imposed recordkeeping, inspection, and other admin-

istrative burdens related to employer health care ex-

penditures that went well beyond ERISA’s require-

ments. Id., at 94a, 97a. The district court also found

that ERISA preempted the employer spending re-

quirements because they made “unlawful reference to

employee benefit plans.” Id. at 98a.

The Ninth Circuit reversed. It held that the Or-

dinance did not “relate to” ERISA plans because it

did not require employers to establish or alter ERISA

plans, t.e., they could choose to make payments to the

City and leave their plans intact. Jd. at Lla—12a;

14a. The Ninth Circuit also held that the Ordinance

did not make an unlawful “reference to” ERISA

plans, in part because “an employer’s obligations to

the City are measured by reference to the payments

provided by the employer” rather than the “benefits

provided by the ERISA plan to the employee.” Jd. at

35a.

The Ninth Circuit denied GGRA’s petition for re-

hearing en banc over a dissent by Judge Milan D.

Smith, joined by seven judges. GGRA petitioned this

Court for a Writ of Certiorari.

REASONS FOR GRANTING THE PETITION

The Petition raises an issue of exceptional impor-

tance: whether the administration of the employer-

sponsored health care benefits of some 177 million

persons can be made subject to separate regulation in

potentially 50 states and 30,000 localities, with each

state and locality being allowed to impose its own

contribution and record-keeping requirements, and

its own compliance and enforcement machinery. As

the judges who dissented from the denial of the peti-

tion for en banc review pointed out, the panel’s deci-

sion provides every state and local jurisdiction in the

Ninth Circuit — and arguably in the entire nation —a

“roadmap...on how to design and enact a labyrinth of

laws requiring employer complhance on health care

expenditures, thereby creating the very kind of

health care balkanization ERISA was intended to

avoid.” Pet. App. 49a (M. Smith, J., dissenting).

If allowed to stand, the Ninth Circuit’s decision

will set off a chain reaction of state and local regula-

tion that will undermine employer-sponsored benefit

plans. Mandated contributions in some states and

localities will create pressure on employers to alter

their plans to make them less costly in states and lo-

calities without mandated contributions. That, in

turn, will create pressure on states and localities to

implement mandates to protect their own citizens.

Each new law will create its own standards of cover-

age, contribution levels, record-keeping and reporting

requirements, and enforcement mechanisms.

WLF agrees with the analysis presented in the

Petition demonstrating (a) the existence of a circuit

conflict on the question presented, and (b) the impos-

sibility of reconciling the Ninth Circuit’s decision

with ERISA’s preemption provision and this Court’s

decisions interpreting that provision. WLF writes

separately to explain how the cumulative burden of

state and local laws that will quickly be enacted will

have potentially disastrous consequences for the ad-

ministration of employee health care and other bene-

fit plans, if the Court does not forestall such legisla-

tion by granting the petition and reversing the Ninth

Circuit's decision. WLF addresses first, how the Or-

dinance burdens employers, second, how these bur-

dens will only increase as other state and local gov-

ernments follow San Francisco’s example, and finally,

why “Pay-or-Play” laws are preempted under ERISA.

I. The San Francisco Ordinance Imposes

Substantial Burdens On Employers In The

Provision Of Employee Health Care

Benefits.

To assess the burden that the Ordinance places

on employers, and therefore, on the implementation

and administration of employer-sponsored ERISA

plans, it is important to understand the Ordinance’s

structure and administrative requirements. These

requirements, which exist separate and apart from

ERISA, are detailed below. And they impose enor-

mous burdens on employers, especially small- and

medium-sized employers.

A. Covered Employers Must UndergoA

Detailed Analysis To Determine The

Required Contribution Levels For Each

Covered Employee.

For example, the Ordinance requires employers

to undertake a detailed analysis to determine their

obligation to make benefit contributions to the City

on behalf of employees. The City summarizes the

process in a four page, multi-step decision tree.’

