The Ninth Circuit has affirmed a district court's ruling that ERISA does not preempt a Seattle ordinance (SMC 14.28) requiring certain employers to make employee health care expenditures (ERISA Indus. Comm. (ERIC) v. City of Seattle, (9th Cir. Mar. 17, 2021)). In the Ninth Circuit's view, the trade association plaintiff failed to distinguish the challenged ordinance from the San Francisco fair share ordinance that the Ninth Circuit upheld in 2008 (Golden Gate Rest. Ass'n v. City & Cty. of S. F., 546 F.3d 639 (9th Cir. 2008)).

Effective July 1, 2020, the Seattle ordinance at issue in this case requires large hotel employers (and related businesses) to make employee health care expenditures on behalf of covered employees. Employers may satisfy the requirement by making monthly expenditures in specified dollar amounts that vary depending on whether a covered employee has a spouse/domestic partner and dependents. Employers may comply with the ordinance by:

Employers also must satisfy recordkeeping requirements demonstrating their compliance with the ordinance. Employers are subject to enforcement penalties for noncompliance with the ordinance, which was effective July 1, 2020, or the earliest annual open enrollment period thereafter (see New Employee Checklist for ERISA Health and Welfare Plans).

A nonprofit trade association sued Seattle, seeking to enjoin enforcement of the ordinance on ERISA preemption grounds (see Practice Note, ERISA Litigation: Preemption of State Laws (Overview): Fair Share Laws and ERISA Litigation Toolkit). The district court dismissed, concluding that the ordinance was not preempted because it did not:

The district court reasoned that the challenged ordinance was "nearly identical" to a San Francisco fair share ordinance that the Ninth Circuit upheld in 2008 (Golden Gate Rest. Ass'n v. City & Cty. of S.F., 546 F.3d 639 (9th Cir. 2008); see Legal Update, District Court: Seattle's Fair Share Ordinance Is Not ERISA-Preempted).

The association appealed.

Applying a presumption against ERISA preemption in the health care context, the Ninth Circuit affirmed on appeal.

According to the Ninth Circuit, the outcome turned on whether the ordinance was analogous to the San Francisco ordinance at issue in Golden Gate (see Practice Note, ERISA Litigation: Preemption of State Laws (Overview): Ninth Circuit: ERISA Did Not Preempt San Francisco's Fair Share Ordinance). The association argued that the ordinances were distinguishable because, unlike the San Francisco ordinance, the Seattle ordinance includes a direct, employer-to-employee payment option. In rejecting this argument, the Ninth Circuit referenced its Golden Gate decision, in which the court noted that the San Francisco ordinance would not have been ERISA-preempted even if it had provided for direct payments. Because the association failed to "meaningfully" distinguish the ordinances, the Ninth Circuit held that the Seattle ordinance likewise was not ERISA-preempted.

ERIC has indicated that it is evaluating next steps in this litigation, in a press release that emphasized the difficulty for plan sponsors and plan administrators of complying with a "mismatched patchwork" of state and local requirements applicable to benefit plans. Some courts have been more receptive to challenges to state/local fair share requirements than the Ninth Circuit. In a 2007 ruling addressing Massachusetts' Fair Share Act, for example, the Fourth Circuit concluded that the Act essentially required employers to structure their benefit plans to satisfy the Act's minimum spending threshold (Retail Indus. Leaders Ass'n v. Fielder, 475 F.3d 180, 193 (4th Cir. 2007)). As a result, the court concluded that the Act had an impermissible "connection with" benefit plans and was ERISA-preempted. For its part, the Supreme Court—in its most recent ruling in the ERISA preemption space—also observed that a state law is ERISA-preempted if it "governs a central matter of plan administration or interferes with nationally uniform plan administration" (Rutledge v. Pharm. Care Mgmt. Ass'n, 141 S.Ct. 474, 480 (2020); see Legal Update, Supreme Court: Arkansas PBM Law Is Not ERISA-Preempted).