APRIL 2005 Employee Benefits Appeals Court Strikes Down Law That Requires Domestic Partner Benefits On March 15, 2005, a five-Judge panel of the New York Appellate Division, First Department, unanimously overturned New York City’s “Equal Benefits Law.” The Equal Benefits Law, which was discussed in detail in K&LNG’s October 2004 New York Employment and Labor Law Alert, was intended to become effective on October 26, 2004 and generally would have required certain employers1 contracting with the City to provide employment benefits to employees’ “domestic partners” on the same terms as they provide the benefits to employees’ spouses. Under the law, an employer who failed to do so would be barred from renewing existing contracts or entering into new contracts with the City. The Equal Benefits Law was initially vetoed by Mayor Michael Bloomberg, but his veto was easily overridden by the New York City Council. Shortly after the law took effect, the City Council sought a court order directing the Mayor to implement and enforce the law. The New York State Supreme Court, New York County (New York’s lower-level State court) granted the City Council’s petition for an order which Mayor Bloomberg appealed to the Appellate Division (New York’s intermediate appellate court). The Appellate Division reversed the lower court’s order and declared the Equal Benefits Law invalid because the law: (1) violates the policy that 1 2 competitive bidding for municipal contracts should be based solely on obtaining the best work at the lowest possible price; and, (2) is preempted by federal law. THE EQUAL BENEFITS LAW GENERALLY The Equal Benefits Law, as written, applies to employers who contract with the City of New York2 to provide real property, labor, services, supplies, equipment, materials or construction under contracts that are entered into, or renewed, after the October 26, 2004 effective date and whose aggregated contracts with the City, awarded in the preceding 12 months, are valued at $100,000 or more. Under the Equal Benefits Law, covered employers could not discriminate in the benefits provided to employees with spouses and to employees with domestic partners. The law covers the full spectrum of employee benefit plans, policies and procedures, including, for example, health and life insurance, bereavement leave, and employee discount policies. With certain limited exceptions, the law directs the City not to enter into, or renew, any contract unless the certification is provided. A violation of the Equal Benefits Law would be deemed a material breach of the employer’s contract with the City. The law applies broadly to employers, whether they are organized as an individual, sole proprietorship, partnership, joint venture, corporation or other form of doing business. The Equal Benefits Law applies to contracts with a “Contracting agency” of New York City which the Local Law defines as a “city, county, borough, or other office, position, administration, department, division, bureau, board or commission, or a corporation, institution or agency of government, the expenses of which are paid in whole or in part from the city treasury.” (Local Law 2004/027). For the purposes of this Alert, the term “City” is used synonymously with what the Local Law defines as a “Contracting agency.” GROUNDS FOR STRIKING DOWN THE EQUAL BENEFITS LAW The Appellate Division, in reversing the lower court’s order, found that the Equal Benefits Law was invalid. Specifically, the Appellate Division found that the Equal Benefits Law “impermissibly runs afoul” of the policy underlying the state law’s competitive bidding provisions which are also applicable to municipalities. Those provisions, said the Appellate Division, “seek to protect the public fisc by obtaining the best work at the lowest possible price … .” The Equal Benefits Law, by contrast, “expressly excludes a class of potential bidders for a reason unrelated to the quality or price of the goods or services they offer.” The Appellate Division stated that “the City Council cannot achieve even laudable goals by making illegal what is specifically allowed by state law.” The Appellate Division also held that the Equal Benefits Law is preempted by the Federal Employee Retirement Income Security Act. ERISA – which does not require domestic partner coverage – supersedes all state or municipal laws that relate to any employee benefit plan under its purview (e.g. health insurance and pension plans). Because the Equal Benefits Law “mandates employee benefit structures or their administration,” the Appellate Division found that “it is connected with a core concern of ERISA, impermissibly interferes with [ERISA’s] goal of uniform plan administration, and is thus preempted.” Even if the Court of Appeals reverses the Appellate Division’s ruling and orders enforcement of the Equal Benefits Law, the law could still be challenged in federal court on the ERISA preemption grounds. Employers doing business with the City should continue to closely monitor the legal status of the Equal Benefits Law. If, on further appeal, the City Council successfully obtains an order directing the Mayor to enforce the Equal Benefits Law, those employers should review their benefit plans and, after considering federal challenges to the law, determine the appropriate strategy in order to renew City contracts or bid for new work. David E. Morse [email protected] (212) 536-3998 Daniel J. Doron [email protected] (212) 536-3947 Although not addressed by the Appellate Division, an additional basis for a potential challenge to the Equal Benefits Law may exist in that the Equal Benefits Law could arguably be found to violate the “contracts clause” of the United States Constitution if it impairs existing collective bargaining agreements by materially changing the cost of providing employee benefits. Such an impairment might be found when a City contract is up for renewal while a collective bargaining agreement is in effect. CONCLUSION The City Council intends to appeal the Appellate Division’s ruling to New York’s highest appellate court, the Court of Appeals. As of the date of this Alert, however, that appeal has not yet been filed. 2 APRIL 2005 KIRKPATRICK & LOCKHART NICHOLSON GRAHAM LLP If you have questions or would like more information about K&LNG’s Employee Benefits practice, please contact one of our lawyers listed below: Boston Stephen E. Moore 617.951.9191 [email protected] Los Angeles William P. Wade 310.552.5071 [email protected] New York David E. Morse 212.536.3998 [email protected] Pittsburgh Charles R. Smith 412.355.6536 [email protected] San Francisco Laurence A. Goldberg 415.249.1043 [email protected] Washington William A. Schmidt 202.778.9373 [email protected] www w.. k l n g . c o m BOSTON ■ DALLAS ■ HARRISBURG ■ LONDON ■ LOS ANGELES ■ MIAMI ■ NEWARK ■ NEW YORK ■ PITTSBURGH ■ SAN FRANCISCO ■ WASHINGTON Kirkpatrick & Lockhart Nicholson Graham LLP (K&LNG) has approximately 950 lawyers and represents entrepreneurs, growth and middle market companies and leading FORTUNE 100 and FTSE 100 global corporations nationally and internationally. K&LNG is a combination of two limited liability partnerships, each named Kirkpatrick & Lockhart Nicholson Graham LLP, one qualified in Delaware, U.S.A. and practicing from offices in Boston, Dallas, Harrisburg, Los Angeles, Miami, Newark, New York, Pittsburgh, San Francisco and Washington and one incorporated in England practicing from the London office. This publication/newsletter is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer. Unless otherwise indicated, the lawyers are not certified by the Texas Board of Legal Specialization. Data Protection Act 1988 - We may contact you from time to time with information on Kirkpatrick & Lockhart Nicholson Graham LLP seminars and with our regular newsletters, which may be of interest to you. We will not provide your details to any third parties. Please e-mail [email protected] if you would prefer not to receive this information. © 2005 KIRKPATRICK & LOCKHART NICHOLSON GRAHAM LLP. ALL RIGHTS RESERVED.