2 San Francisco Office of Labor Standards Enforcement, Steps

to Determine Whether a Covered Employer Has Met its Spend-

ing Requirement under the SF Health Care Security Ordinance

(HSCO) 1 http://www.sfgov.org/site/uploaded files/olse/hcso/Steps

%20to%20Calculate*%®20HCE%20flowchart(1).pdf (last visited

Jul. 8, 2009).

First, an employer must determine whether it isa

“covered employer,” and if so, whether it is a “large”

or “medium” emplover. S.F. Admin. Code

§§ 14.1(b)(3), (11), (12), (15).

Second, if the employer is “covered,” it must as-

certain which of its employees are “covered.” S.F.

Admin. Code § 14.1(b)(2). The definition does not in-

clude all San Francisco-based employees, but may in-

clude employees located elsewhere. To be covered, an

employee must work in the City and be entitled to

payment of a minimum wage pursuant to the San

Francisco Minimum Wage Ordinance. §§ 14.1(b)(2),

12R. The employee must have been employed for

ninety days (though not necessarily continuously or

consecutively), and must have worked a number of

hours in San Francisco that varies from year to year.

§§ 14.1(b)(2)(a)-(c); Office of Labor Standards En-

forcement (“OLSE” or “Enforcement Office”) Regula-

tions No. 3.1(B).

If these criteria are met as to any employee, the

employer must then determine whether the employee

falls within a number of exclusions from coverage.

An otherwise covered employee is excluded if he or

she: (1) is “managerial, supervisorial, or confidential,

unless such employees earn annually under...[a] fig-

ure as set by the administering agency” S.F. Admin.

Code § 14.1(b)(2)(d); (2) is eligible for Medicare or

TRICARE/CHAMPUS, § 14.1(b)(2)(e); (3) is a “cov-

ered employee” as defined by San Francisco’s (sepa-

rate) Health Care Accountability Ordinance. S.F.

Admin. Code §§ 14.1(b)(2)(H, 12Q; (4) is employed by

a nonprofit corporation for up to one year as a trainee

in a bona fide training program consistent with Fed-

eral law, which enables the trainee to advance into a

permanent position, provided that the trainee does

not replace, displace, or lower the wage or benefits of

any existing position or employee, S.F. Admin. Code

§ 14.1(b)(2)(g); or (5) has benefits through another

employer and signs a voluntary written waiver of the

Ordinance’s requirements that is revocable by the

employee at any time. § 14.1(b)(2)(h).

Third, employers must determine how much the

Ordinance requires them to spend on health care

benefits. To do so, they must determine the applica-

ble hourly rate, which varies depending on the em-

ployer’s size and the time-period covered. S.F.

Admin. Code § 14.1(b)(8). Then, they must multiply

the applicable hourly rate by the number of hours for

which the employee was paid in the period for work

“performed within the City.” S.F. Admin. Code

§ 14(b)(10). Work is done “within the City” if the em-

ployee performs the work within the geographic

boundaries of the City, including employees who

work from their homes within the City limit, and em-

ployees whose work requires them to make stops

(e.g., for deliveries) in the City (but not who merely

drive through the City). OLSE Reg. No. 3.1(C).

Fourth, the employer must determine how much

of the money it spends on “health care benefits” can

be used as an offset against the spending mandate

during the period. Offsets include (but are not lim-

ited to): (a) contributions by an employer on behalf of

the employee to a health savings account; (b) reim-

bursement to the employee for expenses incurred in

the purchase of health care services; (c) payments to

a third party for the purpose of providing health care

services for the employee; and (d) costs incurred by

the employer in the direct delivery of health care ser-

vices. S.F. Admin. Code § 14.1(b)(7). Expenditures

made by self-insured and/or self-funded insurance

programs also may be included, but payment of pre-

vailing wage fringe benefit obligations in cash may

not. OLSE Reg. No. 2(A)(2), (B)(1).

Finally, the employer must pay the difference be-

tween the spending requirement and the amount it

spends in recognized health care expenditures for

each covered employee. S.F. Admin. Code § 14.3(a).

It is apparent that undertaking this detailed,

fact-specific analysis for each employee who may be

covered under the Ordinance imposes substantial

compliance requirements on employers.

