SCOTUS Applying ERISA Preemption to Local Play-or-Pay Laws

The Employees Retirement Income Security Act of 1974 (“ERISA”) seeks to balance the twin politics of (1) ensuring fair and prompt enforcement of entitlements under employee benefit plans and (2 ) encourage the creation of such schemes. To strike this balance, ERISA combines comprehensive fiduciary liability rules with federal causes of action that allow plan members and beneficiaries to recover benefits owed, enforce ERISA mandates, obtain an injunction and, where appropriate, to obtain attorneys’ fees. At the same time, to protect employers and plan sponsors from operating under a patchwork of potentially conflicting state and local regulations, ERISA promotes uniformity in benefits administration by preempting “all state laws as they may now or hereafter relate to any ERISA. benefits plan. 29 USC § 1144(a).

The Supreme Court is currently considering a petition for certiorari that deals with the application of the ERISA preemption to local “play or pay” laws. Apparently, these location-specific laws are intended to improve low-wage employees’ access to affordable health coverage by requiring large employers to increase health care spending on behalf of those employees who reside in that location. To evade ERISA preemption, these laws typically provide that instead of modifying their existing ERISA plans to reflect enhanced benefits, employers can simply send a check for the same amount directly to their employees or, in some cases, to the government. local.

Seattle passed such a law in September 2019. Seattle SMC Order 14.28 (“Ordinance”) directs large hospitality employers operating in the city to make monthly health care payments on behalf of their covered local employees. Payments increase depending on whether the employee is single or has a spouse and/or dependents. Employers who fail to comply with the Ordinance are subject to fines, penalties and other damages. Employers can comply by creating new ERISA plans specifically for covered employees, increasing their employees’ contributions to existing ERISA plans, or making payments directly to covered employees.

The ERISA Industry Committee, a nonprofit trade association, filed a lawsuit alleging that ERISA preempted the order because it “relates” to an ERISA benefit plan. The district court granted the city’s motion to dismiss, finding that ERISA does not override the order because it provides employers with a compliance option (i.e. direct cash payments to employees ) that does not require the creation of a new ERISA plan or the modification of an existing ERISA plan. . ERISA Industry Committee v. City of Seattle, 2020 US Dist. LEXIS 81750 (WD Wash. May 8, 2020). In an unpublished opinion, the Ninth Circuit asserted. 840 F. Appx. 248 (2021).

The Committee sought certiorari from the U.S. Supreme Court, arguing that the Ninth Circuit’s decision deepened an existing split with other appellate courts, which have ruled that even a direct-pay option interferes with the ERISA plan administration because it requires employers to constantly monitor state and local minimum expense requirements and adjust their healthcare expenses.

Big employers have a vested interest in seeing the Supreme Court grant certiorari and overturn the Ninth Circuit’s decision. While local gambling or compensation laws may serve the salutary goal of ensuring good benefits for local employees, large employers argue that such a goal cannot outweigh the overriding federal concern that National employers can design benefits that work for their national workforce. ERISA already imposes significant obligations on plan sponsors and trustees to administer benefits, and it is important that these employers are able to administer their plans consistently in accordance with ERISA.

The direct payment option does not make gambling or payment laws such as the Ordinance less intrusive on ERISA’s domain. As the Committee argued in the proceedings before the District and Appellate Courts, out-of-pocket payments are “financially more onerous and therefore not a realistic and legitimate alternative” to modifying an employer’s current coverage. to address covered employees. This effectively requires employers to modify their current coverage to meet the requirements of any local gambling or payment laws that may be in effect in each jurisdiction in which they operate. Such tiptoeing through the administrative raindrops of multiple (and potentially conflicting) local regulations — and the added costs and complications associated with such maneuvers — is precisely what ERISA preemption aims to eliminate.

© 2022 Jackson LewisNational Law Review, Volume XII, Number 132

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