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City Attorney Dennis Herrera News Release
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ForImmediateRelease:October16,2013Contacts:• MattDorseyfortheOfficeoftheCityAttorney..................................................................................................................(415)554‐4662• DonnaLevittfortheOfficeofLaborStandardsEnforcement......................................................................................(415)554‐6239
Cheated janitors to receive $1.34 million in restitution in healthcare benefits ruling
S.F. Superior Court decision today sends a ‘message that our Health Care Security Ordinance has teeth, and that the City is committed to enforcing it aggressively’
SANFRANCISCO(Oct.16,2013)—ASanFranciscoSuperiorCourtjudgetodayaffirmedadministrativeordersagainstalocalcommercialjanitorialservicescompanytopaysome$1.34millionto275ofitscurrentandformeremployeeswhoweredeniedhealthcarebenefitexpenditurestowhichtheywereentitledunderSanFrancisco’sHealthCareSecurityOrdinance,orHCSO.Enactedin2006,theHCSOestablishedthepopular“HealthySanFrancisco”programandcreatedanemployerspendingrequirementtofundhealthcarebenefitsforemployeesintheCity.ThecourtorderissuedlatethismorningbyJudgeMarlaJ.Millerfound“substantialevidence”tosupportpriorfindingsbySanFrancisco’sOfficeofLaborStandardsEnforcementandanadministrativelawjudgethatGMGJanitorial,Inc.failedtomaketherequiredexpendituresonbehalfofitsworkersfortheperiod2008to2010.Afterlosingitsadministrativeappealbeforetheadministrativelawjudge,GMGJanitorialfiledsuitinSuperiorCourtonJuly2,2012,arguingthattheOLSEexceededitsauthorityunderlocallawbyorderingfullrestitution,andthattheadministrativelawjudge’sfindingswereunsupportedbytheevidence.JudgeMiller’srulingdecisivelyrejectedbothcontentionsinorderingthecompanytopay$1,339,028toitsemployees“inordertocorrectitsfailuretomaketherequiredexpenditures.”TheorderwilladditionallyallowtheCitytorecoveritscostsintheactioninanamounttobedetermined.“Thisisanimportantrulingthatwilldirectlycompensateemployeeswhoweredeniedbenefits,whilealsoassuringlaw‐abidingcompetitorsthattheywon’thavetocompetewithcheaters,”saidCityAttorneyDennisHerrera.“JudgeMiller’srulingsendsastrongmessagethatourHealthCareSecurityOrdinancehasteeth,andthattheCityiscommittedtoenforcingitaggressively.I’mgratefultoeveryoneintheOfficeofLaborStandardsEnforcementfortheirexcellentwork.”
CityAttorneyDennisHerrera—Page2“Whenlow‐wageworkersaredeniedtheirrightfulhealthcarebenefits,thehumanconsequencesareincalculable,”saidOLSEManagerDonnaLevitt.“ThevastmajorityofSanFranciscoemployerscomplywithboththeletterandthespiritofthislaw,whichiswhyit’ssoimportantthatviolatorsarebroughttojustice.”TheSanFranciscoCityAttorney’sOfficeplayedakeyroleinworkingwiththen‐SupervisorTomAmmianoandMayorGavinNewsomtocrafttheCity’sgroundbreakinguniversalhealthcarelawenactedin2006.Almostimmediatelythereafter,theofficeembarkedonafour‐yearlegalbattletodefendthelawfromachallengebytheGoldenGateRestaurantAssociation.TheordinancewasconclusivelyupheldwhentheU.S.SupremeCourtdeniedreviewinthecaseonJune28,2010.SanFrancisco’sOLSEenforceslaborlawsadoptedbySanFranciscovotersandtheSanFranciscoBoardofSupervisors.InadditiontoinvestigatingviolationsoftheHealthCareSecurityOrdinance,OLSEalsoenforcesSanFrancisco’sMinimumWageOrdinance;PaidSickLeaveOrdinance;MinimumCompensationOrdinance;HealthCareAccountabilityOrdinance;andSweatfreeContractingOrdinance.ViolationsoftheHealthCareSecurityOrdinancemaybereportedtoOLSEat(415)554‐[email protected]://www.sfgov.org/olse.Thecaseis:GMGJanitorial,Inc.v.CityandCountyofSanFranciscoetal.,SanFranciscoSuperiorCourt,CaseNo.512328,filedJuly2,2012.
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1 DENNIS J. HERRERA, State Bar #139669
City Attorney 2 JILL FIGG DAYAL, State Bar #168281
VINCE CHHABRIA, Slate Bar #208557
3 JERRY THREET, State Bar #205983
Deputy City Attorneys 4 Fox Plaza
1390 Market Street, Fifth Floor 5 San Francisco, California 94102-5408
Telephone: (415) 554-3914 6 Facsimile: (415) 437-4644
7 Attorneys for Respondents
~lRIGINAL
CITY AND COUNTY OF SAN FRANCISCO, et al. 8
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SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF SAN FRANCISCO
UNLIMITED JURISDICTION
12 GMG JANITORIAL, INC., a California corporation,
13 Petitioner,
14 vs.
15 CITY AND COUNTY OF SAN
16 FRANCISCO, a Chartered California City and County; DEPARTMENT OF
17 ADMINISTRATIVE SERVICES, a department of the City and County of San
18 Francisco; OFFICE OF LABOR STANDARDS ENFORCEMENT, an office
19 within the Department of Administrative Services; OFFICE OF THE CONTROLLER,
20 an office of the City and County of San Francisco; HEARING OFFICER PETER
21 KEARNS, an individual in his official capacity as Administrative Law Judge for the City and
22 County of San Francisco; REAL PARTIES IN INTEREST, and DOES 1 THROUGH 100,
23 INCLUSIVE,
24 Respondents and Real Parties in Interest.
25 I~ ____________________________ ~
Case No. CPF-12-512328
JUDGMENT [1"Tupe:Jee, BENYING WRIT OF MA:NDATE
26 The above-entitled matter came on regularly for hearing on the Motion for Judgment of
27 Respondents CITY AND COUNTY OF SAN FRANCISCO ("CITY"), DEPARTMENT OF
28 ADMINISTRATIVE SERVICES, OFFICE OF LABOR STANDARDS ENFORCEMENT, OFFICE
1 JUDGMENT, CASE CPF-12-512328 n:\labor\li20 13\ 130043\0087087 4.doc
1 OF THE CONTROLLER, and HEARING OFFICER PETER KEARNS (the "ALJ") (collectively
2 "Respondents" or the "City") on September 16, 2013, at 9:30 a.m., in Department 302 of this Court,
3 the Honorable MARLA J. MILLER ,judge presiding. Respondents were represented by DENNIS
4 J. HERRERA, City Attorney, appearing through JERRY THREET, Deputy City Attorney. Petitioner
5 GMG JANITORIAL, INC. was represented by its counsel, B. Douglas Robbins, of WOOD
6 ROBBINS, LLP.
7 The record of the administrative proceedings having been introduced into evidence, evidence
8 of the legislative history of the San Francisco Health Care Security Ordinance ("HCSO") having been
9 judicially noticed by the Court, the Court having considered all of the papers on file in this action, the
1 0 evidence presented at the hearing, and the written and oral arguments of counsel, and good cause
11 appearing therefor,
12 The Court hereby FINDS that there is substantial evidence in the record to support the
13 challenged findings of the AU in this matter.
14 The Court further FINDS that the AU and the OLSE acted in accordance with the language
15 and intent of both the HCSO and its implementing regulations in ordering GMG to pay 275 of its
16 employees a total of $1 ,339,028.39 in order to correct its failure to make health care expenditures on
17 behalf of those same employees for the period 2008-2010, as the HCSO required.
18 The Court therefore further FINDS that the City has not acted in excess of its jurisdiction in
19 this matter, nor has it failed to proceed in the manner required by law.
20 Consequently, IT IS HEREBY ORDERED that:
21 1. The writ of mandate applied for herein is DENIED;
22 2. The OLSE Order to GMG to pay 275 of its employees a total of $1 ,339,028.39 is
23 upheld;
24 3. Respondents shall recover their costs and disbursements in this action in an amount to
25 be determined.
26 Dated: 0 ~ II.. W ( 7 27
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JUDGMENT, CASE CPF-12-S12328
.Br.:::~ ~ Judge of the San Francisco Superior Court
MARLAJ .. iVifUt:,e., 2
n:\labor\li20 13\130043\0087087 4.doc
1 DENNIS J. HERRERA, State Bar #139669 City Attorney
2 JILL FIGG DAYAL, State Bar #168281
VINCE CHHABRIA, State Bar #208557
3 JERRY THREET, State Bar #205983
Deputy City Attorneys 4 Fox Plaza
1390 Market Street, Fifth Floor 5 San Francisco, California 94102-5408
Telephone: (415) 554-3914 6 Facsimile: (415) 437-4644
7 Attorneys for Respondents CITY AND COUNTY OF SAN FRANCISCO, et al.
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SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF SAN FRANCISCO
UNLIMITED JURISDICTION
12 GMG JANITORIAL, INC., a California
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corporation,
Petitioner,
vs.
CITY AND COUNTY OF SAN 16 FRANCISCO, a Chartered California City and
County; DEPARTMENT OF 17 ADMINISTRATIVE SERVICES, a
department of the City and County of San 18 Francisco; OFFICE OF LABOR
STANDARDS ENFORCEMENT, an office 19 within the Department of Administrative
Services; OFFICE OF THE CONTROLLER, 20 an office of the City and County of San
Francisco; HEARING OFFICER PETER 21 KEARNS, an individual in his official capacity
as Administrative Law Judge for the City and 22 County of San Francisco; REAL PARTIES IN
INTEREST, and DOES 1 THROUGH 100, 23 INCLUSIVE,
24 Respondents and Real Parties in Interest.
25 1-1------------------1
Case No. CPF-12-512328
olZ[~/{ JUDGMEnT rPro~osedJ DENYING WRIT OF MANDATE
26 The above-entitled matter came on regularly for hearing on the Motion for Judgment of
27 Respondents CITY AND COUNTY OF SAN FRANCISCO ("CITY"), DEPARTMENT OF
28 ADMINISTRATIVE SERVICES, OFFICE OF LABOR STANDARDS ENFORCEMENT, OFFICE
1
1 OF THE CONTROLLER, and HEARING OFFICER PETER KEARNS (the "AU") (collectively
2 "Respondents" or the "City") on September 16, 2013, at 9:30 a.m., in Department 302 of this Court,
3 the Honorable MARLA J. MILLER ' judge presiding. Respondents were represented by DENNIS
4 J. HERRERA, City Attorney, appearing through JERRY THREET, Deputy City Attorney. Petitioner
5 GMG JANITORIAL, INC. was represented by its counsel, B. Douglas Robbins, of WOOD
6 ROBBINS, LLP.
7 The record of the administrative proceedings having been introduced into evidence, evidence
8 of the legislative history of the San Francisco Health Care Security Ordinance ("HCSO") having been
9 judicially noticed by the Court, the Court having considered all of the papers on file in this action, the
10 evidence presented at the hearing, and the written and oral arguments of counsel, and good cause
11 appearing therefor,
12 The Court hereby FINDS that there is substantial evidence in the record to support the
13 challenged findings of the AU in this matter.