B. Covered Employers Must Comply With

Detailed Record-Keeping and Reporting

Requirements Separate And Apart From

Their Obligations Under ERISA.

In addition to the above compliance require-

ments, covered employers must maintain records

“sufficient to establish compliance with Employer

Spending Requirements of thf{e] Ordinance.” OLSE

Reg. No. 7.2(A)(3). Employers thus must maintain

detailed records that are not required by ERISA (or

otherwise). Such documentation includes records of

hours or work performed by each employee within

the City (regardless of where he or she is regularly

employed); records of the time counted toward the

employee’s initial 90 days of employment (which may

be non-consecutive or non-continuous); records justi-

fying an employee’s classification as managerial, su-

pervisory or confidential; records of whether the em-

ployee is elgible for Medicare or TRI-

CARE/CHAMPUS; and records of the contributions

that entitle the employer to an offset.

Where an employer undergoes a reduction in

force that would reclassify it to an employer of

smaller size, and hence reduce its contribution levels,

it must also maintain documentation sufficient to

prove that the reduction was not implemented for the

purpose of evading its obligations under the Ord1-

nance. S.F. Admin. Code § 14.4(d). That too is highly

burdensome.

Finally, employers must provide annual reports

to the City. § 14.3(b); OLSE Reg. No. 7.3. If employ-

ers satisfy the health care expenditure requirements

by making payments to the City, they must also pro-

vide quarterly reports to covered employees. OLSE

Reg. No. 7.1. These requirements lkewise increase

an employer's administrative burdens.

C. Covered Employers Are Subject To The

Ordinance’s Enforcement Scheme

Separate And Apart From Their

Obligations Under ERISA.

Additional burdens arise from the Ordinance's

enforcement scheme. Employers are subject to audit

at any time. OLSE Reg. No. 7.4. The Enforcement

Office 1s authorized to issue and adjudicate adminis-

trative complaints, remedy violations, and issue pen-

alties ranging from $25 per day to $1000 per em-

ployee per week of non-compliance, plus interest.

OLSE Reg. No. 9.1-9.3. The determination of the En-

forcement Office may be appealed to an administra-

tive hearing officer. OLSE Reg. No. 10.1-10.3. The

administrative hearing officer's decision may be re-

viewed by the San Francisco Superior Court. OLSE

Reg. No. 10.3(D).

In sum, the administrative burdens imposed by

the Ordinance at issue here represent an enormous

increase in the costs of administering ERISA-

regulated employee benefit plans. And they are pre-

cisely the kinds of burdens that the ERISA’s broad

preemption provision was designed to prevent.

ll. Unless The Court Acts Now, The Burden On

Employers In Providing Health Care

Benefits To Employees Will Expand

Exponentially As Other State And Local

Governments Enact Their Own Health Care

Mandates.

If other states and localities are permitted to fol-

low the Ninth Circuit’s “roadmap,” sponsors of na-

tionwide ERISA plans will confront an array of new

requirements affecting contributions and administra-

tion. For each jurisdiction implementing its own

“pay-or-play” law, the employer will have to deter-

mine: (i) whether it is. subject to the law; if so (11)

which employees are covered; (111) what contributions

are required; (iv) the extent to which its current

plan(s) entitle it to offsets; (v) how to treat employees

who may be covered by more than one jurisdiction’s

mandates; (vi) what records it must keep; and (vii)

what reporting is required. Presumably, each juris-

diction will have its own enforcement mechanisms.

Even the most casual analysis of some of the re-

cently proposed “pay-or-play” laws demonstrates,

first, that countless additional “pay-or-play” laws will

be enacted swiftly by state and local governments if

the Ninth Circuit’s decision is allowed to stand, and

second, that this flood of mandates will place a crush-

ing burden of inconsistent regulation on plan spon-

sors seeking to provide health care benefits to their

employees.

A. States And Localities Already Have

Considered Scores Of “Pay-Or-Play”

Laws.

