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In Sickness and in Health? 

The promise of equal benefits for domestic partners is uncertain under S.F.'s new law

Wednesday, Jan 8 1997
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In an overheated upstairs room at the War Memorial building one afternoon in December, about 50 San Francisco business owners met with city officials at the temporary city hall to talk about the city's new domestic-partners ordinance. It was the first such meeting, even though the landmark legislation was introduced last May. The event was long overdue, considering the myriad questions the ordinance has raised -- and the fact that roughly $1 billion worth of city business with as many as 12,000 contractors turn on how and when they are answered.

The businesspeople in the room that day, and thousands more like them, are the law's main targets. If they don't comply with the city's new rules requiring equal benefits protection for domestic partners, they will no longer qualify for city contracts and must seek work elsewhere. At the front of the room, a panel of weary-eyed bureaucrats listened as business owners spoke.

"I provide full benefits, all spouses, all children," said Keith Gentel, who owns Center Hardware on Potrero Hill and employs 18 workers. He estimates that city contracts make up roughly 10 percent of his business. "I have no problem providing benefits to domestic partners, but I don't perceive this as being a viable commodity for me to purchase within your time constraints."

Marivic Bamba, head of the city's Human Rights Commission (HRC), which is charged with enforcing the ordinance, nodded sympathetically: "We don't have the answers to your questions at this point in time." Gentel's response was half outburst, half growl. "Well unfortunately, nobody has conveyed that to the public at large. The communication has been terrible. All it's been is, 'You have to do this by then.' "

It's little wonder Bamba and the other city bureaucrats have no answers. Politicians hastened the legislation forward in the weeks directly preceding last November's election -- the bill passed its final reading Nov. 4, the day before the election. By the week's end, Mayor Willie Brown had signed it. As of June 1, all companies seeking to do business with the city of San Francisco will have to provide benefits to registered domestic partners -- straight as well as gay.

The media and gay and lesbian groups hailed the legislation as a civil rights victory. Other cities called, saying they might enact similar bills. City politicians applauded the law's progressiveness. Supervisor Leslie Katz, a lesbian and a civil rights lawyer, had become its chief proponent.

San Francisco's new domestic-partners ordinance sounds fine and good, in theory. It extends the city's anti-discrimination rules, so that city contractors must offer the same benefits to employees' domestic partners as they do to employees' legal spouses.

Simple, straightforward, and fair, right?
But buried deep beneath all the rhetorical fanfare and the euphoria, unanswered practical and legal questions about the new legislation remain. Insurance experts doubt that small businesses will be able to buy health coverage for domestic partners. Legal experts say the city is likely to be sued, because the ordinance tampers with employee-employer relations in areas that are the exclusive preserve of the federal government.

For all their enthusiasm when the law passed, city legislators have since revisited the ordinance, amending its wording and narrowing its scope so that it can pass muster on these and other practical and legal grounds. But the general language of the law remains as passed, and to date, the city has offered little help to the 6,000 to 12,000 contractors on whom it falls the hardest. The actual steps they need to take to comply with the ordinance come June 1 are still largely a mystery.

The city's Human Rights Commission hopes to present a set of rules and regulations in April. That deadline sounds ambitious, considering that the HRC is still scrambling for information on the most fundamental element for compliance, a list of insurance providers that actually offer domestic-partner benefits to small businesses. The commission has been trying to compile such a "resource list," but so far nothing has materialized.

Tom Sher, a benefits consultant who has helped Bay Area businesses arrange employee insurance plans for the past 18 years, says that list is difficult to come by, because those resources barely exist. "What the city has done is they've told small businesses to go buy a product that is neither universally available, nor is it easily found in the marketplace," Sher says.

The few insurance companies that currently cover domestic partners serve mostly large-scale employers, he says. Generally, those with 50 or fewer employees are out of luck. The state-sponsored Health Insurance Plan of California (known as the HIPC) is the health insurance cooperative that was established specifically for small businesses. But even the HIPC, which covers more than 100,000 employees statewide, won't cover domestic partners.

Sher says that practice is unlikely to change, because insurers fear the costs of providing domestic-partners insurance to small groups will outweigh the profits that even the potential growth in business might bring. He says several major insurance companies have said they won't cover domestic partners because state and federal laws don't recognize such relationships.

And there are no legal incentives, says Sher. "Insurance companies don't have to cover domestic partners, so they don't." On the state level insurers are required merely to offer small businesses fair rates, but there's no mention of who insurers must cover.

Katz, who co-authored the law with fellow Supervisor Tom Ammiano, says she hopes the ordinance will provide the leverage needed to pressure companies to start covering domestic partners. With cities like Seattle, Boston, and Philadelphia considering similar laws, Katz says momentum is building.

