Ninth Circuit Urged to Toss Health Care Mandate for Seattle Hotel Workers

Seattle’s new law requiring hotel owners to pay workers health benefits should be tossed out for violating ERISA, an industry group told a Ninth Circuit panel Monday.

SEATTLE (CN) — An ERISA industry group told a Ninth Circuit panel that a new Seattle law requiring large hotel owners to provide specific health benefits to employees should be struck down because it is preempted by federal law.

The city ordinance makes hotels with 100 or more guest rooms provide full time workers with benefits equal to a gold-level policy on the state health exchange or provide equivalent payments directly to the employee.

It’s part of a group of laws adopted by the Seattle City Council in 2019 aimed at protecting hotel employees and was introduced after a state appeals court overturned voter Initiative 124, that included a variation of the ordinance.

The appellate panel ruled I-124 was unconstitutional because it contained multiple unrelated topics.

The City Council then passed the body of the initiative in separate ordinances, including laws regulating the amount of space a worker can be required to clean in a day, requiring panic buttons for employees and mandating new hotel owners retain employees.

The ERISA Industry Committee, a nonprofit trade organization, sued over the health care contribution ordinance, saying it violated ERISA by regulating employee benefit plans.

ERISA, the Employee Retirement Income Security Act of 1974, is a federal law that regulates retirement and health plans in private industry. ERISA expressly provides that it “shall supersede any and all state laws insofar as they may now or hereafter relate to any employee benefit plan.”

U.S. District Judge Thomas Zilly dismissed the suit, finding the ordinance requirements of monthly payments of $420 for each employee, $714 for employees with dependents only, $840 for each employee with only a spouse or domestic partner, and $1,260 for employees with a spouse or domestic partner and dependents, are the same as “regular wages” and do not require an administrative scheme.

Anthony Shelley, with Miller & Chevalier in Washington, representing the ERISA Industry Committee, told a three-judge Ninth Circuit panel on Monday that Zilly was wrong and the law competes with ERISA.

Under the ordinance, an employer has three ways of providing benefits, Shelley said. They include payments to a third-party insurer such as a spouse’s insurance, enrolling the employee in a company gold plan, or making a direct payment to the employee.

“The direct payment is a benefit,” Shelley said. “The district court says it’s wages, but the ordinance itself says it’s not wages.”

Wages don’t vary based on the size of your family, Shelley said, adding that basing wages on family size and marital status is illegal in Washington state.

U.S. Circuit Judge A. Wallace Tashima, a Bill Clinton appointee, wanted to know why the amount of the payments mattered.

“The employer has to go out and investigate the employee’s family situation,” Shelley said. This required the employer to set up an “administrative scheme,” to determine how much to pay the employee.

Requiring a scheme that’s essentially an ERISA plan violates federal law, Shelly argued.

Seattle Assistant City Attorney Jeremiah Miller said regularly recurring monthly payments, as required under the ordinance, meet the definition of wages.

Under the direct payment option, the employee doesn’t have use the money for “anything in particular,” which also boosts the argument that it’s a wage, he said.

Miller said Zilly correctly dismissed the complaint.

“The outcome has to be the ordinance is not preempted by ERISA,” he said.

U.S. Circuit Judges Johnnie Rawlinson — also a Clinton appointee — and Jay Bybee, a George W. Bush appointee, rounded out the panel. They did not indicate when they would rule.

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