The mere number of “pay-or-play” laws that have

been proposed attests to the likelihood that such laws

will be enacted swiftly if the Ninth Circuit's decision

is allowed to stand. As of 2006, more than fifty “pay-

or-play’” bills had been introduced in twenty-eight

state legislatures alone. Julia Contreras and Orly

Lobel, Wal-Martization and the Fair Share Health

Care Acts, 19 St. Thomas L. Rev. 105, 136 (2006). All

of these bills sought to impose mandates on employ-

ers to pay for employee health care, but beyond this,

the bills display a wide range of differences.

B. The Compliance Obligations Of

Nationwide Employers Will Expand

Dramatically As State And Local “Pay-

Or-Play” Laws Are Enacted.

As “pay-or-play” laws take root, employers will be

required to constantly assess whether they are sub-

ject to such laws in any jurisdiction in which they do

business. For example, the Ordinance here covers

for-profit employers engaged in business in San

Francisco that employ twenty or more persons any-

where in the country. OLSE Reg. No. 2.2(A), (C).

Other proposals vary from as few as ten employees to

as many as ten thousand. Contreras at 136. Employ-

ers below the threshold would, of course, have to

monitor all such laws to stay informed of changes in

the applicable thresholds, as well as their own em-

ployee numbers, to know when coverage may be trig-

gered.

Employers subject to state and local mandates

would also have to determine which of their employ-

ees are covered under each jurisdiction’s law. As pre-

viously explained, determining whether an employee

is “covered” in San Francisco involves a detailed, fact-

specific inquiry. Various proposals in other states

have embraced different definitions, some classifying

“employees” as all individuals employed full- or part-

time by the covered employer.* A Florida proposal

cross-referenced other state law definitions of “em-

ployee.”4 A Virginia bill did not define “employee” at

all.5 New Jersey’s initiative limited “employees” to

those working within the State.6 New York City’s

definition includes any full-time, part-time, or sea-

sonal employee, but excludes family members and

persons “hired to work exclusively for the holiday pe-

riod from November 1 through December 31.”7 Thus,

employers would have to engage in detailed analyses

to determine which of their employees might be cov-

ered by every such law, and monitor all of them for

changes.

Some of the widest variations in state and local

proposals involve a concern central to the provision of

ERISA benefits—how to calculate employer health

care spending requirements. In contrast to San

Francisco’s plan, which uses only covered employees

3 See e.g., H.R. 1703, 2006 Leg., Reg. Sess. (N.H. 2006); Sen.

2684, 2006 Leg., Reg. Sess. (Miss. 2006).

4 Sen. 1618, 2006 Leg., Reg. Sess. (Fla. 2006).

5 H.D. 258, 2006 Leg., Reg. Sess. (Va. 2006).

6 A. 2513, 212th Leg., 2007-2008 Sess. §2 (N.J. 2006). See also

A. 1966, 213th Leg., 2008-2009 Sess. (N.J. 2008).

7N.Y.C. Admin. Code §22-506(b)(6).

in the expenditure formula, several state proposals

would require contribution amounts to be determined

as a percentage of the employer's overall payroll,

varying from six to eleven percent.’ A Virginia pro-

posal would require employers to pay “the statewide

average of the percent of wages that was spent on

employee health insurance costs by all employers

with 250 or more employees in the Commonwealth,

as determined by the Commissioner.” A Wisconsin

proposal would require employers to cover all em-

ployers and pay at least eighty percent of the cost of

that coverage, or else pay “an assessment that is

equal to the cost incurred by society as a result of the

employer not providing that coverage” — a_ cost that

would be calculated “using the methodology promul-

gated” by the State.!° Employers undoubtedly would

be subject to a wide variety of contribution mandates

applicable to different employees.

Employers wishing to comply with “pay-or-play”

laws by “playing”’—1i.e., paying into their existing ER-

ISA plans—would have to determine for each juris-

diction whether their required health care spending

requirements can be offset by benefits they provide

through existing ERISA plans. The San Francisco

Ordinance counts toward an employer’s “Qualifying

Health Care Expenditures” any tax deductible medi-

8 19 St. Thom. L. Rev. at 136. Cf. H.D. 4024, 2006 Leg., Reg.

