Hills on Local Democracy and ERISA Preemption

Posted on Categories Federalism, Health Care, Labor & Employment Law

Hills Rick Hills (NYU), one of the more thought-provoking and provocative thinkers over at PrawfsBlawg, has an interesting post on the interaction between the democratic process and the law of ERISA preemption.

His post takes off from the recent ERISA preemption case of Golden Gate Restaurant Association, in which the Ninth Circuit recently held that a San Francisco ordinance demanding employers provide health benefits is not preempted by ERISA.  This holding is contrary to many of the cases in this area (and critiqued by ERISA luminaries like Ed Zelinsky) and the case is currently being considered for en banc review.

Here’s a taste of Rick’s insights:

San Francisco is now locked in a struggle with business over whether subnational governments can mandate that employers provide their employees with health care benefits. The employers are claiming that ERISA preempts the mandate, and their argument illustrates the insidiously anti-democratic nature of preemption arguments. As a matter of policy, I tend to agree that funding public benefits like health care through mandates on employers is foolish. Such a finance mechanism interferes with the mobility of labor and discourages job creation. Far better, it seems to me, to provide health benefits through general taxes not incident on employment.

But here is where I am a die-hard lover of federalism: As dumb as employer mandates are, centralizing debate over health care through a broad construction of ERISA preemption is even dumber.

Such centralization is an outrage against the democratic process both locally (by suppressing the efforts of those zany San Franciscans) and nationally (by letting Congress off the hook of confronting the relationship between health care and employment). San Francisco hurts no one but itself and its own residents by burdening business and driving away capital to the ‘burbs. The claim that national businesses will suffer some external cost outside San Francisco from disuniform regulation is patently baloney: Any business that operates in any city already must uncontroversially incur the costs of researching and complying with local zoning codes, local taxes and fees, local building codes, local safety regulations, etc. The marginal cost of insuring that one’s local branch complies with the local complying health care law is close to zero . . . .

For those who care about ERISA, why do I claim that preempting San Francisco’s ordinance is madness? The Restaurant Association is essentially making an effects-based preemption argument, asserting that SF’s ordinance effectively requires employers to change their ERISA benefits plans to comply with San Francisco law. The folly of this argument, however, is that it proves too much: Lots of local laws might have effects on employers’ incentives to provide contractual benefits. Medical malpractice lawsuits under state tort law might drive up the cost of insurance, leading the marginal employer to reduce employees’ health care benefits. Local zoning law could — indeed, does — increase housing costs, which increases the relative attractiveness of housing benefits to employers. But no lawyer in their right mind would argue that these state and local laws “relate to” ERISA benefits plan, because these laws’ obligations are not triggered by the existence of ERISA-covered employment benefits . . . .

Any other theory will draw the courts into a theory of preemption that could suck every state and local regulation of business into the maw of ERISA preemption — an outcome utterly unintended by anyone in Congress in the 1970s, when ERISA was enacted. For courts to create such centralization without Congress’ assent is, as I noted above, an outrage against common sense and subnational democracy. As I have argued elsewhere (Against Preemption: How Federalism Can Improve the Federal Legislative Process, 82 N.Y.U. L. Rev. 1 (2007)), ERISA preemption has also absolved Congress of the duty to confront the problem of how health care benefits relate to employment. Preemption, in short, destroys both subnational and national democracy . . . .

Although I have not agreed with Rick on other topics like the manner in which public pensions have contributed to NYC’s fiscal crisis, I think he is right on here.  From a more technical ERISA standpoint, I wrote on the Ninth Circuit opinion back in October:

I am now persuaded that the 9th Circuit’s ruling [in Golden Gate] is consistent with the Travelers precedent from 1995 that unless a law is historically a matter of local concern, there should be a presumption against finding ERISA preemption. It seems to me that courts have read ERISA incorrectly in this regard in past cases.

My epiphany came in writing my new paper on the intersectionality of ERISA preemption and remedial provisions.  In order for many plaintiffs not to be deprived of the remedy that they deserve, the preemption provision must be strictly construed according to the language in Travelers.  This reading will ensure that defendant employers are not able to inappropriately use ERISA as a shield against meaningful health care reform or appropriate types of relief in ERISA cases.

Rick argues for a more limited ERISA preemption doctrine based on federalism principles, and I argue for the same limited doctrine based on the employee-oriented, remedial nature of the statute, but we come out in the same place.  I am with Rick in that I hope the en banc Ninth Circuit understands the compelling arguments that abound to allow local municipalities to democratically decide what responsibilities employers in their jurisdictions have for providing their employees with health care benefits.

My thought is that if we allow federalism to flourish in this context, many jurisdictions will force Congress’s hands to reconsider how to protect benefits for employees under ERISA.

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