By Mark Casciari and Kathleen Cahill Slaught

Seyfarth Synopsis:  A recent panel decision from the Ninth Circuit rejects an ERISA preemption argument that a Seattle ordinance regulating private sector health care should be nullified in order to safeguard the ERISA administrative scheme.

On March 17, 2021, a three judge panel of the Court of Appeals for the Ninth Circuit found that ERISA did not preempt a provision in the Seattle Municipal Code that mandates hotel employers and ancillary hotel businesses to provide money directly to designated employees, or to include those employees in the employer’s health benefits plan.  If the employer provides self-insured health benefits, that plan ordinarily would be protected from state laws intruding on its administration, under the broad ERISA preemption clause that nullifies state and local laws that “relate to” ERISA plans.

This case is captioned — The ERISA Industry Committee v. City of Seattle, No. 20-35472.

The three panel judges reasoned that the Seattle ordinance was not preempted by relying on the  Ninth Circuit decision in Golden Gate Rest. Ass’n v. City & Cnty. of San Francisco, 546 F.3d 639 (2008).  The panel said that the Seattle ordinance does not “relate to” any ERISA plan, in accord with Golden Gate, because the employer may fully discharge its expenditure obligations by making the required level of employee health care expenditures to a third party, here the employees directly.  The decision was unsigned (per curiam).

There are a number of interesting aspects to the Seattle decision.

First, the panel labeled the decision as an unpublished Memorandum.  Circuit Rule 36-3(a) states that unpublished Memoranda are not precedent.  The panel thus limited the impact of its decision, which is unfortunate given a conflict in the circuits (noted below).

Second, the Ninth Circuit panel made no mention of the conflict between Golden Gate and Retail Indus. v. Fielder, 475 F.3d 180 (4th Cir. 2007).  In Fielder, the Court of Appeals for the Fourth Circuit ruled that a Maryland law that required large employers to spend at least 8% of their total payrolls on employee health insurance costs or pay the shortfall to the state was preempted by ERISA.  The court reasoned that the Maryland law was preempted because it “effectively” required employers in Maryland to restructure their ERISA plans, and thus conflicted with ERISA’s goal of permitting uniform nationwide administration of those plans.

Third, the Ninth Circuit panel applied a presumption “against” ERISA preemption.  By contrast, a recent (unanimous) ERISA preemption decision of the Supreme Court, Rutledge v. Pharmaceutical Care Management Assn., discussed in a previous blog post, makes no reference to any such presumption.

Fourth, the Ninth Circuit panel seems to apply field preemption concepts set forth in Justice Thomas’s concurring opinion in Rutledge.  That test can be explained by asking whether a provision in ERISA governs the same matter as the state law, and thus could replace it.  ERISA, of course, does not regulate direct payments to employees. This construct of preemption appears to narrow the ERISA preemption standard now applied by a solid majority of the Supreme Court.

We live in an age of state experimentation with matters arguably regulated by ERISA.  Expect to see more such experimentation and more litigation to defend the federal scheme in ERISA.