Alert 02.10.23
Employment Law in the Golden State: 2023 Updates
A number of recent case law and regulatory updates—at both the state and federal levels—carry important implications for California employers in the upcoming year.
Alert
Alert
05.02.23
An initiative submitted by the Service Employees International Union United Healthcare Workers West (SEIU-UHW) seeks to limit the annual compensation of health care executives in the city of Los Angeles to $450,000 per year. Entitled the “Limit Excessive Healthcare Executive Compensation Ordinance,” the initiative argues that health care executives should not receive higher compensation than the U.S. President, whose compensation is set by federal statute in 3 U.S.C. § 102 (Compensation of the President). Employing a similar legislative strategy, the initiative proposes a cap on the compensation of health care administrative professionals with executive, managerial or administrative duties, i.e., CEOs, CFOs, executive vice presidents and similar administrators, at privately owned health care facilities located in the city of Los Angeles. Covered health care facilities would include licensed general acute care hospitals, acute psychiatric hospitals, skilled nursing facilities and even residential care facilities for the elderly. Notably, medical professionals that provide medical services, research, patient care or other non-administrative services are excluded from the compensation cap.
The Compensation Cap
The $450,000 executive compensation cap covers, but is not limited to:
ERISA
Notably, the initiative excludes any compensation or benefit that is provided under an employee benefit plan covered by the Employee Retirement Income Security Act (ERISA) of 1974, as amended. These excluded types of compensation may include health coverage and benefits provided under retirement plans, deferred compensation plans, dependent care flexible spending accounts, and severance plans, as long as they are subject to ERISA. While the initiative attempts to include deferred compensation and the cash value of dependent care, if these benefits are provided under an ERISA plan, they cannot be included in the calculation of compensation. Benefits under ERISA plans are excluded because the initiative would otherwise be likely be preempted by ERISA.
Enforcement
If enacted, the initiative would give the City Attorney authorization to coordinate and implement enforcement measures. The City Attorney would be able to commence a civil action against violators to recover up to $1,000 for each violation. Each day in which a violation is committed would be treated as a separate violation. In addition, individuals who commit a “willful violation” would be subject to additional penalties in the amount of $1,000 per willful violation. Finally, any “covered executive” who receives “covered compensation” in excess of $450,000 would need to refund the excess amount, plus 10% per annum interest on any excess compensation, and pay any applicable penalties.
Reporting and Certification Requirements
Covered health care facilities would also need to maintain records for at least four years showing compliance with the ordinance. Additionally, such facilities will be required to file a certification and annual report documenting compliance, signed under the penalty of perjury. The ordinance also gives the City Attorney audit authority. Facilities that fail to comply with the reporting requirements would be liable for an amount up to $1,000 for each day a report is delinquent.
Previous Related Initiatives
Nearly a decade ago, in 2014, the SEIU-UHW proposed a similar initiative seeking to limit executive compensation for health care officials. However, the California Hospital Association (CHA) and SEIU-UHW reached an agreement in that instance resulting in SEIU-UHW removing the proposed ballot initiative.
More recently, in 2022, the Los Angeles City Council opted to enact the Minimum Wage for Employees Working at Healthcare Facilities Initiative as an ordinance rather than sending the initiative to the ballot for voters to decide. However, pursuant to Section 462 of the Los Angeles City Charter, the CHA and Hospital Association of Southern California (HASC) submitted a referendum petition to the City Council, which required the City Council to repeal the ordinance or place the initiative on the ballot. The initiative will now not take effect unless voters approve the initiative. It is expected to be placed on the 2024 ballot.
Failed Recent Challenge
To block the current executive compensation initiative, the HASC and CHA petitioned for a writ of mandate on March 14, 2023, in the Superior Court of California, directing the city of Los Angeles to refrain from taking any action to validate the initiative’s petition signatures, place it on the ballot or otherwise adopt it into law. The hospital associations argued that SEIU-UHW presented false and misleading information to voters by inaccurately listing the U.S. President’s salary as $450,000 per year, claiming the U.S. President earns closer to $1.2 million per year after factoring in travel expenses, discretionary funds and residence in the White House. They concluded that it was internally inconsistent to limit the compensation of health care executives to $450,000 when the initiative’s own definition of covered compensation is broader and includes items such as transportation and housing. The court disagreed on April 4, 2023. Relying on the plain text of 3 U.S.C. § 102, the court ruled that the initiative’s text was accurate and did not warrant invalidation.
Next Steps
With this ruling, the initiative’s signed petition (originally filed with the Los Angeles City Clerk’s office on February 14, 2023) will now proceed through the typical process. The clerk’s office will confirm whether the petition has enough valid signatures to be placed on the ballot. If validated, Section 451 of the Los Angeles City Charter instructs the City Clerk to present the petition to the City Council without delay. The City Council could choose to adopt the petition outright as an ordinance (as they did with the Minimum Wage Initiative). Section 240 of the Los Angeles Charter grants the City Council full power to pass ordinances upon any subject of “municipal concern” subject to the approval or veto of the Mayor. Section 452 further provides that within 20 days after a petition is presented to the City Council by the City Clerk, the City Council must (i) adopt the petition as an ordinance or (ii) submit the petition for a vote at special or regular election. This 20-day time limit has not yet begun as the petition’s signatures are awaiting validation by the City Clerk and the City Clerk has not presented the petition to the City Council. The initiative can be tracked on the website for the Los Angeles City Clerk’s office, as well as the Clerk’s Online Management System.
The HASC is urging the City Council to refer the Limit Excessive Healthcare Executive Compensation Initiative to the ballot rather than pass it directly as an ordinance.
If passed, hospitals, skilled nursing facilities and residential care facilities will need to consult with qualified counsel about how best to structure executive compensation packages to attract and retain qualified executive talent. They will also need to carefully comply with annual reporting obligations, which will require certifications under penalty of perjury.