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Mandatory State Wage and Benefit Ordinance Not Preempted by ERISA



Cal. Hotels and Lodging Ass’n. v. City of Oakland, 2019 WL 2617057 (N.D. Cal. 2019)

Voters in Oakland approved an ordinance with a provision that required hotel operators to pay employees a minimum hourly wage of $15 with health benefits, or $20 without health benefits. An association of hotel operators challenged the provision, arguing, among other things, that it was preempted by ERISA because it referenced health benefits. The association contended that the provision related to ERISA plans by making the amount of hourly wages dependent upon the provision of health benefits. It asserted that the provision effectively required that existing employee benefit plans be amended, and that hotel employers without an employee benefit plan establish one. The association further argued that requiring an employer to make direct payments to employees if it chose not to provide benefits from a plan—without any constraint on the employee’s use of the money—was unlawful.

The court held that the provision was not preempted by ERISA and dismissed the claim. It found that an ERISA plan was not essential to the provision’s operation because a hotel employer could simply pay employees an additional $5 per hour to ensure compliance. Rather, the provision was similar to a San Francisco ordinance that the Ninth Circuit had upheld (see our Checkpoint article). With respect to the issue of administrative burden, the court explained that the preemption test is not whether a law imposes administrative burdens on an employer, but whether a law imposes administrative burdens on ERISA plans. However, the provision did not mention ERISA plans or require them to do anything. Furthermore, the provision neither identified ERISA plans nor acted immediately and exclusively upon them.

EBIA Comment: Courts have reached different conclusions about whether “fair share” laws like the provision at issue in this case are preempted by ERISA. For example, another appellate court held that a state law requiring certain employers to spend at least a specified percentage of total wages on health care or insurance was preempted (see our Checkpoint article). For more information, see EBIA’s ERISA Compliance manual at Section XXXIX.B (“ERISA Preemption in a Nutshell”), Section XXXIX.C (“State Laws That ‘Relate to’ ERISA Plans Are Generally Preempted”), and Section XXXIX.H.25 (“Preemption Analysis Applied to Specific State Laws: State and Municipal Fair Share Laws”). See also EBIA’s Self-Insured Health Plans manual at Section V.E (“ERISA Preemption and the Application of State Mandates”).


Contributing Editors: EBIA Staff.

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