The City of San Francisco has fined a commercial janitorial services company more than $1.3 million for violations of the City’s Health Care Security Ordinance (HCSO). The city ordered the company to pay 100% of its required payments to the health reimbursement account to its 275 current and former workers.
Under the HCSO, all but the smallest employers doing business in the city are required to contribute a certain amount toward health care benefits for each of their employees who do work in the city. The amount the employer must contribute depends on the employer’s size. Employers may spend their required health care expenditures in one of three ways: (1) payments to a third party (for instance, an insurance company) to provide health care coverage or services, (2) payments to private health reimbursement accounts or (3) payments to the City for the “City Option”, also known as “Healthy San Francisco.”
In this case, the janitorial services company argued that it took the second option, establishing an account for the purpose of reimbursing incurred health care costs for its workforce. The company said it set up the reimbursement fund and publicized it through notices in three of its employees’ work areas. In addition, the company claimed that in January 2008 it supplied all current employees with a handout regarding the health care ordinance and began providing a notice to all new employees in a packet of new hire orientation materials.
However, a city investigator testified that the notices discussed “Healthy San Francisco,” one of the payment options the janitorial services company was not using; the notices were not specifically addressed to the company’s employees and the notices did not refer to the company’s responsibilities under the ordinance.
Employees testified that they were not aware of the fund and that when they notified their supervisors of their ailments, they were told no such fund existed. Of the eleven former employees who testified, none of them recalled ever receiving informational material or seeing any posting regarding a health reimbursement account.
Over the three-year audit period, no health care expenditures were made on behalf of the vast majority of the company’s workforce.
The city ordered the company to pay $1,339,028.39 in payments to 275 current and former employees and to pay $66,900.08 in administrative penalties (the HCSO imposes a variety of penalties for failing to comply with various aspects of the ordinance).
Lessons taken from this case: The San Francisco Office of Labor Standards Enforcement (the body that enforces the HCSO on behalf of the city) will pursue the “nuclear option” against employers who are subject to the ordinance and don’t adequately publicize to employees that health reimbursement accounts have been set up for their medical expenses. Recent changes to the HCSO require that employees receive quarterly notice of deposits by employers to reimbursement accounts (if the employer uses such accounts to satisfy its obligations under the HCSO) and that the funds be made available to the employee for at least 24 months. However, in the case of the employee’s termination of employment, the funds need only be available for the ensuing 90 days, but the employer must provide the employee a written summary of his or her health reimbursement account balance within three days after termination. In addition, employers must maintain complete and accurate records of any health care expenditures and employee voluntary waiver forms.
For a detailed look at the HCSO, see our “Employer’s Guide to the San Francisco Health Care Security Ordinance,” available from your Lockton Account Services Team.