14 The Court further FINDS that the AU and the OLSE acted in accordance with the language
15 and intent of both the HCSO and its implementing regulations in ordering GMG to pay 275 of its
16 employees a total of $1,339,028.39 in order to correct its failure to make health care expenditures on
17 behalf of those same employees for the period 2008-2010, as the HCSO required.
18 The Court therefore further FINDS that the City has not acted in excess of its jurisdiction in
19 this matter, nor has it failed to proceed in the manner required by law.
20 Consequently, IT IS HEREBY ORDERED that:
21 1. The writ of mandate applied for herein is DENIED;
22 2. The OLSE Order to GMG to pay 275 of its employees a total of $1,339,028.39 is
23 upheld;
24 3. Respondents shall recover their costs and disbursements in this action in an amount to
25 be determined.
26 Dated: OCT 1 6 2013
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28
~~ ~----------~~----------Judge of the San ranClSCO Supenor Court
MARLA J. MILLER
2 J:QI;)GMFNT. CASE CPF-12-512328 n:\labor\li20 1 J\130043\00870874.doc
1 DENNIS J. HERRERA, State Bar #139669 City Attorney
2 JILL FIGG DAYAL, State Bar #168281 VINCE CHHABRIA, State Bar #208557
3 JERRY THREET, State Bar #205983 Deputy City Attorneys
4 Fox Plaza 1390 Market Street, Fifth Floor
5 San Francisco, California 94102-5408 Telephone: (415) 554-3914
6 Facsimile: (415) 437-4644
7 Attorneys for Respondents CITY AND COUNTY OF SAN FRANCISCO, et al.
8
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SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF SAN FRANCISCO
UNLIMITED JURISDICTION
GMG JANITORIAL, INC., a California 12 corporation,
Case No. CPF-12-512328
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Petitioner,
vs.
CITY AND COUNTY OF SAN FRANCISCO, a Chartered California City and County; DEPARTMENT OF
, a department of the City and County of San Francisco; OFFICE OF LABOR STANDARDS ENFORCEMENT, an office within the Department of Administrative Services; OFFICE OF THE CONTROLLER, an office of the City and County of San Francisco; HEARING OFFICER PETER KEARNS, an individual in his official capacity as Administrative Law Judge for the City and County of San Francisco; REAL PARTIES IN INTEREST, and DOES 1 THROUGH 100, INCLUSIVE,
Respondents and Real Parties in Interest.
REPL Y BRIEF IN SUPPORT OF RESPONDENTS' MOTION FOR JUDGMENT
Hearing Date: Hearing Judge: Time: Place:
September 16, 2013 Hon. Marla J. Miller 9:30 a.m. Dept. 302
INTRODUCTION
Respondent CITY AND COUNTY OF SAN FRANCISCO ("CITY"), DEPARTMENT OF
ADMINISTRATIVE SERVICES, OFFICE OF LABOR STANDARDS ENFORCEMENT ("OLSE"),
1 MPA ISO RESP MOTION FOR JUDGMENT, CASE CPF-12-512328 n:\labor\li20 13\130043\00870695.doc
1 OFFICE OF THE CONTROLLER, and HEARING OFFICER PETER KEARNS ("the "AU")
2 (collectively "Respondents") filed their Motion for Judgment (the "Motion") against Petitioner GMG
3 Janitorial, Inc. ("GMG" or "Petitioner") on August 21, 2013, setting the hearing for September 16,
4 2013. On September 3, 2013, GMG filed and served its opposition brief ("Opposition") to the Motion.
5 Respondents now file this Reply Brief to the Opposition.
6 GMG's Opposition concedes that there is substantial evidence in the record to support the
7 AU's findings that GMG failed to make health care expenditures for 275 employees for a three year
8 period. Thus, GMG's only challenge still at issue is the appropriateness of the OLSE restitution order.
9 GMG's Opposition spends 17 pages arguing that the restitution OLSE ordered GMG to make to its
10 employees constitutes punitive damages that exceed the authority granted OLSE under the HCSO. 1
11 To support this position, GMG makes various arguments that boil down to the following two
12 contentions: 1) The HCSO and its associated regulations do not provide for a punitive damages
13 remedy; 2) a monetary remedy benefiting employees must be based on demonstrated, quantifiable
14 harm to those employees - in other words, it must be an "actual damages" recovery. These contentions
15 are incorrect and should be rej ected by this Court, just as they were by the AU.
16 The AU was correct to conclude that the ordinance and its implementing regulations allow the
17 OLSE to award back payments to workers deprived of their right to health care expenditures. Any
18 other conclusion would eviscerate the purpose and intent of the ordinance and its enforcement
19 regulations, by encouraging employers to disregard their health expenditure obligations, knowing they
20 could save a tremendous amount of money by instead violating the law and paying penalties that are
21 miniscule in comparison to the amount of health care expenditures the law required them to make.
22 Respondents therefore respectfully request that the Court deny the Petition and issue judgment
23 in favor of the City, upholding the decision of the AU, and upholding the propriety of the OLSE order
24 that GMG make $1.34 million in back payments to 275 employees.
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26 1 GMG's Opposition exceeds the 15-page limit for briefs related to motions. CRC 3.113(d). "A
memorandum that exceeds the page limits [ ] must be filed and considered in the same manner as a late-filed paper." CRC 3.113(g). Thus, "the court, in its discretion, may refuse to consider these
27 papers in ruling on the motion (in which event, the minutes or order must so state)." CRC 3. 1300(d). A court should apply standards of excusable neglect in evaluating a violation of court rules and how to address it appropriately. See Kapitanski v. Von's Grocery Co. (1983) 146 Cal.App.3d 29,32-33. 28
2 MPA ISO RESP MOTION FOR JUDGMENT, CASE CPF-12-512328 n:\labor\li20 13\130043\00870695.doc
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I.
LEGAL ARGUMENT
THE ALJ'S FINDING THAT GMG FAILED TO MAKE THE REQUIRED HEALTH CARE EXPENDITURES IS SUPPORTED BY OVERWHELMING EVIDENCE IN THE RECORD.
As it must, GMG's Opposition concedes GMG's liability for violating the HCSO. Based on
overwhelming evidence, the OLSE and the AU both found that GMG made no health care
expenditures for 275 employees during the time period at issue. (GMG: 73-75) Those findings, which
GMG's Opposition fails to dispute, directly result in GMG's liability for violating the HCSO. GMG
also does not dispute its liability. It therefore is wholly irrelevant what might have happened ifGMG
had created and operated a Health Reimbursement Account ("HRA") in compliance with the
applicable laws. GMG failed to make any health care expenditures for 275 employees, and the OLSE
restitution order remedies that violation by requiring that GMG now make the expenditures that it
should have made in 2008-2010.
Even if GMG did dispute these factual findings, there is overwhelming evidence to support the
AU's findings that GMG failed to maintain an HRA or its equivalent for its employees, and wholly
failed to make health care expenditures, as explained in the City's opening brief. Because there is
overwhelming evidence in the record to support the ALl's findings, and there is no credible evidence
to suggest GMG actually made the disputed health care expenditures, this issue is off the table in these
proceedings. Nevertheless, GMG seeks to reintroduce this issue through a back door by arguing that
the amount of restitution ordered in this case is improper.
As already explained in the City's opening brief, GMG's arguments, that had it maintaIned an
HRA, it could have kept unused money in the account at the end of each year, have absolutely no
bearing on this issue. Nor do GMG's arguments about the typical utilization rates ofHRAs set up by
other employers under the HCSO. The reason is simple. GMG had no HRA and made no health care
expenditures of any kind for the employees in question. It therefore should not be allowed to gain a
windfall by speculating as to what might have happened if it had complied with the law.
II. THE CITY ACTED WELL WITHIN ITS JURISDICTION AND AUTHORITY BY REQUIRING RESTITUTION BY GMG TO ITS EMPLOYEES.
27 GMG argues that the OLSE's corrective actions in this case exceed its authority under the
28 HCSO and its regulations by seeking punitive damages. While conceding that the OLSE regulations as
3 MPAISO RESP MOTION FOR JUDGMENT, CASE CPF-12-512328 n:\labor\li20 13\130043\00870695 .doc
1 adopted were within the authority delegated to OLSE by the HCSO, GMG's position is that the
2 restitution ordered in this case exceeds the authority of the regulations. GMG's position is based on the
3 following arguments: 1) a "corrective action" under the regulations must be entirely compensatory or
4 it becomes punitive in nature; 2) a "corrective action" under the regulations must be based on proof of
5 actual harm to individual employees; 3) a proper measure of restitution under the regulations requires
6 that the amount be limited by the typical experience of employers utilizing HRAs under the HCSO;
7 and 4) the HCSO and implementing regulations do not allow for a windfall payment to employees.
