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San Francisco eatery settles health benefits noncompliance complaint


By Jerry Geisel, Crain's Business Insurance
Posted: January 17, 2013 - 11:00 am ET
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A San Francisco restaurant will spend about $320,000 to settle a complaint from city officials that it did not comply with San Francisco's 2006 law that requires employers to spend a minimum amount of money on employees' healthcare coverage.

That requirement can be satisfied in several ways, including payment of health insurance premiums or contributions to health reimbursement arrangements, health savings accounts, flexible spending accounts or a city fund. Most San Francisco employers satisfy the spending requirement — which in 2013, is $2.33 per hour per covered employee for employers with at least 100 employees and $1.55 per hour for employers with between 20 and 99 employees — through the payment of health insurance premiums.

However, city investigators found that while Patxi's Chicago Pizza, whose parent company is Layers L.L.C. of San Francisco, imposed a 4% surcharge on customers to cover the health care spending requirement, most of the money was used for other purposes.

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In a statement, Patxi's said revenue generated by the surcharge was used to pay for employees' health care expenses, with unused amounts remaining in an account. In August 2012, Patxi's eliminated the surcharge, which it had added a year earlier, according to the statement.

Patxi's attributed its problems to a “reporting error” it discovered in 2011 on 2009 and 2010 employees' health insurance account balances.

“When the city contacted Patxi's about the matter in late 2012, the company had been in full compliance for 13 months. Though this was an unfortunate clerical error, Patxi's made a business decision to avoid expensive and distracting litigation with the city of San Francisco and instead accepted a settlement offer from the city,” Patxi's said in the news release.

Under the settlement, Patxi's will distribute $205,000 to current and former employees who were eligible for health care spending between 2009 and 2011. It also will boost health care spending by about $100,000 to a total of $285,000 in 2013 and will pay a $15,000 penalty to the city.

“Though Patxi's was wrong to not comply with the health care ordinance and to collect a surcharge from customers for health benefits it wasn't providing to employees, the company deserves credit for working cooperatively with us to remedy the problem,” San Francisco city attorney Dennis Herrera said in a statement.

William Freeman, Patxi's co-founder and CEO, said in a statement that “we want to be sure we comply with the spirit as well as the letter of the law. As a result of this settlement, Patxi's will be offering incredible health care benefits to its workers and spending 50% more on health care benefits in 2013 than we collect in surcharges in 2013.”


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