San Francisco Health Care Security Ordinance

May 1, 2008

The San Francisco Health Care Security Ordinance (“Ordinance”) requires employers to spend a minimum amount of money on health care expenditures for certain employees who work in San Francisco. The Ordinance became effective as of January 9, 2008 and is being enforced pending final decisions in the courts on its permissibility.

Employers are covered by the Ordinance if they employ an average of 20 or more employees per week (whether full time, part time, temporary, or through a staffing agency), without regard to the number of employees actually working in San Francisco. The Ordinance requires that Covered Employers make minimum health care expenditures of no less than $1.17 per hour (for medium-sized employers) or $1.76 per hour (for large employers) to, or on the behalf of, Covered Employees each quarter. “Covered Employees” include those employees who have been employed for at least 90 calendar days and worked an average of at least 10 hours per week for 2008 (8 hours per week for 2009) within San Francisco during the quarter.

Legal Background and Challenges

The Ordinance was challenged in federal district court by the Golden Gate Restaurant Association (“Association”), which argued that the required employer health care expenditure was preempted by the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). On December 26, 2007, the U.S. District Court for the Northern District of California ruled in favor of the Association holding that the Ordinance had an impermissible connection with ERISA plans.

On January 9, 2008, the Ninth Circuit Court of Appeals granted the City of San Francisco’s (“City”) request to stay the district court’s ruling to enjoin the implementation and enforcement of the Ordinance. The Court of Appeals ordered that the “Employer Spending Requirement” could go into effect while the Court of Appeals considers the City’s appeals. The appeal was argued before the Ninth Circuit panel on April 17, 2008, and most observers believe the Ninth Circuit will reverse the district court and rule that ERISA does not preempt the Ordinance.

If the Ninth Circuit panel upholds the San Francisco Ordinance, appeals to the full Ninth Circuit and/or the Supreme Court are likely. Because the Fourth Circuit Court of Appeals has ruled that ERISA preempted a similar Maryland law, and because the U.S. Department of Labor has filed a brief arguing for ERISA preemption, there is still a chance that the Ordinance will be eventually invalidated. However a decision invalidating the Ordinance is unlikely to come before the spring of 2009 at the earliest.

Compliance with the Ordinance

Covered Employers must make minimum health care expenditures to, or on behalf of, Covered Employees each quarter except for Covered Employees who are exempt from, or who have waived coverage under, the Ordinance. New Covered Employees will begin to receive health care expenditures for hours paid beginning on the first day of the month that follows completion of 90 calendar days after a Covered Employee’s first day of work.

Employer Spending Requirement Determination and Deadline

The Ordinance applies to medium and large-sized employers, but size is determined without regard to the number of employees working in San Francisco. Thus, an employer with one hundred or more employees employed across the United States is considered a “Large Employer” required to spend a minimum amount per hour on health care for its Covered Employees, even if only one employee actually works in San Francisco. An employer with 20 to 99 employees is considered a “Medium Employer” regardless of the number of employees actually working in San Francisco. The Employer Spending Requirement schedule depends on total employees in the Company (not employees working in San Francisco) and is as follows:


All Covered Employees may only be credited up to a maximum of 172 hours per month, or 516 hours per quarter, per employee when determining the Employer Spending Requirement.

An employer is required to make quarterly health care expenditures within 30 days of the end of the preceding quarter. So, the employer must make its first expenditure based on hours paid to Covered Employees from January 9, 2008 through March 31, 2008 no later than April 30, 2008.

Available Health Care Coverage Options

The options for complying with the Employer Spending Requirement include the following: health insurance; self-funded plan; any type of health or medical reimbursement, spending, or savings account; direct reimbursement to a Covered Employee or payment to the Covered Employee’s health care provider; or payments to the City. An employer can satisfy the Employer Spending Requirement using a different option for each group of employees (i.e., full-time and part-time) and more than one option for each individual Covered Employee.