On March 9, 2009, the U.S. Court of Appeals for the Ninth Circuit (the “Court”) denied a petition for rehearing en banc of the September 30, 2008 ruling by a three-judge panel of the Court in Golden Gate Restaurant Association v. City and County of San Francisco that the San Francisco Health Care Security Ordinance (“Ordinance”) is not preempted by ERISA. For a discussion of the September 30, 2008 ruling, see our October 2008 issue. In its petition, the Golden Gate Restaurant Association had contended that the panel’s opinion:

• ignored one of the principal purposes of ERISA preemption: to prevent state and local interference with employee benefit plan administation;
• contradicted longstanding ERISA preemption authority; and
• conflicted with the Fourth Circuit’s decision in Retail Industry Leaders Ass’n v. Fielder, 475 F.3d 180 (4th Cir. 2007).

In his concurring opinion supporting the denial of rehearing, Judge William A. Fletcher stated that:

• The purpose of ERISA is not to ensure national uniformity in the provision of health care, but only to ensure that a single set of regulations govern the administrative practices of benefit plans.
• Nothing in the Ordinance requires an employer to establish or alter an existing ERISA plan.
• Nothing in the Ordinance interferes with the uniformity of ERISA regulations.
• The panel’s decision does not create a circuit conflict with the Fourth Circuit. Fletcher reasoned that, while the Maryland law at issue was preempted by ERISA because it did not give the employer to which it applied a rational choice other than modifying their ERISA plan, the Ordinance does provide an employer with a meaningful alternative to establishing or modifying an ERISA plan. The Ordinance provides an employer with the option of making payments to the City to help fund the City’s Health Access Program (now called the “Healthy San Francisco” program), through which its employees would be able to access health care benefits at a reduced rate.

Eight judges joined in a dissent to the denial of rehearing. The dissent stated that:

• The panel opinion created a roadmap for other state and local governments seeking to regulate employee health benefit plans.
• The decision creates a split between the Fourth Circuit and the Ninth Circuit on the issue of whether ERISA preempts “fair share” or “play-or pay” ordinances.
• The panel opinion disregarded important case law on ERISA preemption.
• Allowing the Ordinance to stand would require employers operating in multiple jurisdictions to comply with potentially conflicting laws regarding employer-provided health care. This is the administrative burden that ERISA was intended to eliminate.

The Golden Gate Restaurant Association has previously stated that they will file a petition for writ of certiorari with the U.S. Supreme Court to appeal the decision of the Ninth Circuit. In the latest development, the Association has filed an Application for Order Staying Mandate and Vacating Stay of District Court Judgment with Justice Kennedy of the Supreme Court as Circuit Justice for the Ninth Circuit. If granted, this order would prevent enforcement of the Ordinance, at least until the U.S. Supreme Court decides whether it will hear the case. Unless an Order Staying Mandate and Vacating Stay of District Court Judgment is issued, covered employers must continue, at least for the time being, to comply with the Ordinance. See our January 2008 issue for details of the Ordinance’s requirements.