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Maryland Judge Overturns Wal-Mart Health Care Law

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

Judge J. Frederick Motz of the U.S. District Court in Baltimore overturned the law, finding that it is pre-empted by the federal Employee Retirement Income Security Act and violates the equal protection clause of the U.S. Constitution.

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

In determining the ERISA pre-emption, Judge Motz writes that the law, which also was known as the “fair share” law, would have created a separate system for administering Wal-Mart’s employee benefit plans in Maryland than in other states.

“The Fair Share Act creates health care spending requirements that are not applicable in most other jurisdictions,” Judge Motz writes. “Moreover, its requirements directly conflict with the requirements of at least two other jurisdictions,” including New York City and Suffolk County, N.Y., and he adds it also conflicts with similar pending “fair share” legislation in Oklahoma and Minnesota. Additionally, the judge writes the intent of the law was to affect Wal-Mart’s contribution to its benefit plan, which is also pre-empted by ERISA.

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

On the equal protection issue, RILA argued Maryland lawmakers were “irrationally under inclusive” in crafting the law in that less than 2% of state residents work for a company employing more than 10,000 people.

The state Secretary of Labor, James Fielder, argues that legislatures routinely define “small” and “large” businesses and that such definitions generally are upheld by the courts, but Judge Motz found the “fair share” law presented 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 work force, 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.”

Only four entities in the state met the threshold, and Judge Motz notes that one, supermarket chain Giant Foods, met the threshold, while two others, Johns Hopkins University and Northrop Grumman, had conditions added to the bill that effectively exempted them. As a nonprofit, Johns Hopkins was allowed to meet a lower threshold of 6% of payroll, while Northrop Grumman won a provision allowing employers to exclude from their payroll calculations any employees with salaries higher than the median state income.

RILA applauded the ruling, noting that if the “fair share” law were upheld, other states could impose their own regulations and effectively create a web of differing rules and regulations in each jurisdiction.

“The 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.