"I'm hoping that as a result of the legislation, more and more insurance companies will provide domestic-partners coverage," says Katz. "Some of the largest urban centers are expressing an interest in this. So it's only natural that carriers are going to step up to the plate. It makes good business sense for them."

Katz also points out that if businesses show a good faith effort (referred to as "reasonable measures," in the ordinance) but can't find an insurance carrier that covers domestic partners, they can pay a cash equivalent instead. But what constitutes "reasonable measures" -- not to mention a "cash equivalent" -- remains to be determined by the HRC.

Meanwhile, small businesses like Keith Gentel's hardware store are stuck with little information and few options. Kaiser Permanente is one of the few insurance companies that sells domestic-partner coverage to small businesses. But with Kaiser, there's a catch. If a business wants to give employees a choice of health plans, Kaiser won't participate unless the other plans do the same. That automatically eliminates Kaiser from settings where there are multiple plans, because none of the others cover domestic partners.

Employers may find that in order to comply with the law, they have no choice but to offer Kaiser exclusively, eliminating glossier options like HealthNet and Blue Cross. For many employees, that prospect is less than thrilling.

Attorney Geoff Kors, an aide to Katz, drafted the law. He acknowledges that these and other issues still need clarification. But he says he is confident the law itself is sound. "All we're saying is that if you want to do business with the city, we want to ensure that you don't discriminate," says Kors, a board member of the Harvey Milk Lesbian/Gay/Bisexual Democratic Club.

But according to outside legal experts, it's not that simple. The S.F. ordinance, they say, runs afoul of two significant federal statutes. The first is the ERISA (the Employee Retirement Income Security Act). The law, designed to ensure the strength and integrity of employer-generated retirement and other benefit plans, pre-empts cities or states from regulating benefits that private businesses provide their workers. That means employee benefits are exclusively a matter of federal law. ERISA "pre-emption," as it's known technically, applies to all employee benefit plans, including health insurance, retirement, and long-term disability.

Attorney Dan Feinberg, a partner with the Oakland-based law firm Sigman, Lewis & Feinberg, specializes in ERISA issues. He says San Francisco could find itself the target of a lawsuit. "The ordinance is likely to be challenged in court, and it's likely to face difficulty," says Feinberg. "It doesn't matter that this is a good idea, or that it's not going to cost the benefit plans any extra money. None of that matters in terms of ERISA pre-emption."

Backers of the law counter that it does not violate ERISA rules: The ordinance does not specifically require businesses to provide benefits, they argue, so employers are free to choose not to comply. They can simply seek contracts, and business, elsewhere. But Feinberg says that argument won't hold, because the courts have historically taken a broad interpretation of what constitutes "regulating" benefits.

"The courts have said that if a local law directly or indirectly relates to an employee benefit plan, it's pre-empted by ERISA. It doesn't matter if you say 'only city contracts,' " he says. "It's not how you go about making those regulations. It's the very fact that you're trying to regulate employee benefit plans that gets you in trouble with ERISA provisions."

The second federal hurdle is the National Labor Relations Act (NLRA), the modern-day version of the venerable Taft-Hartley Act. Under the NLRA, only the federal government can regulate collective bargaining agreements and labor-management relations -- that is, the federal government precludes state and local governments from interfering with agreements between employers and unionized workers.

Since S.F.'s new domestic-partners ordinance affects benefits that are written into contracts between unionized employees and their employers, the city is arguably trespassing on the federal government's territory yet again. For example, in instances where cities have tried to write laws about hiring nonunion labor to replace striking city workers, the NLRA has pre-empted those laws.

A city is exempt from the NLRA's authority when it acts as a business, or a so-called "market participant." Supporters of the San Francisco ordinance say the city, in this case, is acting in the marketplace. But Oakland labor attorney Philip Monrad says that interpretation is by no means a foregone conclusion in the courts. "Pre-emption tends to be a fuzzy area," says Monrad. "There's not a lot of law on this particular exemption, and it's not totally clear."

The City Attorney's Office had curiously little to say about possible legal challenges to the ordinance, especially considering that the city's lawyers have presumably scrutinized the law to ensure its workability and legal staying power. Buck Delventhal, a senior deputy city attorney, offered only a few cautious comments. "We've carefully studied all the relevant issues," said Delventhal. "We're going to do our best to help the city implement the law. It's our duty to help make it work."

But business owners like Keith Gentel still aren't clear just how the law will work. Outside the War Memorial building, after the December meeting on the ordinance, Gentel lit up a cigarette and took a deep drag, stuffing his free hand in the pocket of his leather jacket. The meeting was an exercise in frustration, he said. The city's answers were non-answers. He said he wants to prepare for the new law, but he doesn't know how.

"I'll probably hide and wait," he said. "What else can I do?

About The Author

Tara Shioya

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