Sess. (W.Va. 2006), H.R. 1316, 65th Gen. Assem., 2d Reg. Sess.

(Colo. 2006).

9H.D. 258, 2006 Leg., Reg. Sess. (Va. 2006).

1 A. 860, 2005-2006 Leg., 2005 Reg. Sess. (Wis. 2005)

§ 2.3(A)(1).

cal care expenses, “or goods having substantially the

same purpose or effect as such deductible expenses.”

OLSE Reg. Nos. 4.1(A), 4.2, 4.3. A 2007 Michigan

proposal had a similar standard, but would not have

counted spending with “substantially the same pur-

pose or effect.”!! Florida’s proposal contained no limi-

tation on tax deductible spending.!2 Washington’s

proposal keyed its definition of “health care services

expenditures’ to state law, rather than the federal

Tax Code.'% Employers would have to determine

what portion of the benefits they provide through na-

tional ERISA plans (and otherwise) would qualify

under each jurisdiction’s varying definitions.

The advent of state and local “pay-or-play” laws

also creates the potential for conflicting obligations as

to the same employees. Sponsors of nationally ad-

ministered ERISA plans will likely employ personnel

who fall within the “covered employee” definition of

multiple jurisdictions. For example, a delivery driver

based in Oakland will be subject to San Francisco’s

Ordinance if he makes a sufficient number of deliver-

ies in San Francisco. OLSE Reg. No. 3.1(C)(1). But

if Oakland enacts its own ordinance, the employer

may be subject to the requirements of both jurisdic-

tions with respect to the same delivery driver. Under

the San Francisco Ordinance, payments made on be-

half of the employee to Oakland apparently would not

constitute health care expenditures entitling the em-

ployer to a setoff against the spending requirements

11 Sen. 87, 2007-2008 Leg. Sess., Reg. Sess. (Mich. 2007).

2 Fla. Sen. 1618 §1.1(e).

13H _.R. 2517, 59th Leg. 2006 Reg. Sess. (Wash. 2006).

of the San Francisco Ordinance. See OLSE Reg. No.

4.2(B) (“health care expenditures shall not include

any payment made directly or indirectly to ob-

tain...any other coverage required by any other local,

state, or federal law.”) Such conflicts likely will rid-

dle a regulatory scheme that consists of scores (or

hundreds) of uncoordinated state and local laws.

C. Employers’ Record-Keeping And

Reporting Obligations Will Also Expand

Dramatically.

In addition to complying with the spending man-

dates of all the applicable local laws, employers will

have to comply with a wide array of record-keeping

requirements. In the aggregate, these requirements

will add to the cost of providing benefits and frustrate

plan sponsors’ provision of a nationally uniform

scheme.

For example, the New York City Ordinance would

require plan sponsors to maintain “an accurate work

log that includes, for each employee, such employee’s

name, trade or occupation, and the dates and hours

or time periods worked by such employce” and “accu-

rate records of health care expenditures and required

health care expenditures.” N.Y.C. Admin. Code § 22-

506(c)(3).

Employers will also have to comply with the re-

porting and enforcement provisions of the many new

laws. One typical proposal linking spending man-

dates to the employer's payroll would require annual

reporting, inter alia, on: (1) how many employees

were eligible to receive health care expenditures; (2)

how many received them from the employer, (8) how

much the employer spent on all health care expendi-

tures; and (4) what percentage of payroll those ex-

penditures represented.!4 Another proposal would

require:

A description of the health care coverage provided

by the employer, together with the total cost of

that coverage, excluding any deductibles and co-

payments that may be required under the em-

ployer’s group health insurance plan, and a

breakdown of the amount of that total cost that is

paid by the employer and the amount of that total

cost that is paid by the employer’s employees.!5

Any administrative economies of scale that na-

tional plan sponsors may be able to exploit would be

undermined by the imposition of new statutory and

regulatory requirements, as well as varying interpre-

tations of similar record-keeping and reporting re-

quirements, from jurisdiction to jurisdiction.

