This evening the City Council held a public hearing on four bills that Council members Mosqueda and Gonzalez have introduced as a replacement for Initiative 124. As expected, hotel workers and labor representatives showed up to urge the Council to pass the ordinances. But hotel managers and other small business owners also showed up in numbers to state their opposition to some of the provisions in the bills – particularly the health insurance mandate.
Initiative 124 was approved by voters in November 2016. However, it drew two court challenges: one for violating the Washington Constitution’s “single subject” rule for legislation, and another for violating the federal ERISA act. In the first case, last December the Court of Appeals found that I-124 did, indeed, violate the single subject rule and tossed it out; the state Supreme Court has agreed to hear the case on further appeal. The second case is on pause until the first reaches final resolution.
As I wrote recently, the four new pieces of legislation address the main topics in I-124, breaking it up to avoid the single subject rule. They also tweak some aspects of I-124 to improve upon it and avoid other potential legal challenges. The four bills are:
- a limit on the square footage that hotel employees may be asked to clean in a single shift;
- a required process that must be followed when a hotel changes ownership in order to promote employee retention;
- steps that hotels must take to “prevent, protect and respond to violent or harassing conduct by guests;”
- a requirement for hotel employers to make healthcare expeditures to or on behalf of their employees.
Tonight hotel workers spoke to the physical demands of manual labor in a hotel, as well as the safety risks from guests’ inappropriate actions, making an argument for limits to the workload, the necessity of healthcare coverage, and the means to ban those guests who attack or otherwise threaten the safety of hotel workers.
Most of the representatives from hotel and the hotel industry focused their criticism on the fourth bill, which requires a minimum monthly healthcare expenditure on behalf of each employee:
- $560 per month for an employee with no spouse, domestic partner, or dependents;
- $952 per month for an employee with only dependents;
- $1,120 per month for an employee with only a spouse or domestic partner;
- $1,680 per month for an employee with a spouse or domestic partner and dependents.
They emphasized the high cost of this, particularly when it rises to the maximum per month. Several hotel managers said that they already provided “gold” level health plans to their workers at significantly lower costs than the figures above, and so even if they were doing the right thing today, the bill would still punish them. Owners of small hotels, who have neither the economy of scale or the profit margins of large hotels, were the loudest in their complaints, with some claiming that the extra costs would make their businesses insolvent (and put all their employees out of work).
Several restaurant owners also showed up to complain, noting that the bills also apply to all ancillary businesses on hotel properties, such as restaurants, shops and spas. They argued that it was unfair that they would be subject to these rules when their competitors sited elsewhere did not, and the end effect would be to chase ancillary businesses off hotel grounds. Labor advocates argued, however, that to exclude ancillary businesses would create an incentive for hotels to outsource more parts of their operations, such as catering.
The Council is trying to thread the needle with the healthcare requirements. Mosqueda and Gonzalez rewrote the ordinance from what was in I-124 in order to avoid running afoul of the ERISA Act, but are likely discovering that it’s easier said than done.
ERISA preempts all state and local laws that relate to employee benefit plans covered by ERISA, in language that the U.S. Supreme Court has called “terse but comprehensive.” Here’s my longer explanation of how I-124 seems to violate ERISA, but in a nutshell the courts have found that ERISA prohibits laws that either “make reference to” an employee benefit plan, or have “a connection to” such a plan. The ordinance by Mosqueda and Gonzalez carefully avoids mentioning “benefit plans” and instead requires a minimum monthly “healthcare expenditure” by hotel employers on behalf of their employees. Clearly their bet is that they can successfully convince a judge that this neither makes reference to nor has a connection to a health benefit plan.
The problem with this is that in their efforts to mandate a specific level of health coverage without breaking the law that forbids them from doing so, they find themselves unable to take into consideration what the desired level of health coverage actually costs. Health care plan prices are set not only by size of family but also by age, whether the person smokes, and other factors. The more they include those factors, the clearer the policy outcome — but also the more clearly it makes reference to and has a connection to a benefit plan. So they left out all but family size, and are stuck with rigid minimum expenditure levels that have little relationship to what an employer actually pays for healthcare coverage for its employees.
While the first three bills received little opposition tonight (at least to the specifics of the bills) and will probably soar through the legislative process and into law, the fourth one will almost certainly be challenged in court as soon at it takes effect. The text of the bill still makes reference to providing healthcare services, payment of monthly health insurance premiums, and the Washington State Health Benefit Exchange, and has a connection to the Exchange in order to make future adjustments to the required minimum expenditure. It is amusing, though, to see the plainly-obvious efforts of the City Council, their staff, and the City Attorneys in writing the bill to avoid triggering ERISA: the bill has only a single-line preamble, no “findings” whatsoever to establish the factual basis for the bill, and a somewhat vague stated intent, “to improve hotel employees access to affordable medical care for the employee and their spouse or domestic partner, children, and other dependents.” The Council staff memo also carefully avoids additional references to benefit plans, doesn’t explain where the dollar figures in the bill comes from, and avoids all mention of the pending lawsuit challenging I-124 for ERISA violations — despite including a description of the other lawsuit.
This is classic Seattle City Council, and follows the same playbook as the income tax: despite a clear intent to do something that is prohibited, they are trying to squeeze through a legal loophole with delicately-crafted language. Unlike the income tax bill, however, which has been litigated in state courts ( and lost, and is now awaiting a ruling by the Court of Appeals), an ERISA challenge to this bill will be in federal court — and a case law history developed across 50 states.
At the end of tonight’s public hearing, Mosqueda announced the following schedule for advancing the four bills forward:
- July 11 committee meeting: issue identification;
- July 18 committee meeting: discuss amendments;
- August 1 committee meeting: vote on amendments and vote the bills out of committee;
- Monday, August 12 full City Council meeting: final approval of the bills.