8 GMG's arguments are unpersuasive and the City addresses each of them, below.
9 A. The OLSE Restitution Order Is Both Corrective And Compensatory In Nature.
10 As described above, the AU made robust findings that the bank account that GMG claimed to
11 be an HRA or its equivalent was not, and that GMG completely failed to make the $1.34 million in
12 health care expenditures on behalf of its employees required by the HCSO. The AU thus found GMG
13 liable for violating the Ordinance. GMG does not dispute this liability. Given these findings, there is
14 an exact fit between GMG's $1.34 million health care expenditure deficiency and the $1.34 million
15 that OLSE ordered GMG to pay its employees in restitution. Despite this close correlation, GMG
16 engages in rhetorical gymnastics to characterize this remedy as punitive damages, and thus beyond
17 OLSE's authority under the HCSO and its regulations.
18 The $1.34 million back payment ordered by OLSE appropriately corrects GMG's blatant
19 violation of the HCSO, consistent with the plain intent and purpose of the Ordinance. The purpose of
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the HCSO is two-fold: to benefit vulnerable employees by providing them with health care security,
and to benefit the public by ensuring that the residents and employees of the City remain healthy and
are not a drain on public coffers. As the Ninth Circuit stated in connection to the HCSO:
It is uncontested that individuals without health coverage are significantly less likely to seek timely medical care than those with health coverage. Lack of timely access to health care poses serious health risks. The City has provided evidence that some individuals who lack health care coverage have serious, chronic health conditions that currently go untreated. It has also provided evidence that individuals who have recently enrolled in the Health Access Program established under the Ordinance have begun to receive preventive care, medication, and other treatment for previously neglected illnesses and injuries. It is clear that otherwise avoidable human suffering, illness, and possibly death will result if a stay is denied. Golden Gate Restaurant Assn. v. CCSF, 512 F.3d 1112, 1125 (9th Cir. 2008).
4 MPA ISO RESP MOTION FOR JUDGMENT, CASE CPF-12-512328 n:\labor\li20 13\130043\00870695.doc
1 Ordering an employer to make back payments to employees of the health care expenditures it
2 was required to but failed to make is an obvious and appropriate corrective action for violating the
3 HCSO. The Regulations clearly authorize such a corrective action. First, the illustrative table
4 positioned under Regulation 9.2 provides that where the violation is a "failure to make the required
5 health care expenditures," an appropriate "corrective action" would be an "order[] to make the
6 required health care expenditure on behalf of each employee or person whose rights under this
7 Ordinance was violated[.]"(GMG: 320) This is exactly what the back pay order in this case did.
8 Second, Regulation 9.1 provides that "[ t ]he 0 LSE shall not be limited to ordering the actions
9 described below2, but may order any other actions it deems necessary to correct the violation(s)
10 committed." [emphasis added] (GMG: 320) This broad grant of authority also encompasses the
11 remedy ordered in this case. Further, as explained in the City's opening brief, without any response in
12 GMG's Opposition, the legislative history of the Ordinance makes clear that it has always authorized
13 OLSE to award restitution to employees as a remedy.
14 Finally, GMG's opposition presumes that a remedy cannot be truly restitutionary if it has any
15 deterrent effect on GMG. This presumption goes too far. In reviewing restitution orders under the
16 Unfair Competition Law (Bus. & Prof. Code § 17200, et seq.), the California Supreme Court has
17 recognized that this remedy "arm[s] the [trier] with the cleansing power to [ ] effect complete justice."
18 Fletcher v. Security Pac. Nat 'I Bank (1979) 23 Ca1.3d 442,449. As part of this "cleansing power,"
19 restitution therefore may appropriately also have a deterrent effect on the violator of law. See People
20 v. Toomey (1984) 157 Cal.App.3d 1,25-26. Thus, while one significant purpose of the corrective
21 action at issue in this case was to place the affected employees as near as possible to the position they
22 would have been in had GMG complied with the law, another valid purpose was to deter GMG and
23 other employers from violating the HCSO. GMG's suggestion that such a deterrent effect converts a
24 restitutio nary remedy into punitive damages has no support in the law.
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2 A careful examination of the regulations reveals that the "actions described below" referred to in Regulation 9.1 must mean those actions set out in the illustrative table inserted under Regulation 9.2. That table provides illustrative examples of both corrective actions and administrative penalties and thus serves to illustrate both Regulations 9.1 and 9.2.
5 MPA ISO RESP MOTION FOR JUDGMENT, CASE CPF-12-512328 n:\labor\1i20 13\130043\00870695.doc
1 Giving due deference to the OLSE's interpretation of its own regulations, the Court should
2 reject GMG's argument that the OLSE exceeded the authority of its own regulations in imposing
3 restitution as a remedy in this case. See ReadyLink Health Care, Inc. v. Jones (2012) 210 Cal.AppAth
4 1166,1173; Yamaha Corp. v. State Board o/Equalization (1998) 19 Cal.4th 1,12-13. Of course,
5 "'final responsibility for interpreting a statute or regulation rests with the courts and a court will not
6 accept an agency interpretation which is clearly erroneous or unreasonable. '" ReadyLink, supra, 210
7 Cal.App.4th at 1173, quoting Aguilar v. Association for Retarded Citizens (1991) 234 Cal.App.3d 21,
8 28. Yet, the OLSE interpretation in this case is clearly reasonable and consistent with the language and
9 intern of the HCSO. It therefore should be upheld.
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B. The OLSE Restitution Order Need Not Be Supported By Proof Of Actual Damages To Employees To Be Valid And Authorized.
GMG also argues that the OLSE Order to make $1.34 million in back payments to its
employees is not authorized because the City failed to prove either that 1) employees suffered actual
damages in that amount; or 2) GMG was unjustly enriched in that amount. Yet, GMG's "actual
damages" argument is based on legal principles and cases governing tort damages awards, rather than
those that apply where restitution is sought by a government entity enforcing a law passed under its
nor do they require that the City prove actual damages to employees to justify a corrective action.
Therefore, these arguments are inapposite to this dispute.
As the City explained in its openigg brief, restitution is a remedy that does not require exact
one-to-one correspondence between loss and remedy. See Hernandez v. Lopez (2009) 180 Cal. App.
4th 932,939. Restitution is appropriate even where "a benefit has been received by the defendant but
the plaintiff has not suffered a corresponding loss or, in some cases, any loss, but nevertheless the
enrichment of the defendant would be unjust. Restatement (First) o/Restitution, §1 (1937). Further,
restitution is an equitable remedy that provides the trial court with discretion beyond that allowed in
determining the amount of actual damages. In explaining its conclusion that compensatory damages
are not available as a remedy in a VCL action, while restitution is, one Court of Appeal explained:
We believe this interpretation is consistent with the legislative history of congruent 1972 amendments to the false advertising law. Both Senate and Assembly sources indicate that the Legislature was concerned to affirm the
6 MPAISO RESP MOTION FOR JUDGMENT, CASE CPF-12-512328 n:\labor\li20 13\ 130043\00870695 .doc
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'general equity power' of the courts, particularly the power to order restitution. [ ... ] The exclusion of claims for compensatory damages is also consistent with the overarching legislative concern to provide a streamlined procedure for the prevention of ongoing or threatened acts of unfair competition. To permit individual claims for compensatory damages to be pursued as part of such a procedure would tend to thwart this objective by requiring the court to deal with a variety of damage issues of a higher order of complexity." Dean Witter Reynolds, Inc. v. Superior Court (1989) 211 Cal.App.3d 758, 774.3
Similarly, the regulations that authorize the OLSE corrective action also are concerned with
ensuring that remedies for HCSO violations embody such equitable principles. In addition, as the
City'S opening brief explains, the HCSO has always included restitution as a remedy for its violations.
As the analysis in Dean Witter Reynolds suggests, where restitution is sought by a public entity to
correct a violation of a law enacted under the police power for the benefit of the public, it would make
little sense to require proof of actual harm by each member of the class affected by the violation.
Instead, it is more than sufficient that the Ordinance presumes harm to both the public and to the
affected employees from failure to comply with its requirements to make health care expenditures for
those employees. More specifically, it would make no sense, as GMG suggests, for the Court to
simply read into the Ordinance or regulations a requirement that the government prove individual
harm to employees when it sues as a public entity to enforce its own ordinance and the remedies
Further, the City did show cognizable harm to the employees who would have benefitted from
the health care expenditures that GMG was required to make but did not. The record is replete with
testimony by those e~pJQyees that they would have obtained health care to treat health conditions
from which they suffered, if only GMG had complied with the HCSO. The ALJ cited extensively to
this evidence in finding that there was significant harm to GMG's employees from the company's
failure and refusal to make the required health care expenditure. Ignoring this evidence, GMG focuses
its efforts instead on the meager expenditures its employees, with their limited income, made in an
attempt to provide their own health care. GMG then suggests that these meager expenditures should be
the true measure of the harm done to these employees by GMG's violations ofIaw. Neither the HCSO
27 3 See also People v. Richards (1976) 17 Ca1.3d 614, 619-20 [restitution in criminal case may exceed the losses for which a defendant has been held culpable], disapproved olon other grounds by
28 People v. Carbajal (1995) 10 Ca1.4th 1114.
7 MPA ISO RESP MOTION FOR JUDGMENT, CASE CPF-12-512328 n:\labor\li20 13\130043\00870695.doc
1 nor its regulations authorize such an outrageous approach, and this Court should entirely reject it as
2 antagonistic to both the language and intent of the HCSO.
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c. The OLSE Restitution Order Is Supported By More Than Sufficient Evidence Of GMG's Unjust Enrichment And Thus Should Be Upheld.
GMG also argues that the City has failed to prove that GMG was unjustly enriched in the
amount of$I.34 million, and thus the corrective action in that amount must be either declared illegal
or reduced. GMG's argument is unavailing. The robust findings of the ALJ, supported by
overwhelming evidence in the record, make entirely clear that GMG made no health care expenditures
for three years for 275 employees, even though it should have made $1.34 million in such
expenditures. It could not be any more clear from these findings that GMG was enriched in the amount
of$I.34 million that GMG was legally required to spend for the benefit of employees, but that GMG
instead unjustly retained for the company's own uses. "To permit the [retention of even] a portion of
the illicit profits, would impair the full impact of the deterrent force that is essential if adequate
enforcement [ of the law] is to be achieved." Fletcher v. Security Pacific National Bank (1979) 23
Ca1.3d 442,451 [upholding a restitution order under the VCL].
