“Asking Wal-Mart or Darden Restaurants [the owners of Olive Garden and Red Lobster] to pay their fair share [of health insurance costs] won’t bankrupt them,” wrote California Assembly member Jimmy Gomez in Sacramento Bee opinion piece this month. He was defending a piece of legislation that is currently before state’s lower house, aimed at prevent companies from cutting workers’ hours to avoid paying for health insurance under the Affordable Care Act.
But Darden (NYSE:DRI) Chief Executive Officer Clarence Otis has argued just the opposite. In fact, he is so worried that he visited state lawmakers in Sacramento last month to lobby against the union-backed bill, which would still fine companies with 50 or more employees if part-time workers were not given employer-sponsored insurance coverage, regardless of Medicaid eligibility. “We were really surprised that the CEO of Darden was here,” Jim Araby, a representative with the United Food and Commercial Workers International Union, which helped draft the bill, told the Orlando Sentinel. “It shows we’re onto something.”
Many large companies, from Wal-Mart (NYSE:WMT) to Orlando-based Darden, have called the bill a job killer. In a statement emailed to the publication, the restaurant chain wrote that the bill “threatens job opportunities and economic growth and would be a sad step back from work to welfare.”
Even more concerning for Darden is the fact that California’s bill has national implications. “California is often seen as a bellwether,” Alan Weil, executive director of the research group National Academy for State Health Policy, explained to the Sentinel. “If you can head this off at the pass…it captures it early. It prevents it from being a wave.” Many states are expanding Medicaid eligibility to be compliance with Obamacare’s provisions and if bills similar to California’s pass in other states, Darden could be faced with a new paradigm.
Many of those workers who are not covered by employer-sponsored plans could be eligible for for federal subsidies to buy coverage on the state-run exchanges and the lowest-wage workers will likely be pulled into state Medicaid systems.
Some drafters of the bill have said they wrote in order to combat what is now referred to as the “Walmart loophole.” Many employers, most notably Wal-Mart, are cutting hours and hiring temporary workers to avoid paying for the health insurance costs of employees that work more than 30 hours per week. Companies that do not provide affordable health insurance to those workers face fines up to $3,000 per person. In recent months, Wal-Mart has been hiring only temporary workers at many of its stores in the United States, marking the first time the world’s largest retailer has made that decision outside of the holiday shopping season. However, the company has said that the change had nothing to do with Obamacare.
Last year, Darden began experimenting with hiring more part-time workers to keep healthcare costs low, but after public outrage, the restaurant chain later added that it would not cut full-time employees to part-time. However, the California legislation does not just limit fines to employees whose hours have been reduced to less than full time. It also includes those workers who work more than eight hours.
The California bill targets employers with workforces of at least 500 people. The fines would be based on the number of hours worked and could amount to as much as 110 percent of the average cost of health insurance for each employee.
Darden, which has more than 100 restaurants in California, has not detailed how much the bill would cost the company.
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