A federal judge in Baltimore has overturned Maryland’s “Wal-Mart” health coverage mandate law, ruling in favor of the Retail Industry Leaders Association.

The Maryland law, enacted by the state legislature over the veto of Governor Robert Ehrlich, requires non-governmental employers with 10,000 or more employees to spend 8% of their payroll on employee health coverage, or to pay a similar amount to a state managed fund.

Judge J. Frederick Motz of the U.S. District Court in Baltimore says the Wal-Mart law, also known as a “fair share” law, is pre-empted by the federal Employee Retirement Income Security Act and violates the equal protection clause of the U.S. Constitution.

The Wal-Mart law would have required Wal-Mart, the only affected employer, to create a separate system for administering benefit plans in Maryland, Motz writes in an explanation of his ruling.

“The Fair Share Act creates health care spending requirements that are not applicable in most other jurisdictions,” Motz writes. “Moreover, its requirements directly conflict with the requirements of at least 2 other jurisdictions.”

The law also conflicts with health coverage mandate bills pending in Oklahoma and Minnesota, Motz writes.

Moreover, the intent of the law is to affect Wal-Mart’s contribution to its benefit plan, which also is pre-empted by ERISA, Motz writes.

“My finding that the act is preempted is in accordance with long established Supreme Court law that state laws which impose employee health or welfare mandates on employers are invalid under ERISA,” Motz writes.

The RILA, Arlington, Va., raised the equal protection issue by arguing that Maryland lawmakers were “irrationally under inclusive” when they crafted the health coverage mandate law.

The state secretary of labor, James Fielder, says legislatures routinely define “small” and “large” businesses, and that such definitions are generally upheld by the courts, but Motz found that the Maryland health coverage law presents an extreme, and unfair, case.

“Certainly, a legislature might have a legitimate concern not to force a ‘small’ employer out of business or, at least, to reduce its workforce, by subjecting it to a mandatory benefit regulation,” the judge writes. “However, that concern presumably would lead to a definition of ‘small’ that would not encompass an employer of 9,999 persons – the definition implicitly contained in the act.”

The judge notes that lawmakers amended the bill that created the law to exclude 2 of the other 4 private Maryland employers with more 10,000 or more employees.

The RILA has applauded the ruling.

If the Wal-Mart law were upheld, other states could impose their own regulations and effectively create a web of differing rules and regulations in each jurisdiction, the RILA says.

The Maryland decision “sends a clear signal that employer health plans are governed by federal law, not a patchwork of state and local laws,” says RILA President Sandy Kennedy. “It also is a clear message that similar bills under consideration in other states and municipalities violate federal law as well.”