Nevertheless, GMG once again tries to reintroduce evidence of typical employee utilization
argument is that one way to comply with the HCSO is to set up an HRA, that GMG intended to set up
an HRA (even ifit failed to do so), and that GMG's "unjust enrichment" therefore should be measured
as ifit did set uQ1>uchan_HRA. GMG's argument isludicrOllS.--
At best, the record suggests that GMG thought it could skirt the requirements of the HCSO by
declaring one of its regular business accounts an HRA and continue to use that account without
complying with any of the requirements for an HRA or its equivalent, such as adequate notice and
accounting to employees and regular accounting of contributions on behalf of each employee. At
worst, the evidence suggests that GMG sought to mislead OLSE investigators and the ALJ that its
business account was intended to be used as an HRA, when in fact GMG had never made any effort to
comply with the HCSO. What is clear is that the OLSE and the ALJ both found that GMG had made
no health care expenditures and that the business account in question was not an HRA or its
8 MPA ISO RESP MOTION FOR JUDGMENT, CASE CPF-12-512328 n:\labor\li20 13\130043\00870695.doc
1 equivalent. Those findings are the basis ofGMG's liability, which GMG does not contest. Therefore,
2 any argument about the utilization rates for an HRA that GMG would have experienced had it
3 complied with the HCSO have absolutely no bearing on the amount by which GMG was unjustly
4 enriched. The AU finding that GMG failed to make the required $1.34 million in health care
5 expenditures is inherently the amount ofGMG's unjust enrichment, as well as the appropriate amount
6 of the OLSE corrective action.4
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D. The OLSE Corrective Action Is Not A Windfall To Employees But Just Restitution For The Benefits They Should Have Received From GMG.
Throughout the administrative proceeding below, as well as this appeal to the Superior Court,
GMG has characterized the OLSE corrective action as a $1.34 million "windfall" to its employees.
Yet, GMG does not dispute that it was legally required to make that amount in health care
expenditures to its employees. Nor does GMG contest that it failed to do so and thus is liable for
violations of the HCSO. Instead, GMG employs rhetorical slight of hand to suggest that its own
utilization rates after setting up an HRA in response to the OLSE Order, or the utilization rates of other
San Francisco employers who use HRAs, should be the measure of restitution allowed by the HCSO
and its regulations. This house of cards must fall under examination.
ordered remedy "is properly authorized under the law and appropriate under the facts of this case."
CGMG: 74-75) The ALJ found that reported low utilization rates for HRAs raised concerns that
emQ!2Yers were not proQ~jI1fi>lJlling theirJ:IDPloYJ:J:saboul the existence and utilization ofHR As.
CGMG: 50) The ALJ also found that there was no basis to conclude what GMG's utilization rate for
the time period in question would have been if it had established an HRA. CGMG: 75) In addition, the
AU properly concluded that GMG's argument about utilization rates was irrelevant, because when an
employer completely fails to comply with the HCSO, there is no basis for assuming the employer
would Cor should) have complied by establishing HRAs, nor is there any basis for assuming a
particular utilization rate for these hypothetical HRAs, assuming they are properly administered.
4 The AU further found that GMG's historical utilization rate at the time of the hearing had virtually no probative value and could not be used to measure the amount it should be required to pay its employees in restitution. As GMG did not contest that finding, it is now binding in this proceeding and precludes GMG's renewed attempts to use that rate to limit the amount of the corrective action.
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(GMG: 75) Finally, the ALJ rejected the entire concept of this remedy amounting to a "windfall" by
putting it into its proper perspective:
Although GMG argues that the corrective action is "punitive" against the employer and a "windfall" for its employees, such is not the case. The corrective action [ ] is not punitive, nor is it a windfall. GMG wrongly asserts that no employee has been harmed in this case. Lack of access to health care poses serious health risks and can result in substantial harm, Health care cannot be provided retroactively, and GMG failed to make legally mandated health care expenditures for 275 employees over a three-years period. During that period, most ofGMG's employees were provided with absolutely no health care benefits, and former employees testified that the lack of health benefits had a real impact on them. As such, one-time payments averaging less that $5,000 per employee for violation of the HCSO during the 3-year audit period do not constitute a windfall. [GMG: 75]
Allowing violators to "make good" on their spending obligation to their employees by paying a
small fraction of what employers are legally required to spend to comply with the HCSO would totally
defeat the purposes of the Ordinance. It has no support in either the Ordinance or the regulations and
thus should be rejected by this Court.
CONCLUSION
The Court should enter judgment for the City.
Dated: September 9, 2013
DENNIS J. HERRERA City Attorney JILL FIGG DAYAL VINCE CHHABRIA JERRY THREET
. Deputy City Attorneys 'I i ,! f/
! ., ____ r1~) Ij\ ,> 'I . ~
By: /"~~(./(/':/UJ/I .. \; \,-,L,z;/
JEjlY TiREEy' _/
Attorney~, for R6spondents CITY AND COUNTY OF SAN FRANCISCO, ET AL.
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1 PROOF OF SERVICE
2 I, MORRIS ALLEN, declare as follows:
3 I am a citizen of the United States, over the age of eighteen years and not a party to the above-entitled action. I am employed at the City Attorney's Office of San Francisco, Fox Plaza Building,
4 l390 Market Street, Sixth Floor, San Francisco, CA 94102.
5 On September 9, 2013, I served the following document(s):
6 REPLY BRIEF IN SUPPORT OF RESPONDENTS' MOTION FOR JUDGMENT; JUDGMENT [Proposed] DENYING WRIT OF MANDATE
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on the following persons at the locations specified:
B. Douglas Robbins Diana N g. Fung WOOD ROBBINS, LLP One Post St., Suite 800 San Francisco, CA 94104
in the manner indicated below:
D
o
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BY UNITED STATES MAIL: Following ordinary business practices, I sealed true and correct copies of the above documents in addressed envelope(s) and placed them at my workplace for collection and mailing with the United States Postal Service. I am readily familiar with the practices of the San Francisco City Attorney's Office for collecting and processing mail. In the ordinary course of business, the sealed envelope(s) that I placed for collection would be deposited, postage prepaid, with the United States Postal Service that same day.
BY PERSONAL SERVICE: I sealed true and correct copies of the above documents in addressed envelope(s) and caused such envelope(s) to be delivered b hand at the above locations b a rofess'on messenger service. A declaration from the messenger who made the delivery D is attached or [8J will be filed separately with the court.
BY OVERNIGHT DELIVERY: I sealed true and correct copies of the above documents in addressed envelope(s) and placed them at my workplace for collection and delivery by overnight courier service. I am readily familiar with the practices of the San Francisco City Attorney's Office for sending overnight deliveries. In
-tIre-urdinary courseor-tmslfiess, the seafeo enve!ope[S)lfiat Ipfaced for collection would be collected byacourier the same day.
BY .ELECTRONIC MAIL: Based on a court order or an agreement of the parties to accept electronic service, I caused the documents to be sent to the person(s) at the electronic service addressees) listed above. Such document(s) were transmitted via electronic mail from the electronic address: [email protected] D in portable document format ("PDF") Adobe Acrobat or D in Word document format.
I declare under penalty of perjury pursuant to the laws of the State of California that the 24 foregoing is true and correct.
25 Executed September 9, 2013, at San Francisco, California.
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MPA ISO RESP MOTION FOR JUDGMENT, CASE CPF-12-S12328 n:\laborlli20 131130043100870695,doc
1 DENNIS 1. HERRERA, State Bar #139669 City Attorney
2 JILL FIGG DAYAL, State Bar #168281 VINCE CHHABRIA, State Bar #208557
3 JERRY THREET, State Bar #205983 Deputy City Attorneys
4 Fox Plaza 1390 Market Street, Fifth Floor
5 San Francisco, California 94102-5408 Telephone: (415) 554-3914
6 Facsimile: (415) 437-4644
7 Attorneys for Respondents
AUG 2 '/ 2013
CLERK OF THE COURT BY: ROSSALY DELAVEGA-NAVARRO
Deputy Clerk "7
8 CITY AND COUNTY OF SAN FRANCISCO, et al.
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SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF SAN FRANCISCO
UNLIMITED JURISDICTION
GMG JANITORIAL, INC., a California 13 corporation,
14 Petitioner,
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vs.
CITY AND COUNTY OF SAN FRANCISCO, a Chartered California City and County; DEPARTMENT OF ADMINISTRATIVE SERVICES, a department of the City and County of San Francisco; OFFICE OF LABOR STANDARDS ENFORCEMENT, an office within the Department of Administrative Services; OFFICE OF THE CONTROLLER, an office of the City and County of San Francisco; HEARING OFFICER PETER KEARNS, an individual in his official capacity as Administrative Law Judge for the City and County of San Francisco; REAL PARTIES IN INTEREST, and DOES 1 THROUGH 100, INCLUSIVE,
Respondents and Real Parties in 25 Interest.
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Case No. CPF-12-512328
MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF RESPONDENTS' MOTION FOR JUDGMENT
Hearing Date: Hearing Judge: Time: Place:
Date Action Filed:
September 16, 2013 Hon. Marla J. Miller 9:30 a.m. Dept. 302
July 6,2012
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TABLE OF CONTENTS
TABLE OF AUTHORITIES .......................................................................................................... ii
INTRODUCTION ........................................................................................................................... 1
STATEMENT OF FACTS .............................................................................................................. 2
STANDARD OF REVIEW ............................................................................................................. 7
LEGAL ARGUMENT ..................................................................................................................... 8
I.
II.
THE ALl'S FINDING THAT GMG FAILED TO MAKE THE REQUIRED HEALTH CARE EXPENDITURES IS SUPPORTED BY OVERWHELMING EVIDENCE IN THE RECORD .............................................................................. 8
THE CITY ACTED WELL WITHIN ITS JURISDICTION AND AUTHORITY BY REQUIRING RESTITUTION BY GMG TO ITS EMPLOYEES .......................................................................................................... 9
A.
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C.
D.
