334 | 2025 Cal-Peculiarities ©2025 Seyfarth Shaw LLP www.seyfarth.com Employers may be subject to penalties for failing to comply with the HAO.59 The OLSE has the right to charge an employer the amount owed plus annual interest of 10% from the date payment was due and liquidated damages, in addition to any other rights or remedies available under the terms of any employer agreement or applicable law. On August 29, 2023, the Ninth Circuit Court of Appeals revived a challenge by an airline trade association, Airlines for America (“A4A”), to the HAO.60 The lower court held that there is a judicial presumption that the City’s actions are not preempted by federal law.61 In reversing, the Ninth Circuit held that the City acted as a regulator in enacting the ordinance.62 Therefore, there is no such judicial presumption and the case was permitted to continue in the lower court. The Ninth Circuit’s decision was based in large part on the ability of the Airport Director to assess hefty civil penalties that the Court held carried the force of law and therefore made the City a regulator.63 These penalties include daily fines (with potential increases at the Airport Director’s discretion), and the ability to collect liquidated damages of up to $100 for each one-week pay period for each employee for whom the airline has neither offered health plan benefits nor made payments into the fund. The Court also noted that the City can enforce these provisions in a municipal administrative proceeding.64 If the City were acting as a market-participant merely managing the airport as a private party would, its actions could not be preempted. Because the City is acting as a regulator, however, the lower court’s presumption that the ordinance cannot be preempted was incorrect and A4A’s challenge was allowed to proceed. This holding is significant. From time to time, employers and their associations have been stopped by Ninth Circuit courts’ application of the market-participant exception when they attempted to argue that state and local benefits laws are preempted by ERISA and other federal laws. The Ninth Circuit has now rejected the market-participant exception, at least based on the penalty provisions of the San Francisco law. 8.4.2 Health care mandate Although the individual mandate penalty at the federal level was eliminated by the Tax Cuts and Jobs Act of 2017, California (among other states) enacted similar penalties at the state level. California residents must either have qualifying health insurance coverage, obtain an exemption, or pay an “individual shared responsibility penalty” when filing state income taxes.65 For the 2024 tax year, the penalty for not having coverage the entire year is at least $900 per adult and $450 per dependent under age 18 or 2.5% of gross household income, whichever is higher.66 The California Franchise Tax Board has yet to release the flat penalty amount for the 2025 tax year. The employer’s responsibility is to report employee health insurance information to the California Franchise Tax Board, unless the insurance carrier does it. Currently, federal forms 1095-B (Health Coverage), 1095-C (Employer-Provided Health Insurance Offer and Coverage), and Form 3895 (California Health Insurance Marketplace Statement) are accepted as forms of proof.67 8.5 Explanation Of Benefits 8.5.1 Discontinuation of medical coverage Before discontinuing medical, surgical, or hospital coverage, California employers must give all covered employees at least 15 days advance written notice.68 This notice requirement does not, however, apply to welfare plans that are subject to ERISA. 8.5.2 Notice of available medical benefits California employers must explain to employees, in at least outline form, the benefits provided under employersponsored health coverage, including the identity of the provider organization(s), and must give terminated employees notification of all continuation, disability extension, and conversion options under any employersponsored coverage for which the employee may remain eligible after employment terminates.69
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