Wal-Mart Weighs Legal Challenge to Md. Benefits Law

By | January 15, 2006

Wal-Mart Stores Inc., faced with a new Maryland law designed to pressure the retail chain into spending more money on health insurance for its employees, is considering a challenge to the groundbreaking legislation.

Sarah Clark, a Wal-Mart spokeswoman, said Friday the U.S. Chamber of Commerce and the Maryland Chamber of Commerce had questioned the validity of the law.

“I’m sure that is something our attorneys are looking into as we decide our course of action,” she said.

The law was enacted last week when the Democratic-controlled legislature overrode Republican Gov. Robert Ehrlich’s veto of a bill it passed last April. The law, the first of its kind in the nation, requires companies with more than 10,000 employees in Maryland to spend at least 8 percent of payroll on health insurance or pay the difference into the state Medicaid fund to help pay for health care for low-income Marylanders.

Bentonville, Ark.-based Wal-Mart is the only company in the state that currently would be affected by the law, which will take effect Jan. 1, 2007. It has about 17,000 employees at 53 stores and two distribution centers in Maryland and was planning on building a distribution center on the Eastern Shore, which the governor said may now be in jeopardy.

Supporters say the law is needed because Maryland is underwriting the cost of health care for many Wal-Mart employees who can’t afford to pay their share of insurance premiums. Democratic leaders, who pushed the Fair Share Health Care Fund Act through the legislature, said they did not know how many people were involved or what the cost was to the state.

Wal-Mart has not provided specific information on its Maryland employees, but Clark said earlier this month that more than three-quarters of the retailer’s total 1.3 million employees have health coverage through the company, their family or Medicare. The retailer also announced in October that it was launching a plan to lower insurance premiums for workers.

Supporters and opponents produced conflicting legal advice on the validity of the law in the days leading up to the veto override.

Henry A. Smith, a Baltimore lawyer who reviewed the law for the state Chamber of Commerce, said it violates the federal Employee Retirement Income Security Act, which pre-empts state efforts to regulate employee benefits.

“Any state attempt to regulate an employee benefit plan is pre-empted by the federal employee benefit law because of the Congress’ belief that a single federal regulatory scheme for employee benefits is preferable to 51 separate, varying state schemes,” Smith said.

Smith said there have not been any court cases dealing with a law identical to the Maryland statute. But he cited “a very close case” from the District of Columbia in which a federal court struck down a law mandating employee benefit levels because it was pre-empted under federal law.

Ronald Wineholt, vice president of the Maryland Chamber of Commerce, said the business group probably does not have legal standing to challenge the law, but he hopes a lawsuit will be filed.

“This law is ripe for a legal challenge,” he said.

But the state attorney general’s office advised the governor and the legislature before the veto override votes that the law does not violate the federal statute.

“The Fair Share Act does not specifically refer to employee welfare benefit plans,” said a letter signed by Democratic Attorney General J. Joseph W. Curran.

Wal-Mart could avoid paying the assessment by such methods as reducing payroll or cutting employees below the 10,000 threshold.

Kenneth Stanton, an assistant professor of finance at the University of Baltimore, who is a critic of the law, said Wal-Mart might be able to avoid paying into the Medicaid fund by creating a second Maryland company and dividing employees between the two companies.

Wal-Mart had little else to say Friday about the bill. “We are pausing and evaluating the situation thoroughly at this point,” Dan Fogleman, a spokesman, said in an e-mail.

Labor unions, who heavily pushed for the Maryland bill, said they would pursue similar legislation in at least 30 other states.

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