The OLSE Ordered GMG To Make Restitution To Its Employees, As Properly Authorized By The HCSO ......................................................... .1 0
The HCSO And Implementing Regulations Authorize Imposition Of Restitution To Employees .......................................................................... 11
1. The Language of the HCSO and Contemporary Implementing Regulations Authorize Imposition of Such Remedies ................... 11
2. The 2011 Amendments to the HCSO Confirm That the Ordinance Authorizes Imposition of Restitution .......................... .12
3. To The Extent There Is Any Ambiguity In The HCSO's Language, It Should Be Interpreted To Authorize Restitution As A Remedy ...................................................................................... 12
OLSE's Reguiations Providing for Restitution To Employees As A Remedy For Violations Ofthe HCSO Are Proper And Valid Exercises Of Its Discretion ......................................................................................... 13
GMG's Comparison Of The Restitution Order With "Typical" HRA Utilization Rates Is Inapposite And Should Be Disregarded By The Court .......................................................................................................... 14
CONCLUSION .............................................................................................................................. 15
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TABLE OF AUTHORITIES
State Cases Batt v. City and County of San Francisco
(2010) 184 Cal.App.4th 163 ........................................................................................................ 7
City and County of San Francisco v. Jen (2005) 135 Cal.App.4th 305 ...................................................................................................... 13
Dunn v. County of Santa Barbara 6 (2006) 135 Cal.App.4th 1281,
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review denied ............................................................................................................................... 2
Fletcher v. Security Pacific National Bank (1979) 23 Ca1.3d 442 ................................................................................................................. 13
Hashalom v. City of Santa Monica (2010) 190 Cal.App.4th 375 ........................................................................................................ 7
Hernandez v. Lopez (2009) 180 Cal.App.4th 932 ...................................................................................................... 10
In re Marriage of Harris (2004) 34 Ca1.4th 21 0 ................................................................................................................ 12
JKH Enterprises, Inc. v. Dept. of Industrial Relations (2006) 142 Cal.App.4th 1046 ...................................................................................................... 7
Ontario Community Foundations, Inc. v. State Bd. Of Equalization (1984)35 Ca1.3d. 811 .................................................................................................................. 9
People v. Superior Court (Jayhill Corp.) (1973) 9 Ca1.3d 283 ................................................................................................................... 13
ReadyLinkHealthCare, Inc. v. Jones (2012) 210 Cal.App.4th 1166 ................................................................................................ 7, 14
Slocum v. State Bd. Of Equalization (2005) 134 Cal.AppAth 969 ........................................................................................................ 9
SP Star Enterprises, Inc. v. City of Los Angeles 23 (2009) 173 Cal.App.4th 459 ........................................................................................................ 7
24 Sylva v. Board of Supervisors
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(1989) 208 Cal.App.3d 648 ....................................................................................................... 13
Yamaha Corp. v. State Board of Equalization (1998) 19 Ca1.4th 1 ................................................................................................................ 7, 14
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State Statutes & Codes
Code of Civil Procedure §1094 .................................................................................................................................... 2 §1094.5 ................................................................................................................................. 7
Federal Cases Golden Gate Restaurant Ass 'no v. City and County of San Francisco,
512 F.3d 1112 (9th Cir. 2008) .................................................................................................... .2
Golden Gate Restaurant Ass 'no v. City and County of San Francisco, 546 F.3d 639 (9th Cir. 2008) ....................................................................................................... 2
Federal Statutes
Internal Revenue Code §223 ...................................................................................................................................... 8
San Francisco Statutes, Codes & Ordinances
San Francisco Administrative Code § 14.1, et seq ................................................................ .2, 3, 4,6, 7, 9, 10, 11, 12, 13, 14, 15 § 14.1(b)(7)(A) ...................................................................................................................... 8 § 14.1(b)(14) ......................................................................................................................... 8 § 14.3(a) ...................................................................................................................... 6, 8, 11 §14.3(c) ................................................................................................................................ 8 §14.4(a) .............................................................................................................................. 11 §14.4(e)(1) ................................................................................................................... 11, 12
Regulations
Office of Labor Standards Enforcement, Health Care Security Ordinance Implementing Regulations,
Regulation 6.2(A) (2008) ..................................................................................................... 8 Regulation 9.1 (2008) .................................................................................................... 6, 11 Regulation 9.2 (2008) ........................................................................................................ 11
Treatises
Restatement (First) of Restitution, §1 (1937) .................................................................................................................................... 10
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INTRODUCTION
Petitioner GMG Janitorial, Inc. ("GMG" or "Petitioner") filed this action on July 6,2012
against the CITY AND COUNTY OF SAN FRANCISCO ("CITY"), DEPARTMENT OF
ADMINISTRATIVE SERVICES, OFFICE OF LABOR STANDARDS ENFORCEMENT ("OLSE"),
OFFICE OF THE CONTROLLER, and HEARING OFFICER PETER KEARNS ("the "ALl")
(collectively "Respondents"), challenging an OLSE administrative order and administrative appeal
decision. Both the OLSE order and the ALl decision 1) found that GMG completely failed in 2008-
2010 to make the health care expenditures on behalf of275 employees required by the San Francisco
Health Care Security Ordinance. ("HCSO" or "Ordinance"); and 2) ordered GMG to make
$1,339,028.39 in back payments to those employees to remedy that failure. During the year since
GMG filed this petition, the administrative decision ordering GMG to make restitution has remained
stayed. During this time, 275 GMG employees have been without any redress for GMG's failure to
comply with City law and the administrative order in this case, that GMG make restitution to 275
employees.
GMG's Petition argues 1) that the ALl's findings that GMG failed to make health care
expenditures for 275 employees for a three year period are not supported by substantial evidence; and
2) that both the OLSE restitution order, and the ALl's decision upholding it, constitute punitive
damages that exceed the authority granted OLSE under the HCSO. These contentions are incorrect.
The ALl's determination that GMG failed to make health care expenditures for its employees
is supported by overwhelming evidence in the administrative record, much of which also reveals an
effort by GMG to mislead both OLSE investigators and the ALl into believing that employees
received health reimbursement accounts when they clearly did not. Further, the ALl was correct to
conclude that the ordinance and its implementing regulations allow the OLSE to award back payments
to workers deprived oftheir right to health care expenditures. Any other conclusion would eviscerate
the purpose of the ordinance by encouraging employers to disregard their health expenditure
obligations, knowing they could save a tremendous amount of money by instead violating the law and
paying penalties that are miniscule in comparison to the amount of health care expenditures the law
required them to make.
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Respondents now move this Court under Code of Civil Procedure Section 1094 for Judgment
against GMG. Because the decision of the ALl in this matter is "supported by substantial evidence in
the administrative record, and there is no indication that [he] failed to proceed in the manner required
by law in making that decision," Respondents respectfully request that the Court deny the Petition and
issue judgment in favor of the City. See Dunn v. County o/Santa Barbara (2006) 135 Cal.App.4th
1281, 1293, review denied.
STATEMENT OF FACTS
In 2006, San Francisco adopted its groundbreaking universal health care program - the Health
Care Security Ordinance. Among other things, the Ordinance requires medium and large employers to
make a minimum amount of health care expenditures for each covered employee. (S.F. Admin. Code
§14.1, et seq.) An employer group challenged the employer spending requirement, but after several
years of litigation the Ninth Circuit upheld it. Golden Gate Restaurant Ass 'no V. City and County of
San Francisco, 512 F.3d 1112 (9th Cir. 2008) [granting stay of district court order]; Golden Gate
Restaurant Ass 'no V. City and County o/San Francisco, 546 F.3d 639 (9th Cir. 2008) [reversing
district court and remanding]. San Francisco's Office of Labor Standards Enforcement ("OLSE") is
responsible under the Ordinance for enforcing the employer spending requirement, and adopted
regulations to do so. The requirement went into effect on January 9,2008. Beginning in 2007 and
annually thereafter, the OLSE sent businesses registered in San Francisco notices explaining the
requirements of the HCSO. (GMG Administrative Record, pp 340-344 (hereinafter designated "GMG:
340 - 344") .)
GMG, through it employees, provides contracted janitorial service to commercial and
residential business clients in San Francisco and throughout California. Gina Gregori is the sole
shareholder and the sole director ofGMG. Its employees are primarily monolingual Spanish speakers.
GMG employed over 300 people between January 1, 2008 and December 31, 2010 (the "audit
period"), the vast number of whom worked as janitors in San Francisco.
In February 2011, OLSE began receiving complaints from current and former GMG employees
that GMG was not providing any health benefits. (GMG603) After receiving those complaints, Donna
Mandel, an OLSE compliance officer, began an investigation. (Jd.) She spoke to Linda Harrison, the
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1 controller/treasurer, about how the company was complying with the HCSO. (Id.) Harrison asserted
2 that the company had a system of reimbursement whereby employees could bring bills for medical
3 expenses to the company and get reimbursed. (Id.) Harrison asserted that employees were notified of
4 the reimbursement system in a new hire packet. Harrison told Mandel that employees were not
5 provided any ongoing information about reimbursement funds available to them. (Id.)
6 On February 10,2011, Mandel sent a letter to OMO requesting information about all
7 employees who worked at OMO during the audit period. (OMO: 50-52,346-348,605-606) The letter
8 requested contact information for the employees, the hours they worked during the audit period, and
9 any evidence of health care expenditures made under the law. (!d.) The letter also requested any
10 specific evidence of the reimbursement arrangement that Harrison referenced, including any notice
11 OMO provided to employees and any documentation of the reimbursement arrangement. (Id.) The
12 same day that the letter was sent, Mandel received a call from OMO's then-counsel requesting an
13 extension oftime to reply to the letter, which OLSE granted. (OMO: 606)
14 On March 7, 2011, Mandel received a response from OMO's then-counsel with some, but not
15 all, ofthe requested information. (OMO: 52, 606) OMO provided Spanish and English copies of
16 informational flyers regarding the HCSO, dated 2008, 2009, and 2010. (OMO: 52-53,353-358,607)
17 However, OMO did not provide evidence of when or how the flyers were given to the employees, and
18 the flyers were neither addressed to OMO employees nor included any reference to OMO or its
19 responsibilities under the HCSO. (OMO:607) In addition, the flyers were not accurate. The flyer for
20 2008 (which included the 2008 expenditure rate on it) stated that employees must perform at least 8
21 hours of work per week to be covered,even though the rate in 2008 was 10 hours; it did not shift to 8
22 hours until 2009. (OMO: 54-55,353-354,608-611,754-755) This raised a strong inference that OMO
23 forged the document after the fact, in an effort to mislead OLSE that it had been notifying employees
24 of their rights under the Ordinance.
