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San Francisco defeats challenge to health coverage mandate for airline employees

Federal laws don't override a city ordinance on health benefits for airline workers because San Francisco was furthering its business interests, not acting as a regulator, when it imposed those requirements.

SAN FRANCISCO (CN) — An airline industry group cannot jettison a city ordinance that requires air carriers to cover the full cost of health benefits for workers at San Francisco International Airport, a federal judge ruled Tuesday.

Airlines for America, an industry trade group representing carriers who operate at the city’s airport, sued San Francisco last year after it enacted the Healthy Airport Ordinance. The ordinance requires private employers at the air hub known as SFO to cover 100% of health care plan costs, offer “platinum” plans and ensure plans cover the spouses and dependents of employees. The ordinance applies to about 35 to 40% of employees at the airport.

In its lawsuit, Airlines for America argued the ordinance — passed in the middle of a pandemic that devastated the airline industry and caused billions of dollars in losses — imposes even more costs on struggling carriers and overrides employee health plans already negotiated through collective bargaining. The airline group called the ordinance “prohibitively expensive,” saying it would cost individual airlines as much as $100 million per year. The group also claims the law is preempted by federal laws, including the Employee Retirement Income Security Act of 1974 and the Airline Deregulation Act of 1978.

In a 35-page ruling issued Tuesday, U.S. District Judge Edward Chen rejected claims that federal laws override the city ordinance’s validity. He concluded the city was acting as a market participant, not a regulator, when it imposed new conditions on its contracts with SFO air carriers and other private employers.

“Providing health care to airline workers’ relatives and dependents furthers the city’s proprietary interest because if employees have better benefits, there will be reduced turnover, which will enhance the safety and security of the airport,” Chen wrote, citing language from the ordinance that took effect in March 2021.

Airlines insisted the penalties for violating the ordinance show it is a regulation, not a set of contractual requirements to further the city’s legitimate business interests. The ordinance empowers the city to charge violators the cost of employee health benefits plus interest, seek liquidated damages of up to $100 per week per employee, cancel contracts with airlines and other service providers and potentially ban those companies from obtaining contracts to work at SFO in the future.

Chen concluded those enforcement mechanisms are “functionally equivalent” to ordinary contract terms, and that airlines could have chosen not to renew their contracts last year when they knew these new conditions would be imposed.

“By agreeing to extend their [lease and use agreements], they voluntarily agreed to comply with the [Healthy Airport Ordinance] even though they had the choice to ‘seek business elsewhere,’” Chen wrote.

Chen granted the city’s motion for summary judgment and entered final judgment in favor of the city.

San Francisco City Attorney David Chiu touted the legal victory in a statement Tuesday.

“In order to have a well-functioning airport, we have to make sure our workers are healthy," Chiu said. "I am pleased the court agreed that San Francisco was acting within its authority to ensure airport workers have adequate health care access.”

Airlines for America did not return a phone call requesting comment by press time.

SFO, which has been operating since 1927, attracted about 58 million travelers per year before the Covid-19 pandemic disrupted air travel two years ago. In 2020, passenger traffic shrunk to 16.4 million, according to the airport.

Fifty-nine carriers offer air travel to customers at SFO. The five airlines that generate the most business there are United Airlines, Alaska Airlines, American Airlines, Delta and Southwest.

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