Darden CEO Fights California Bill That Would Fine Medicaid-Dependent Companies

06/19/2013 06:32 pm ET | Updated Jun 21, 2013

Darden Restaurants has run into an obstacle in its battle against Obamacare: the state of California.

On Tuesday, the Orlando Sentinel first reported that Clarence Otis, the CEO of the fast-casual chain that owns Red Lobster and Olive Garden, is fighting a bill that intends to prevent companies from cutting workers' hours to avoid paying for insurance under the Affordable Care Act.

If the legislation is enacted, large employers will be forced to pay an average additional penalty of roughly $5,500 to the state for any employee who works full time and chooses Medicaid coverage, Jimmy Gomez (D), the bill's sponsor and a California State Assembly member, told The Huffington Post. The penalty will be prorated depending on the average number of hours employees work during the year, he added.

In an emailed statement to HuffPost, Darden Director of Communications Rich Jeffers said the bill "threatens job opportunities and economic growth and would be a sad step back from work to welfare."

In 2012, the company flirted with the idea of hiring more part-time workers to reduce health care costs, but the policy was recanted after widespread public protest. Jeffers said that the opposition to the California bill in no way signals a plan to hire more part-time workers.

The legislation was written to avoid what drafters described to the Orlando Sentinel as a "Walmart Loophole" of reducing employee hours or terminating workers to avoid health care fines. Earlier this month, Reuters reported that Walmart was only hiring temporary workers at many of its U.S. stores, a move that many interpreted as a way to skirt Obamacare requirements to provide health care to full-time employees.

"If an employer's business model is based on workers' health coverage being covered by Medi-Cal [California's Medicaid program] and they don't pay anything, then the question is why is it up to the taxpayer to subsidize their business model," Gomez said.

In an emailed statement to HuffPost, Walmart Director Of Communications Delia Garcia wrote that part-time associates always have the "first shot" at full-time job openings.

California's legislation looks to offset the costs of the Medicaid expansion it is planning under Obamacare. Starting next year, anyone who earns up to 133 percent of the federal poverty level will be eligible to enroll in a Medicaid program, increasing state spending by around 3 percent, according to a November report by the Henry J. Kaiser Family Foundation and the Urban Institute.

Previous efforts to force corporations to increase health care spending have run into trouble. In 2006, labor unions and health care advocates in Maryland attempted to pass legislation that would have required Walmart to spend more on employee health care, reducing state Medicaid costs in the process. The so-called "Walmart law" was struck down by a federal judge later that year.

Roughly 250,000 workers in California are in low-wage jobs at companies with more than 500 workers and depend on Medi-Cal for health coverage, according to an April report by the UC Berkeley Labor Center. Close to half of the workers are employed at restaurants or retail chains. Darden operates more than 137 restaurants in California and has approximately 16,000 employees, Jeffers wrote in an email.

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