25 Mandel offered OMO an opportunity to submit additional information. (OMO:53-54, 607) On
26 April 20, 2011, OMO submitted two follow-up e-mails. (OMO: 54-56,360-363,610-612), which were
27 accompanied by five pages of bank documents (OMO: 54-55,365-369) and a one-page informational
28 flyer in Spanish and English for 2011. (OMO: 55,371-372) In the first of these e-mails, OMO stated
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1 that it had established two bank accounts for the purpose of reimbursing medical expenses, but also
2 stated that neither account was used exclusively for this purpose. (OMO: 54-56,360-362)
3 According to the documentation provided to OLSE, OMO offered health insurance only to
4 limited classes of employees, such as managers, supervisors, corporate office staff, and the small
5 number of janitors who worked in buildings where the client required that its janitors be given health
6 insurance. (OMO: 56, 745-752) As for the overwhelming majority of employees who were not offered
7 health insurance, OMO contended it established a single account with Citibank on or about April 24,
8 2008. (OMO: 63-65) OMO further contended that it drafted and distributed - on a table near where
9 employees picked up their paychecks and on three bulletin boards - a one-page informational flyer
10 regarding the requirements of the HCSO and the right of covered employees to submit medical bills
11 for reimbursement, a copy of which it provided to Mandel on April 20, 2011. (OMO: 64)
12 OLSE requested from OMO missing documents and/or additional evidence five times between
13 March 8, 2011 and May 6, 2011. OMO eventually provided OLSE with 142 employee phone numbers,
14 about half the number OLSE hoped to receive. (OMO: 612-614) However, most ofthe telephone
15 numbers were wrong or disconnected. (Id.) Ultimately, OLSE was able to reach about 17 employees.
16 (OMO: 56,614) All 17 were employed during the audit period, but none ofthem had any knowledge
17 of a supposed OMO health care reimbursement system. (OMO: 56,614-615)
18 On December 7,2011, OLSE issued a Determination of Violation ("DOV") assessing OMO
19 $1,339,028.39 for its failure to make that amount in required health care expenditures to 275 current
20 and former employees. The DOV specified that this amount must be distributed to those employees in
21 order to remedy OMO's failure to make the required expenditures during the relevant period. (OMO:
22 57-61,400-413) The DOV also assessed an administrative penalty of$66,900.08 due to the City.
23 On December 22, 2011, OMO submitted a timely administrative appeal. (OMO: 61,416-431)
24 OMO specifically appealed: 1) the determination that OMO made no health care expenditures in 2008-
25 2010 for the 275 employees at issue, and 2) the corrective action requiring OMO to submit that
26 unspent money directly to the employees who had been denied the health care expenditures. OMO did
27 not appeal OLSE's determination that it must comply with the spending requirement moving forward,
28 nor did it appeal the administrative penalty assessment.
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At the administrative hearing, OLSE called 13 witnesses, including 2 OLSE staff members and
11 former OMO employees. OMO presented no witnesses. (OMO: 48) All 11 former OMO employees
testified that OMO never offered them health insurance or any other health benefit during the audit
period. (OMO: 65) Despite OMO's claim that it distributed informational flyers about its
reimbursement program and placed them on tables and bulletin boards near where the employees
picked up their paychecks, no employee had ever seen such a flyer. (Id.) Nor did any employee
actually use the supposed reimbursement system. (Id.)
In fact, many employees testified that they were explicitly told by OMO that they had no health
benefits.! In addition to testifying that they did not know they were eligible for the reimbursement
program, all of the employees testified that, had they know they had such benefits, they would have
gotten medical and/or dental care at some time during the audit period. Some, to this day, are still
physically suffering as a result of their inability to take preventative measures while employed by
OMO.2
! Employee Franklin Mejia testified that he asked Harrison in 2008 ifhe had benefits and she said that he did not. (OMO: 639-640) Only in September 2011, when Mejia had a bad cough lasting a week, and the manager of the building in which he worked called OMO on his behalf, did Oregori tell Mejia that he could go to Kaiser to check himself out. (OMO: 640-641,645) Mejia worked for years without knowing he was covered. He testified that had he known, he would have gotten a medical and dental checkup and would have seen a doctor when he was sick. (OMO: 638). Oriselda Suzuki testified that in 2008, after being injured on the job, she asked her supervisor if she had medical benefits and she was also told no, that she had to pay for her medical expenses out of pocket. (OMO: 657-658) Jose Luis Contreras testified that he asked a supervisor in 2011 whether he had health benefits, and he was told no. (OMO: 679) Jesus Oarcia Ibarra testified that he asked ifhe had benefits but was told he was ineligible. (OMO: 783) Maria Valdez Iglesias testified that in September 2009, when she started working, her supervisor told her that she did not have medical benefits, and also made her sign a document stating so. (OMO: 700, 710) And when a splintered broom broke off in her eye at work, Iglesias testified that she was told to conceal the fact that it happened at work in exchange for $300. (OMO: 701)
2 Suzuki testified that she would have seen a doctor for chronic asthma, which she still had. (OMO: 656-657) Dominguez testified that she would have gotten a mammogram years ago for a lump that was still growing and requires surgery. (OMO: 674-675) Contreras testified that he had a hernia in 2009 while he was employed by OMO but had to delay his surgery for about a year because OMO told him he lacked health care coverage. (OMO: 677-678) Iglesias testified that she would have gone regularly to a primary care doctor to treat a chronic kidney condition, which caused her to be repeatedly rushed to an emergency room for medical bills she could not afford. (OMO: 705) Caballero testified that he would have seen a doctor about fevers and back pain in addition to regular checkups. (OMO: 686). Ibarra testified that he would have seen a doctor in 2011 when he dislocated his shoulder at work and that he still suffered shoulder pain. (OMO: 782-787). Alfaro testified that he suffered work-related injuries to his ankle, back, and wrist and was never given medical benefits from OMO to care for those injuries. (OMO: 792-794). Maria Elsa Alvarenga testified that her shoulder hurt after a fall at work but that she did not see a doctor because OMO would not pay for the visit. (RT: OMO:
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On May 1,2012, the ALJ issued his decision, denying GMG's appeal and upholding the DOV
in full. (See GMG: 46-77) The decision ordered GMG to make the required payments to its current
and former employees by June 20, 2012. (GMG: 76)
The ALl first found that GMG's Citibank account did not qualify as a health reimbursement
account or an account with substantially the same purpose during the audit period:
(1) GM G failed to show that any quarterly or regular payments were made to the Citibank account on behalf of individual employees as required under HCSO Section 14.3(a); (2) GMG failed to prove that it provided notice to its employees about the existence of a health reimbursement account or how to access any such account; and (3) none of the 275 employees who were purportedly covered by the reimbursement account between 2008 and 2010 ever used the account, and the account therefore had a 0% utilization rate during the three-year audit period. (GMG: 73)
The ALl further found that GMG undermined its credibility by first informing the OLSE that there
were two separate health reimbursement accounts and then abandoning that assertion without
explanation. (GMG: 73)
The ALl also found that GMG undermined any argument that it provided notice to its
employees because its purported 2008 notice stated that employees had to work 8 hours to be eligible
for coverage when the 8 hour rule did not go into effect until 2009, which suggests that GMG had
forged the notice documents it provided to OLSE during its investigation. (GMG: 73) Moreover, the
ALl found credible the testimony of the 11 former employees who stated that they never received or
saw notice of any health reimbursement account. (GMG: 73-74)
The ALl next found that the requirement that GMG pay the $1,339,028.39 in unmade health
care expenditures to the employees who were denied their rights under the Ordinance was properly
authorized and appropriate under the facts ofthis case:
(1) the employer spending requirement under the HCSO requires employers to make health care expenditures to or on behalf of each covered employee, and the facts show that GMG failed to do so on behalf of 275 of its employees between 2008 and 2010; (2) HCSO Regulation 9.1 specifically authorizes the OLSE to order any action it deems necessary to correct the violation; (3) of the former employees who appeared at the appeal hearings, some paid for health care services out-of-pocket, some relied on public hospitals at taxpayer expense, and others had to forego health care services altogether because they didn't have
807-808). And Jaime Alexander Reyes testified that he would have gotten regular medical checkups if 28 he knew of health care benefits. (GMG: 802).
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the resources to pay for medical or dental care without any reimbursement; and (4) the corrective action effectively removes any competitive advantage that GMG might have over other companies that were in compliance with the HCSO during the audit period. (GMG: 75)
GMG filed a timely petition for writ of mandate under California Code of Civil Procedure
Section 1094.5. The City now moves for entry of judgment in its favor.
STANDARD OF REVIEW
Two standards of review govern GMG's writ petition. With respect to GMG's contention that
the AU's decision was factually erroneous, this Court accords great deference to the administrative
findings, in a context where, as here, a vested right is not involved. The Court must uphold the
agency's findings so long as they are supported by substantial evidence in the record. Hashalom v.
City of Santa Monica (2010) 190 Cal.App.4th 375, 381; SP Star Enterprises, Inc. v. City of Los
Angeles (2009) 173 Cal.App.4th 459, 469 (citing JKH Enterprises, Inc. v. Dept. of Industrial Relations
(2006) 142 Cal.AppAth 1046, 1062).
With respect to GMG's contention that the remedy sought by OLSE and imposed by the ALJ
was not authorized by law, this Court also accords deference to the agency. Where, as here, an agency
has been delegated authority to make rules implementing a statute, the scope of judicial review is
limited to whether the rule "lay within the lawmaking authority delegated by the Legislature," and
whether that rule "is reasonably necessary to implement the purpose of the statute." Yamaha Corp. v.
State Board of Equalization (1998) 19 Ca1.4th 1, 10-11. Moreover, administrative agencies may "fill
up the details" of a statutory scheme, and such regulations are "presumed valid." Batt v. City and
County of San Francisco (2010) 184 Cal.AppAth 163, 171.
To the extent GMG contends that OLSE has misinterpreted its own regulations, that question
also requires judicial deference. This is so because an agency implementing its own rules is likely to
be "intimately familiar with the [regulations] [ ] and sensitive to the practical implications of one
interpretation over another, and the [agency's] interpretation [is] likely to be correct[.]"ReadyLink
HealthCare, Inc. v. Jones (2012) 210 Cal.App.4th 1166, 1173; Yamaha, supra, 19 Ca1.4th at 12-13.
