Municipal Power Over Contractors Curbed

Municipal Power Over Contractors Curbed

Federal court limits scope of Portland equal benefits law

Hornby found that the federal Employee Retirement Income Security Act (ERISA) prevents the city from requiring its contractors to provide pension and some health insurance benefits to the domestic partners of their workers, but that requirements for other partner benefits not covered by ERISA do not violate either federal law or constitutional rights.

The February 6 decision found that when Catholic Charities elected in July 2003 to have its employee benefit plans covered under ERISA, the move exempted those plans from the municipal domestic partnership requirements.

Portland adopted its Domestic Partnership Ordinance in 2001, extending benefits rights to same- and opposite-sex domestic partners of city and public school employees. The following year, the city amended the law to require that city contractors under various programs also make partner benefits available to their employees, a change that brought Catholic Charities, which receives Housing and Community Development funds from the city, within the scope of the law. A controversy ensued when Catholic Charities refused to extend the benefits, and the city responded by refusing to dispense the funds.

In a lawsuit challenging the city’s action, Catholic Charities argued that its First Amendment rights of free exercise of religion and freedom of speech were being violated when the city pressured them to give benefits to domestic partners by withholding funding for their programs.

ERISA has long loomed as a major theoretical obstacle to local governments requiring their contractors to provide benefits because the federal law broadly preempts any state or local law “affecting” employee benefit plans. In opposing the Portland law, however, Catholic Charities found itself in a curious conundrum because ERISA coverage does not normally extend to church-related employee benefit plans. However, ERISA provides an option for church-related plans to elect coverage under the law. So, in mid 2003, Catholic Charities filed an election with the Internal Revenue Service, indicating that it would be complying with ERISA requirements for its employee benefits plans.

In the end, it was the ERISA argument rather than the constitutional argument that proved most helpful to Catholic Charities. Ruling on motions for summary judgment by the city and Catholic Charities, Hornby found that ERISA preempts the city from requiring its contractors to extend benefits that are subject to ERISA regulation to the domestic partners of employees.

This ruling, however, does not apply to those benefits not part of ERISA-regulated plans, so under this part of the opinion, Catholic Charities would still have to recognize domestic partners of employees for purposes of its employee assistance program, bereavement benefits, and paid and unpaid leave of absence policies. ERISA is concerned primarily with pension plans and other “employee benefit plans” that involve funding mechanisms, such as medical and dental insurance.

After finding that ERISA did not preempt all of the benefits, the court turned its attention to the constitutional question. Responding to Catholic Charities’ argument that the Portland ordinance forced the organization to surrender its freedom to practice its religious tenets, Hornby observed, “Religious beliefs do not excuse a group from complying with an otherwise valid, generally applicable, and neutral law.” The Portland ordinance did not single out Catholic Charities or religious organizations, but instead applied to all entities seeking to contract with the city under the specified programs. Hornby also noted that when the money was not forthcoming last year, Catholic Charities was able to carry on its housing program using other resources, so it could not claim that its religious beliefs had been “substantially burdened.”

Hornby also rejected Catholic Charities’ argument that its freedom of speech was being stifled, that recognizing domestic partners would interfere with its “message about Roman Catholic teaching on non-family relationships.” The court would not accept this argument.

“Although employee benefit plans serve many functions,” wrote Hornby, “expressing ideological points of view is not one of them. There simply is no ‘particularized message’ in the provision of employee benefits, let alone a message that would be understood by the public… Providing benefits to domestic partners does not represent an endorsement of non-family relationships any more than providing benefits to unmarried pregnant women represents an endorsement of single parenthood.”

Hornby’s decision sends a mixed signal on the validity of municipal attempts to spread domestic partnership coverage through the city contracting process, since the ERISA preemption ruling will limit coverage of some kinds of benefits. On the other hand, many employers, especially larger employers, prefer to use self-insurance plans for health coverage rather than ERISA-regulated funded plans, and those would not be affected by the preemption argument since for purposes of ERISA such employers are deemed as insurance companies not covered the law.

Hornby based his ruling on a decision by the U.S. District Court in San Francisco, which had similarly found that some of that city’s ordinance was preempted by ERISA but that other aspects were not.

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