Finally, failure to comply with reporting require-

ments, cooperate with auditing agencies, allow rea-

sonable access to records or maintain and retain ac-

curate records could expose an employer to penalties.

See e.g., OLSE Reg. No. 9.2(A). Proposed fines vary

from San “rancisco’s penalty of $25 to $500 per viola-

tion per day (id.), to Wisconsin’s sanction of up to

$250 per day'®, to Florida’s $1000 fine for each day a

report goes unfiled.'? Presumably, each new law will

include its own audit and enforcement require-

14 Fla. Sen. 1618 §§ 1.4(a)(1)-(5).

'S Wis. A. 860 § 2.2(a)(2).

16 Wis. A. 860 § 2.4(a).

17 Fla Sen. 1618 § 1.7(a).

ments.'8 And these will only add to the crushing,

cumulative impact of similar laws enacted in other

jurisdictions.

III. “Pay-Or-Play” Laws Are Preempted Because

Their Cumulative Impact Will Undermine

The Uniform Administration Of Employee

Benefits That Is A Hallmark Of Erisa And

Will Likely Force Employers To Amend

Their Existing Plans.

These burdens powerfully reinforce the district

court’s conclusion that the Ordinance here-——and oth-

ers like it—is preempted by ERISA. As this Court

has observed, “[o]ne of the principal goals of ERISA is

to enable employers ‘to establish a uniform adminis-

trative scheme, which provides a set of standard pro-

cedures to guide processing of claims and disburse-

ment of benefits’. . . [uJniformity is impossible, how-

ever, if plans are subject to different legal obligations

in different states.” Egelhoff v. Egelhoff, 532 U.S.

141, 148 (2001). That is one of the main reasons that

ERISA broadly preempts “any and all State laws in-

sofar as they may now or hereafter relate to any em-

ployee benefit plan” covered by ERISA. 29 U.S.C.

§ 1144(a). This Court has repeatedly confirmed that

ERISA preemption is “expansive.” Egelhoff, 532 U.S.

at 146, citing New York State Conference of Blue

Cross & Blue Shield Plans v. Travelers Ins. Co., 514

U.S. 645, 655, (1995). |

In analyzing whether state or local laws impose a

prohibited burden on benefit plans, the Court also

takes account of the cumulative impact on the ad-

18 Cf. OLSE Reg. No. 8, N.Y.C. Admin. Code § 22-506(1)(1).

ministration of such plans if a particular type of local

regulation were allowed. Egelhoff, 532 U.S. at 151.

As we now show, “pay-or-play” laws such as the one

at issue here are preempted by ERISA, both standing

alone, and because of their likely cumulative impact.

1. There can be no doubt that Congress intended

ERISA preemption to “eliminate the threat of con-

flicting [and/or] inconsistent State and local regula-

tion.” Shaw v. Delta Air Lines Inc., 463 U.S. 85, 99

(1983) (quoting statements by Representative Dent

and Senator Williams, ERISA’s sponsors in the

House and Senate, 120 Cong. Rec. 29197 (1974); 120

Cong. Rec. 29933 (1974)). In Fort Halifax Packing

Co, Inc. v. Coyne, 482 U.S. 1, 9 (1987), the Court rec-

ognized that statements on this issue by ERISA’s

sponsors “reflect recognition of the administrative re-

alities of employee benefit plans.” And the Court ex-

plained with care why Congress sought to minimize

the risk of state and local regulations that would vary

from ERISA’s requirements:

An employer that makes a commitment system-

atically to pay certain benefits undertakes a host

of obligations, such as determining the eligibility

of claimants, calculating benefit levels, making

disbursements, monitoring the availability of

funds for benefit payments, and keeping appro-

priate records in order to comply with applicable

reporting requirements. The most efficient way

to meet these responsibilities is to establish a un1-

form administrative scheme, which provides a set

of standard procedures to guide processing of

claims and disbursement of benefits. Such a sys-

tem is difficult to achieve, however, if a benefit

plan is subject to differing regulatory require-

ments in differing states. A plan would be re-

quired to keep certain records in some states but

not in others; to make certain benefits available

in some states but not in others; to process claims

in a certain way in some states but not in others;

and to comply with certain fiduciary standards in

some states but not in others.

