California lawmakers are expected to vote next week on a bill designed to prevent large employers in the state from cutting back employee work hours to avoid paying for health care.
Assembly Bill 880, introduced in February by Assembly member Jimmy Gomez, D-Los Angeles, aims to close the so-called “Walmart loophole,” the notion that employers will shift to part-time workers rather than pay the health-care costs for those working 30 hours or more, as will be required under the federal Patient Protection and Affordable Care Act, or PPACA.
Bill-watchers in California were expecting a vote on Thursday, but no action was taken, and the bill is now expected to come up for a vote next week in the Assembly.
AB-880 has attracted the attention of restaurant operators across the country, such as Orlando, Fla.-based Darden Restaurants Inc.’s chief executive Clarence Otis, who visited Sacramento last month to express opposition. Darden is parent to the Red Lobster, Olive Garden and LongHorn Steakhouse chains.
The bill is also being battled by the California Restaurant Association, or CRA, along with the Alliance for a Healthy California, representing a broad coalition of business interests.
Becky Warren, a spokeswoman for the Alliance, called the bill a “scare tactic” by state lawmakers who are fueling unfounded fears that employers will somehow try to squeeze out of their responsibilities under the health-care mandate.
“The Affordable Care Act hasn’t even been implemented yet, so employers won’t be reducing their hours to get around it, and there’s no evidence that will happen,” she said. “We don’t believe there is a loophole.”
Preventing the ‘Walmart loophole’
Under the federal PPACA, businesses with more than 50 full-time workers must provide health insurance for those who work at least 30 hours per week or 130 hours per month. In an unrelated move, legislation before the U.S. Senate would push that threshold to 40 hours per week or 174 hours per month.
Earlier this month, Reuters reported that Walmart was only hiring temporary workers in U.S. stores to trim labor costs, which some saw as a tactic to avoid the health-care mandate, coining the phrase “Walmart loophole.”
The bill in California, however, aims to prevent that scenario.
AB-880 specifically targets large employers, those with 500 or more full- or part-time workers in the state — which includes most large restaurant chains, as well as big retailers like Walmart.
Under the bill, those employers would face severe penalties for any employee — even those who work as little as eight hours per week — that chooses coverage under the state’s Medicaid program, or Medi-Cal. Additional penalties would come into play if large employers demote, discharge or suspend workers who choose Medi-Cal.
The amount of the penalties would vary depending on the hours the employee worked, but would aim for 110 percent of the average cost of health care, including both the employer and employee’s share. The Alliance for a Healthy California estimates penalties would range between $6,000 and $15,000.
Gomez, who authored the bill, reportedly contends that employers don’t pay anything when their workers choose Medi-Cal, and state taxpayers should not be forced to subsidize that business model.
The penalties incurred would go toward alleviating the cost of the state-funded Medi-Cal program, which is expected to expand significantly as the Affordable Care Act is implemented in 2014.
AB-880 could cause further delays
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Rich Jeffers, a spokesman for Darden, called the legislation overly punitive, saying it would create obstacles even for employers that are trying to comply with the federal law.
“We are one of the many businesses across a broad range of industries that are opposed to this bill,” said Jeffers. “It’s pretty significant legislation. This threatens job opportunities and economic growth in California.”
Darden came under fire last year when the company conducted a test of limiting work hours in some markets with the goal of reducing labor costs. However, Jeffers said that the company never said it intended to reduce hours to avoid the health-care mandate.
At Darden’s more than 2,000 restaurants nationwide, all employees — regardless of the hours they work — have access to health care coverage if they choose, he said. But under AB-880, the company would face penalties even when those eligible employees choose Medi-Cal over the Darden-sponsored insurance.
About 75 percent of Darden’s 185,000 employees overall work part time, and the multi-concept operator has about 16,000 employees in restaurants throughout California.
Matt Sutton, the CRA’s vice president of government affairs and public policy, said the restaurant industry is the second largest private employer in California. “The Affordable Care Act is coming and we’re trying to comply,” he said, but legislation like AB-880 will only confuse and delay implementation of the federal plan.
AB-880 leaves many questions unanswered — especially for the restaurant industry, which is unique because of its dependence on shifting schedules.
A restaurant company may alter worker hours for a number of reasons, such as expected foot traffic, holidays or even weather. Under AB-880, however, such shifts could potentially open restaurant companies up to lawsuits if workers claim the changes were at attempt to reduce health care costs, Sutton said.
Gomez’s bill attempts to address concerns about state funding for Medi-Cal, but “AB-880 isn’t the answer to the funding situation,” said Sutton.
Still, California is often seen as a bellwether for legislation, and Sutton said many are watching across the country to see how the issue plays out. “People are watching outside the state, and it could have a chilling impact on growth in the industry overall,” he said.
This article has been revised to reflect the following updates and corrections:
Correction: June 21, 2013 An earlier version of this story incorrectly listed the number of Darden employees in California as 1,600.
Contact Lisa Jennings at email@example.com.
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