7 MPA ISO RESP MOTION FOR JUDGMENT, CASE CPF-12-512328 n:\labor\li20 13\130043\00866643 .doc
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I. LEGAL ARGUMENT
THE ALJ'S FINDING THAT GMG FAILED TO MAKE THE REQUIRED HEALTH CARE EXPENDITURES IS SUPPORTED BY OVERWHELMING EVIDENCE IN THE RECORD.
4 GMG alleges in the third cause of action that there is insufficient evidence to support the ALJ's
5 findings that GMG failed to maintain HRAs for its employees and wholly failed to make health care
6 expenditures.3 However, there is overwhelming evidence in the record to support the ALJ's findings,
7 and there is no credible evidence to suggest GMG actually made health care expenditures for these
8 275 employees during the applicable three-year period.4
9 GMG's argument that it made health expenditures on behalf of these 275 employees is
10 predicated on the assertion that it set up health reimbursement accounts ("HRAs") for these employees
11 and that these accounts had "substantially the same purpose or effect" as Health Savings Accounts, as
12 defined under section 223 of the Internal Revenue Code.5 However, when an employer sets up an
13 HRA for its employees, it allocates a specific amount of money to each employee on a monthly or
14 quarterly basis, informs each employee on a monthly or quarterly basis how much money has accrued
15 in his or her account, informs each employee about the kinds of expenses that are reimbursable from
16 his or her account, and provides each employee with instructions about how to obtain reimbursement.
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3 Section 14.3(a) of the Ordinance sets forth the central mandate at issue in this case: "Covered employers shall make required health care expenditures to or on behalf of their covered employees each quarter." GMG does not dispute that it was a "covered employer" nor does it dispute that the aforementioned 275 individuals were "covered employees."
4 GMG also alleges that there was insufficient evidence in the record to support several other findings of the AU; however, these are essentially legal arguments based on GMG's assertion that the restitution ordered by OLSE and upheld by the ALJ was a punitive fine. These arguments therefore are addressed in the next section.
5 A "health care expenditure" is "any amount paid by a covered employer to its covered employees or to a third party on behalf of its covered employees for the purpose of providing health care services for covered employees or reimbursing the cost of such services for its covered employees." (HCSO § 14.1 (b)(7)(A).) A "required health care expenditure" is "the total health care expenditure that a covered employer is required to make every quarter for all its covered employees." HCSO §14.1(b)(14). "The required health care expenditure must be made regularly, and no later than 30 days after the end of the preceding quarter." (Implementing Regulation §6.2(A).) "A covered employer shall: (i) maintain accurate records of health care expenditures, required health care expenditures, and proof of such expenditures made each quarter each year." (HCSO § 14.3(c).) "Where an employer does not maintain or retain adequate records documenting the health expenditures made ... it shall be presumed that the employer did not make the required health expenditures for the quarter for which records are lacking, absent clear and convincing evidence otherwise." (!d.)
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1 (GMG: 565-566) As the AU properly found, GMG did none of these things. Instead, GMG, upon
2 learning it was under investigation, attempted to argue that two (and later one) of its regular bank
3 accounts were actually "health reimbursement accounts," and then sought to mislead the OLSE into
4 believing it had informed its employees of the availability of reimbursement accounts.
5 GMG could have satisfied the HCSO by providing health insurance to its employees. If it
6 wished to comply by establishing HRAs, in could have hired a third party administrator to set up those
7 accounts, as the majority of employers with HRAs do. (GMG: 570-575) GMG even could have
8 provided HRAs directly by setting up individual accounts for its employees, providing them with
9 notice of how they worked and informing them periodically of the balance of funds available to them.
10 (Id.) GMG did none of these things, as the ALJ's own summary of his findings clearly shows (GMG:
11 73-75). It is nothing short of preposterous for GMG to assert that the AU lacked substantial evidence
12 to conclude GMG failed to satisfy its obligations under the Ordinance as to these 275 employees.
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II. THE CITY ACTED WELL WITHIN ITS JURISDICTION AND AUTHORITY BY REQUIRING RESTITUTION BY GMG TO ITS EMPLOYEES.
15 GMG alleges that "the OLSE's corrective actions in this case exceed their authority under law
16 by seeking non-remedial non-consequential damages - seeking, rather a punitive damages remedy."
17 (GMG Janitorial, Inc., Petition for Writ of Mandate, CPF-12-5123, p. 8, ~~ 29-30 (JuI. 6,2012). In
18 support of this argument, GMG quotes from two cases, Slocum and Ontario Community Foundations:
19 "agencies do not have discretion to promulgate regulations that are inconsistent with the governing
20 statute, or that alter or amend the statute or enlarge its scope" (emphasis added by GMG). See Slocum
21 v. State Bd. Of Equalization (2005) 134 CaI.App.4th 969, 974; Ontario Community Foundations, Inc.
22 v. State Bd. Of Equalization (1984) 35 CaI.3d. 811, 816-817.
23 GMG is incorrect for several reasons. First, the remedy ordered by OLSE and upheld by the
24 AU was remedial in nature, and did not constitute punitive damages. Second, the remedial action was
25 authorized both by the HCSO and by the OLSE regulations properly implementing the HCSO. And,
26 finally, GMG's comparison of the utilization rates of typical HRAs with the ordered restitution is
27 inapposite and thus should be disregarded by the Court.
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1 A. The OLSE Ordered GMG To Make Restitution To Its Employees, As Properly Authorized By The HCSO.
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3 Undergirding GMG's Petition is the assertion that the OLSE-ordered payments to employees
4 constitute "non-remedial non-consequential damages." This characterization is both factually and
5 legally incorrect.
6 As described above, the AU made robust findings that GMG completely failed to make the
7 health care expenditures on behalf of its employees required by the HCSO, and also found that the
8 "evidence" GMG offered to the contrary was entirely incredible. Given these findings, there is an
9 exact correlation between the health care expenditure deficiency and the amount OLSE ordered GMG
10 to pay its employees. Despite this correlation, GMG seeks to characterize this remedy as punitive
11 damages, and thus beyond OLSE's authority under the HCSO.
12 GMG offers no legal authority to support its argument that the amounts OLSE ordered it to pay
13 to employees are "non-remedial, non-consequential damages." In contrast, a review of basic legal
14 principles makes clear that these payments are more appropriately characterized as restitution.
15 Although GMG contends that if it had actually set up HRAs, its employees might not have used all the
16 money in their accounts, restitution need not be exactly measured against the loss to individuals
17 affected by the illegal conduct. "In modem legal usage, [restitution's] meaning has frequently been
18 extended to include not only the restoration or giving back of something to its rightful owner, but also
19 compensation, reimbursement, indemnification, or reparation for benefits derived from, or for loss or
20 injury cause to, another." Hernandez v. Lopez (2009) 180 Ca1.App.4th 932, 939. Restitution thus is
21 justified as a remedy even where "a benefit has been received by the defendant but the plaintiff has not
22 suffered a corresponding loss or, in some cases, any loss, but nevertheless the enrichment of the
23 defendant would be unjust. In such cases, the defendant may be under a duty to give to the plaintiff the
24 amount by which he has been enriched." Restatement (First) of Restitution, § 1 (1937).
25 This rationale is even stronger where, as here, the party seeking relief is a government entity
26 suing under a remedial statute designed to benefit a vulnerable group of third parties. It would make
27 little sense to require that the government prove individual harm to third parties when it sues to
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1 enforce its own ordinance that protects those employees and the remedies ordered are authorized by
2 the ordinance being enforced.
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B. The HCSO And Implementing Regulations Authorize Imposition Of Restitution To Employees.
1. The Language of the HCSO and Contemporary Implementing Regulations Authorize Imposition of Such Remedies.
As originally enacted, the HCSO required in Section 14.3(a) that covered employers "shall
make required health care expenditures to or on behalf of their covered employees each quarter. [ ... ]
The [OLSE] shall enforce the health expenditure requirements under this Section." [emphasis added]
Further, Section 14.4(e)(I) provided that "[t]he City shall enforce the obligations of covered
employers under this Chapter, and may impose administrative penalties upon covered employers who
fail to make required health care expenditures on behalf of their employees within five business days
of the quarterly due date." Finally, Section 14.4(a) provided that "[t]he City shall develop and
promulgate rules to govern the operation of this Chapter."
The HCSO required employers to make health care expenditures on behalf of covered
employees, and delegated to OLSE the primary administrative task of enforcing this requirement. To
that end, the Ordinance further delegated authority to OLSE to adopt rules governing such
enforcement. The Implementing Regulations adopted by OLSE in June, 2008 provided OLSE with the
ability to impose broad relief to correct violations. (See GMG: 299-338) In adopting these regulations
following extensive hearings, OLSE specifically noted that it was giving weight to considerations of
equity and practicality. (GMG: 300, ~ 6) The regulations adopted by OLSE clearly contemplate the
imposition of equitable remedies such as restitution.
Specifically, the OLSE regulations governing enforcement of the HCSO provide for such
equitable remedies. Regulation 9.1, entitled "Corrective Action," provides:
The OLSE may order employers who violate this Ordinance to take appropriate corrective action to address violations of this Ordinance. The OLSE shall not be limited to ordering the actions described below, but may order any other actions it deems necessary to correct the violation(s) committed. [emphasis added] (GMG: 320)
Further, Regulation 9.2 provides that one of the "corrective actions" that may be imposed by
OLSE on an employer for failure to make a required health care expenditure is the following:
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The party shall be ordered to make the required health care expenditure on behalf of each employee or person whose rights under this Ordinance was violated, and/or to reimburse the individual for any and all out-of pocket medical expenses incurred by that individual for the period during which the employer was in violation of this Ordinance, up to the amount of the required health care expenditure. [ ] (GMG: 320)
Taken together, the HCSO and implementing regulations clearly authorize the OLSE to impose on a
covered employer the remedy of restitution to covered employees for amounts that the employer was
required to spend on them for health care, but did not.