Id. See also Ingersoll-Rand Co. v. McClendon, 498

U.S. 133, 142 (1990); Egelhoff, 532 U.S. at 148.

The focus on the need for a uniform body of law

rather than a “patchwork quilt” of state and local

regulations permeates this Court’s ERISA jurispru-

dence. It emphasizes a pragmatic analysis of the ac-

tual effect of state and local laws upon ERISA’s over-

arching goal of ensuring uniform administration of

covered benefit plans. See id.

2. Under any pragmatic analysis, the Ordinance

itself subjects a covered employer to substantial regu-

latory requirements that are different from, and in

addition to, ERISA, in the financing and provision of

health care benefits to covered employees. The Ordi-

nance requires that benefits be made available to

employees working in San Francisco, but not other

places. In addition, as explained above, it requires

employers to keep records that are not required by

ERISA. It has its own enforcement process culminat-

ing in state court oversight, but without requiring

compliance with ERISA’s fiduciary standards.!®% The

19 An ERISA fiduciary must discharge his duties solely in the

interest of plan participants and beneficiaries. 29 U.S.C.

§ 1104(a). Yet under the Ordinance, the San Francisco City

Controller may appropriate contributions made on behalf of em-

ployees to the Program in some circumstances. S.F. Admin.

Code § 14.2¢h).

Ordinance thus imposes a mandated and self-

contained system of employee benefit regulation spe-

cific to “San Francisco” employers and employees—

precisely the type of local regulation of employee

benefit plans that ERISA’s broad preemption provi-

sion was intended to prevent.

The Ninth Circuit attempted to sidestep these

concerns by asserting that the Ordinance impacts

employers, not plan administrators. Pet. at 32a. But

this distinction finds no support in this Court’s ER-

ISA preemption jurisprudence. As noted above, this

Court has consistently recognized that one purpose of

ERISA is to encourage employers to make a commit-

ment systematically to provide benefits for their em-

ployees. See, e.g., Coyne, 482 U.S. at 9. Accordingly,

ERISA preemption intentionally makes “plan spon-

sors”—t.e., employers—as well as plan administra-

tors, subject to a uniform system of laws to minimize

the overall administrative and financial burden ac-

companying the provision of employee benefits. Con-

gress created that regime recognizing that inefficien-

cies created by uncoordinated and potentially incon-

sistent state and local laws would ultimately work to

the detriment of plan beneficiaries.

Whether these inefficiencies burden employers,

plan administrators, or both, their effect is the same.

They make it more costly and difficult to provide em-

ployee benefits, and therefore, work to the detriment

of plan beneficiaries. The Ninth Circuit’s attempt to

distinguish between employers and plan admuinistra-

tors thus creates a distinction without a difference.?°

20. The Ninth Circuit’s reliance upon Keystone Chapter, Assoct-

ated Builders & Contractors, Inc. v. Foley, 37 F.3d 945, 960 (3d

Cir. 1994), and WSB Electric, Inc. v. Curry, 88 F.3d 788, 793

3. If San Francisco’s ordinance, standing alone,

would contravene ERISA’s preemption provision —

and it does—it is obvious that allowing a wide array

of state and local “pay-or-play” laws would impose a

very substantial burden on the financing and admini-

stration of health care benefit plans. One could

hardly imagine a more complex and inefficient way of

maintaining “a uniform system of employce benefit

laws” aimed at encouraging employers to provide

benefits voluntarily than to have scores of uncoordi-

nated state and local “pay-or-play” laws.

