Ninth Circuit upholds Seattle hotel workers healthcare mandate

In a super-fast turnaround, today the Ninth Circuit Court of Appeals upheld Seattle’s ordinance requiring hotel employers to make minimum monthly expenditures for their employees’ healthcare.

The case was heard less than three weeks ago; it often takes months for the court to turn around rulings. In this case, the ruling was only four pages long and makes just two points:

  • The court found that the Seattle ordinance is entitled to a presumption against pre-emption by the federal ERISA act, because it acts in a field that “has been traditionally occupied by the States” (i.e. general healthcare regulation).
  • The court, under the principle of stare decisis, found that this case was indistinguishable from its earlier decision on a similar San Francisco ordinance in the 2008 case Golden Gate Restaurant Association vs. City and County of San Francisco, in which the Ninth circuit found that San Francisco’s ordinance was not pre-empted by ERISA.

As SCC Insight has written previously, the plaintiffs tried to distinguish this case from Golden Gate. First, they note that the U.S. Supreme Court has since ruled that there is no presumption against pre-emption when the federal law explicitly includes a pre-emption clause, as ERISA does. Thus the City’s argument that the ordinance is a “general healthcare” regulation, and not one specific to employee healthcare plans, so that it’s outside the purview of ERISA. The Ninth Circuit agreed with the City.

Second, the plaintiffs highlighted several differences between the San Francisco and Seattle ordinances, most notably that the Seattle one includes an option for direct payments to employees, whereas the San Francisco one does not. However, the appeals court ruled that in Golden Gate it extended its ruling to direct-to-employee payment schemes even though San Francisco’s didn’t contain one. But here’s the pertinent section from Golden Gate:

Two Supreme Court cases tell us that an employer’s obligation to make monetary payments based on the amount of time worked by an employee, over and above ordinary wages, does not necessarily create an ERISA plan.   This is so even if the payments are made by the employer directly to the employees who are the beneficiaries of the putative “plan.”   First, in Fort Halifax, a Maine statute required an employer to pay employees one week’s pay for every year worked if the employees were terminated because of a plant closing.   The Court held that the statute did not create a “plan” within the meaning of ERISA:  “The Maine statute neither establishes, nor requires an employer to maintain, an employee benefit plan.   The requirement of a one-time, lump-sum payment triggered by a single event requires no administrative scheme whatsoever to meet the employer’s obligation.”

But in today’s ruling the Ninth Circuit didn’t address a major point that the plaintiffs raised: that the Seattle ordinance does, in fact, require employers to put in place an administrative scheme for the ongoing payments, since the size of those payments depends on the family size of the employee, which in turn must be determined and updated as it changes. And further: that it’s not wages, as the City argued, because it’s based on family size and not on hours worked — which is probably illegal under Washington state law if it were truly wages. The San Francisco ordinance has an option for direct payments into a public fund that provides healthcare to low-income residents, but those payments were based on employee hours worked and not on the employee’s family size.

It’s a fair bet that the plaintiffs will appeal the case to the full Ninth Circuit for an en banc hearing. Given the brevity of the ruling and the number of substantive issues that it glosses over, it might get that hearing — and if not, it will probably appeal it to the U.S. Supreme Court. So it’s a win for the City of Seattle and for hotel workers today, but it might be short-lived.

Click to access 031721NinthCircuitHotel.pdf

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