2. The 2011 Amendments to the HCSO Confirm That the Ordinance Authorizes Imposition of Restitution.
In 2011, the Board of Supervisors amended the H CSO in multiple respects not related to the
issue before this Court. (See GMG: 872-892) As part of that process, the Board also enacted a
clarifying amendment of Section 14.4(e)(I) of the HCSO to provide:
The City shall enforce the obligations of covered employers under this Chapter, including requiring restitution to employees where appropriate, and shall impose administrative penalties upon covered employers who fail to make required health care expenditures on behalf of their employees within five business days of the quarterly due date. [amended language underlined] (GMG: 885)
The Legislative Digest of the proposed amendments that accompanied them during the legislative
process explained that this added language regarding restitution was declarative of existing remedies
under the HCSO: "Other remedies and corrective actions available to enforce the Ordinance,
including restitution to employees, would remain unchanged." [emphasis added] (GMG: 891) Thus,
the available legislative history of the 2011 amendments further demonstrates that the remedy of
restitution was authorized by the HCSO as a remedial measure available to the OLSE to enforce the
expenditure requirements of the Ordinance.
3. To The Extent There Is Any Ambiguity In The HCSO's Language, It Should Be Interpreted To Authorize Restitution As A Remedy.
24 "The fundamental purpose of statutory construction is to ascertain the intent of the lawmakers
25 so as to effectuate the purpose of the law." In re Marriage a/Harris (2004) 34 Ca1.4th 210, 221, 17
26 Cal.Rptr.3d 842,96 P.3d 141.) "If the statutory terms are ambiguous, then [] we 'select the
27 construction that comports most closely with the apparent intent of the Legislature, with a view to
28 promoting rather than defeating the general purpose of the statute, and avoid an interpretation that
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would lead to absurd consequences." City and County of San Francisco v. Jen (2005) 135 Cal.App.4th
305,310. "[T]he court must consider the consequences that might flow from a particular construction
and should construe the statute so as to promote rather than defeat the statute's purpose and policy.
Sylva v. Board of Supervisors (1989) 208 Cal.App.3d 648, 654.
In upholding a restitutionary remedy under the Unfair Competition Law ("UCL") on a similar
challenge that the statutory language did not specifically authorize it, the California Supreme Court
stated:
To permit the [retention of even] a portion of the illicit profits, would impair the full impact of the deterrent force that is essential if adequate enforcement [of the law] is to be achieved. One requirement of such enforcement is a basic policy that those who have engaged in proscribed conduct surrender all profits flowing therefrom. Fletcher v. Security Pacific National Bank (1979) 23 Ca1.3d 442, 451.
12 The Court went on to explain that "the basic equitable principles underlying the [remedies section of
13 the DCL] arm the trial court with broad discretionary power to order restitutionary relief." Fletcher,
14 supra,23 Ca1.3d at 452; see also People v. Superior Court (Jayhill Corp.) (1973) 9 Ca1.3d 283, 286.
15 Where, as here, a statute is designed to protect a class of persons, such as low-paid employees,
16 by requiring employers to make health care expenditures on their behalf, and the statute includes broad
17 language providing for remedies for violating those requirements, that statutory language must be
18 interpreted in such a manner as to support its remedial purpose. GMG argues that the statute does not
19 authorize OLSE to require it to make the payments that it completely failed to make. Such a
20 construction would wholly defeat the purpose of the HCSO, allowing GMG to significantly profit
21 from its violations, and leaving GMG's workers without the benefit of the statutory protections. In
22 contrast, the City's interpretation preserves and fulfills the purpose of the HCSO, thereby "avoid[ing]
23 an interpretation that would lead to absurd consequences." CCSF v. Jen, supra, 135 Cal.App.4th at
24 310.
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C. OLSE's Regulations Providing for Restitution To Employees As A Remedy For Violations Of the HCSO Are Proper And Valid Exercises Of Its Discretion.
27 Because the regulations adopted by the OLSE were promulgated under the authority
28 specifically delegated to it by the Board of Supervisors to implement that portion of the HCSO, the
13 MPA ISO RESP MOTION FOR JUDGMENT, CASE CPF-12-512328 n:\labor\li20 13\130043\00866643.doc
1 Court's inquiry here "necessarily is confined to the question whether the [regulations adopted are]
2 'arbitrary, capricious or [without] reasonable or rational basis.'" Yamaha Corp. v. State Board of
3 Equalization (1998) 19 Ca1.4th 1, 10-11. Given the explicit legislative delegation of authority to OLSE
4 to adopt the regulations, the careful process by which OLSE adopted the regulations after multiple
5 public hearings, 0 LSE' s clear articulation in the regulations of the rationale justifying the enforcement
6 remedies contained therein (including an explicit mention of the need to apply equity in the
7 enforcement process), the very clear nexus between restitution as an enforcement remedy and the
8 remedial purpose of the HCSO, there can be no doubt that the regulations at issue are valid. As the
9 AU concluded in upholding the OLSE order in the face of GMG's arguments, the ordered remedy "is
1 ° properly authorized under the law and appropriate under the facts of this case." (HOD: 29-30)
11 Applying the strong presumption of regularity required under the law, the court should hold that the
12 regulations are valid and uphold the remedy imposed thereunder. 6
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D. GMG's Comparison Of The Restitution Order With "Typical" HRA Utilization Rates Is Inapposite And Should Be Disregarded By The Court.
The vast majority of employers satisfy the HCSO's spending requirement by spending the
requisite amount on health insurance for their employees. (GMG: 49, 560, 734) Some employers
comply by spending the requisite amount on the "city payment option," whereby they make payments
to the City which allows their employees to participate in the City's health care programs at a deep
discount. (!d.) A small minority of companies comply by setting up HRAs for their employees,
allocating the requisite amount for each employee and informing each employee of the allocation on a
monthly or quarterly basis. (GMG: 49-50, 560, 565-566, 570-575, 734)
GMG asserts that an employer that totally fails to comply with the health care spending
requirement in any fashion should be allowed to "make good" by asserting that the employer would
have chosen the HRA compliance option, and then assuming that the employees would have spent
only 10% of the money, thereby allowing the law-violating employer to retain 90% of the amount it
6 Because the court also must defer to the expertise of the OLSE in interpreting its own regulations, the regulations also should be upheld if the argument is that the OLSE exceeded the authority of its own regulations in imposing restitution as a remedy in this case. See ReadyLink, supra, 210 Ca1.App.4th at 1173; Yamaha, supra, 19 Ca1.4th at 12-13.
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should have spent on health care. Thus, concludes GMG, the OLSE restitution order requiring GMG
to make $1,339,028.39 in health care expenditures to its covered employees for the years it failed to do
so, constitutes punitive damages and a windfall to the employees. This argument is unavailing.
First, GMG's assertion about that employees typically utilize only 10% ofHRA money has no
support in the administrative record. The ALJ found that reported low utilization rates for HRAs raised
concerns that employers were not properly informing their employees about the existence and
utilization ofHRAs. (GMG: 50) Second and far more importantly, the ALJ properly concluded that
GMG's argument about utilization rates was irrelevant, because when an employer completely fails to
comply with the HCSO, there is no basis for assuming the employer would (or should) have complied
by establishing HRAs, nor is there any basis for assuming a particular utilization rate for these
hypothetical HRAs, assuming they are properly administered. (GMG: 75) Allowing violators to
"make good" on their spending obligation to their employees by paying a small fraction of what most
employers spend in compliance with the HCSO would totally defeat the purposes of the Ordinance.
CONCLUSION
The Court should enter judgment for the City.
Dated: August 20,2013
DENNIS J. HERRERA City Attorney JILL FIGG DAYAL VINCE CHHABRIA JERRY THREET .,
Deputy qty Attorneys / ; ! I
I '----;- ! ,-iJ--f -( f ! \ !
~' .) /\.f J /\ ./1., / By· ~ J. --·~,i· I I 1/ l '/-P.I' .,r~,/,, __ f .. "..,...-. •. _,''\i
JERR17TIiREET j'\ .// i j
/ I I
Attorneys for Respondents -, C!1Y AND"GeUNTY OF SAN FRANCISCO, ET AL. -/
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PROOF OF SERVICE
I, MORRIS ALLEN, declare as follows:
I am a citizen of the United States, over the age of eighteen years and not a party to the aboveentitled action. I am employed at the City Attorney's Office of San Francisco, Fox Plaza Building, 1390 Market Street, Sixth Floor, San Francisco, CA 94102.
On August 21,2013, I served the following document(s):
MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF RESPONDENTS' MOTION FOR JUDGMENT
on the following persons at the locations specified:
B. Douglas Robbins Diana Ng. Fung WOOD ROBBINS, LLP One Post St., Suite 800 San Francisco, CA 94104
in the manner indicated below:
o
o
o
BY UNITED STATES MAIL: Following ordinary business practices, I sealed true and correct copies of the above documents in addressed envelope(s) and placed them at my workplace for collection and mailing with the United States Postal Service. I am readily familiar with the practices of the San Francisco City Attorney's Office for collecting and processing mail. In the ordinary course of business, the sealed envelope(s) that I placed for collection would be deposited, postage prepaid, with the United States Postal Service that same day.
BY PERSONAL SERVICE: I sealed true and correct copies of the above documents in addressed envelope(s) and caused such envelope(s) to be delivered by hand at the above locations by a professional messenger service. A declaration from the messenger who made the delivery 0 is attached or C8J will be filed separately with the court.
BY OVER.J.~IGHT DELIVERY: I sealed true and correct copies of the above documents in addressed envelope(s) and placed them at my workplace for collection and delivery by overnight courier service. I am readily familiar with the practices of the San Francisco City Attorney's Office for sending overnight deliveries. In the ordinary course of business, the sealed envelope(s) that I placed for collection would be collected by a courier the same day.
BY ELECTRONIC MAIL: Based on a court order or an agreement of the parties to accept electronic service, I caused the documents to be sent to the person(s) at the electronic service address(es) listed above. Such document(s) were transmitted via electronic mail from the electronic address: [email protected] 0 in portable document format ("PDF") Adobe Acrobat or 0 in Word document format.
I declare under penalty of perjury pursuant to the laws of the State of California that the foregoing is true and correct.
Executed August 21,2013, at San Francisco, California. G"'" ~.:! --; 1 ,I 1 ~ I j ./ --rve&-,--,--- V / ~~ __
MORRIS ALLEN
MPA ISO RESP MOTION FOR JUDGMENT, CASE CPF-12-512328 n:\labor\li20 13\ 13 0043\00866643 .doc