In that regard, these laws create a problem even

more serious than the one the Court faced in Egel-

hoff. There, the Court invalidated a law that deemed

an election of a spouse during marriage to be invalid

if the insured and the beneficiary subsequently d1-

vorced because such a law, if not preempted, would

require plans to monitor the laws of 50 states to de-

termine whether other similar laws might impact a

beneficiary determination. 532 U.S. at 148. Here, by

contrast, if the San Francisco Ordinance is valid, em-

ployers will have to monitor the laws of 50 states and

30,000 localities to determine whether they are sub-

ject to complex benefit contribution mandates imple-

mented in countless ways, creating different re-

(9th Cir. 1996), is misplaced. Both Keystone and Curry involved

“prevailing wage” laws. /d. As the district court recognized be-

low, employers subject to the program in Curry could satisfy

their prevailing wage obligation in whole or in part simply by

paying wages to employees at the appropriate rate. App. 100a-

102a (citing Curry, 88 F.3d at 793-96); see also Keystone, 37 F.3d

at 960. The Ordinance is different. It requires employers to

procure healthcare benefits for employees. They therefore are

not “benefits neutral,” as the courts in Keystone and Curry found

the prevailing wage laws to be.

quirements for different employees, if not inconsis-

tent obligations for the same employees. They will be

subject to ongoing record-keeping and reporting re-

quirements, audits, and potentially enforcement pro-

ceedings. It cannot credibly be disputed that the cu-

mulative burden of such laws would undermine the

uniformity of employee benefit law in a far more fun-

damental and burdensome way than the law at issue

in Egelhoff.

4. The resulting patchwork of state and local

regulations would also likely force employers to

amend their existing plans—another basis for finding

ERISA preemption. See Ingersoll-Rand, 498 U.S. at

142 (ERISA preempts laws that require the tailoring

of plans and employer conduct to the peculiarities of

the law of each jurisdiction). To be sure, the Ninth

Circuit reasoned that ERISA does not preempt the

Ordinance because employers are not “required” to

alter their plans. Pet. 29a-30a. Yet it is inevitable

that most, if not all, plans will be altered as employ-

ers become subject to an ever-increasing array of

“pay-or-play” laws.

One option will be to decrease health care bene-

fits in places where there are no mandates—which in

turn will create pressure to implement mandates in

these locations. Another strategy will be to reduce

other kinds of benefits, like pension benefits, that

states and localities have not (yet) required employ-

ers to fund. In either case, plans will be altered.

Even employers who simply absorb the added

cost of the new mandates and their associated admin-

istrative burdens will alter their plans as they seek to

ensure that all their employees receive comparable

benefits. That undoubtedly will be a complex task for

large employers who become subject to multiple “pay-

or-play” laws. Yet it is highly unlikely that employ-

ers will myopically continue to fund their benefit

plans without making any alternations to them, as an

increasing number of state and local laws may im-

pose countless mandates and regulations.

In short, it is obvious that the Ordinance, and the

cumulative sum of the laws it will precipitate if the

Ninth Circuit’s decision stands, will cause the whole-

sale alteration of employer-sponsored plans, as em-

ployers seek to adjust their benefit packages in the

new world of local health care regulation. That was

the conclusion of the Fourth Circuit in Retail JIndus-

try Leaders Assoctation v. Fielder, 475 F.3d 180, 196-

97 (4th Cir. 2007) (“[aJf Wal-Mart were to attempt to

utilize non-ERISA health spending options to satisfy

the Fair Share Act, it would need to coordinate those

spending efforts with its existing ERISA plans”). And

it remains true today.

CONCLUSION

The Ninth Circuit’s reasoning fails to account for

the cumulative real-world impact that the Ordinance,

and others that will follow in its wake, will have on

employer sponsored benefit plans.

To be sure, it is impossible to predict exactly how

the provision of health care benefits and the delivery

of health care will change if “pay-or-play” laws are

allowed to take root, let alone the impact that such a

sea change in health care regulation may have on the

national economy. It is clear, however, that allowing

the Ninth Circuit's decision to stand will not simply

delay the resolution of the problem posed by the San

Francisco Ordinance and laws like it. Allowing the

decision to stand, even for a short time, will exacer-

bate the problem exponentially.

The petition should be granted.

Respectfully submitted,