Guest Article

(From the March 6, 2006 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

Court Invalidates New York City Law Relating to Domestic Partner Benefits

New York City's Equal Benefits Law (EBL), which requires companies with city contracts of $100,000 or more to offer the same benefits -- including pension and health benefits -- to employees' domestic partners and spouses, is preempted by ERISA, according to New York's highest court. Council of the City of New York v. Bloomberg, 2006 N.Y. LEXIS 149 (N.Y. Feb. 14, 2006). The Court of Appeals of New York also ruled the state's competitive bidding law preempts the EBL. However, the Speaker of the New York City Council -- who sponsored the EBL -- is vowing to continue fighting.

The New York City Council enacted the EBL over Mayor Michael Bloomberg's veto in 2004. Mayor Bloomberg has since refused to implement the law, thus prompting the current litigation.

ERISA Preemption

ERISA preempts "... any and all State laws insofar as they ... relate to any employee benefit plan ...." ERISA § 514(a). The Court of Appeals of New York, citing U.S. Supreme Court precedent, interprets this to mean "that states (and, of course, municipalities) cannot regulate the content of ERISA plans." Furthermore, the Court of Appeals notes, "The [EBL] seemingly seeks to do exactly what ERISA ... prohibits -- to prescribe the terms of benefit plans."

The New York City Council takes the position that the EBL does not regulate benefit plans, but rather sets terms for companies the city, as a "market participant", will do business with. Even though the U.S. Supreme Court has never addressed this market participant argument in an ERISA preemption case, it has recognized such an exception to federal labor law preemption.

In Building & Construction Trades Council v. Associated Builders and Contractors of Massachusetts/Rhode Island, Inc., 507 US 218 (1993), the Supreme Court ruled federal labor law does not preempt a public agency's practice of entering into Project Labor Agreements that require contractors to sign agreements with labor unions in order to prevent labor disputes that might disrupt a project. Basically, the Supreme Court determined this practice was permissible because the public agency was acting as a market participant rather than a regulator. But the Supreme Court reached a different conclusion in another case (Wisconsin Department of Industry, Labor and Human Relations v. Gould Inc., 475 US 282 (1986)) in which a Wisconsin law barring certain labor law violators from doing business with the state was at issue. In that case the Supreme Court determined the state was using its leverage as a market participant to set policy.

According to the New York Court of Appeals, the EBL "... is designed to induce contractors to treat domestic partners and spouses equally, just as the Wisconsin statute in Gould was designed to induce contractors to avoid unfair labor practices." As a result, the Court of Appeals ruled the market participant exception does not apply and ERISA preempts the EBL.

State Law Preemption

As noted, the New York Court of Appeals also ruled the state's competitive bidding law preempts the EBL. The competitive bidding law requires all public work contracts of more than $20,000, and all purchase contracts of more than $10,000, be awarded "to the lowest responsible bidder." According to the Court of Appeals, the EBL violates this requirement by excluding any "responsible bidder" that does not provide equal benefits to domestic partners and spouses. In the Court's words, "The provision of equal benefits for domestic partners and spouses may be a desirable end, but it is not one that New York City is free to pursue by departing from the requirements of the competitive bidding statute."

City Council's Reaction

New York City Council Speaker Christine Quinn acknowledged the Court of Appeals' decision is a "setback" for supporters of the EBL, but refused to declare defeat. She said the Council will consider seeking a rehearing of the case before the Court of Appeals, as well as petitioning the New York State Legislature "to clarify the Council's authority to control City contracting policy." In other words, the Court of Appeals' decision is not the last we will hear of this issue.

The Big Picture

Several major cities, including Los Angeles, Seattle, and San Francisco, have laws similar to the EBL. The New York Court of Appeals' decision does not affect the validity of those laws. However, it may set the stage for future ERISA preemption challenges of these laws.

In the meantime, the number of employers offering domestic partner benefits continues to grow. Almost 7,600 private-sector companies -- including 249 Fortune 500 companies -- now offer such benefits, according to the Human Rights Campaign.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Taina Edlund 202.879.4956, Laura Edwards 202.879.4981, Mike Haberman 202.879.4963, Stephen LaGarde 202.879-5608, Bart Massey 202.220.2104, Diane McGowan 202.220.2077, Martha Priddy Patterson 202.879.5634, Tom Pevarnik 202.879.5314, Carlisle Toppin 202.220.2067, Tom Veal 312.946.2595, Deborah Walker 202.879.4955. Copyright 2006, Deloitte.