Retailers File Suits Against ‘Fair Share’ Mandates in Md., N.Y. Courts

February 8, 2006

A group of retailers has filed suits challenging laws in Maryland and New York that were enacted to pressure employers to spend a minimum amount oin employees’ health benefits.

The Retail Industry Leaders Association claims that the so-called “fair share” statutes unlawfully mandate specific health care expenditures by employers, single out the retail industry, and threaten to eliminate the flexibility that businesses require to meet the needs of their workforce.

The lawsuits were filed in U.S. District Courts in Baltimore and Brooklyn. The Maryland law, the first of its kind in the nation, was enacted in January. It requires companies with more than 10,000 employees in Maryland to spend at least 8 percent of payroll on healthcare or contribute the difference to the state Medicaid fund. As written, Wal-Mart is the only company that meets the criteria.

In Suffolk County, the law targets large, non-unionized food retailers, by requiring them to make health care payments at a rate of no less than $3 per hour worked.

“We all agree that access to health care is vital, but these spending mandates will drive away business and discourage job creation,”said Brad Anderson, RILA chairman andvice chairman who is also chief executive officer of Best Buy Co., Inc. “They’re simply unlawful and unwise.”

The mandates, enacted by the state of Maryland and by Suffolk County, N.Y. were intended to target large companies,specifically Wal Mart, and require them to pay a special health care payroll assessment.

“The health care system cannot be fixed with a patchwork of state and local mandates that require individual industries to play by different rules,” said James M. Myers, CEO of PETCO Animal Supplies, Inc., a RILA member. “It’s a national issue that requires a national approach.”

“The health plan spending mandates that we are challenging today do nothing to fix the problem they claim to address, and, in fact, divert focus and resources away from real solutions,” said RILA President Sandy Kennedy.

In the lawsuits, RILA asserts that state and local laws regulating employee health benefit plans are invalidated by federal law, specifically the Employee Retirement Income Security Act (ERISA).

“Over the past three decades, the Supreme Court of the United States has held repeatedly that ERISA, not state and local laws, regulates employer health plans,” said Steve Cannon of the law firm of Constantine Cannon, general counsel to RILA. “Now that the legislative process has played out in Maryland and Suffolk County, it is time to challenge these newly enacted health plan mandates in the courts.”

RILA also asserts that the statutes violate the Equal Protection Clause of the U.S. Constitution because they were written to single out specific companies for arbitrary treatment.

RILA says its member companies include 400 retailers, product manufacturers, and service suppliers, which together account for over $1.4 trillion in annual sales. RILA members operate more than 100,000 stores, manufacturing facilities, and distribution centers, have facilities in all 50 states, and provide millions of jobs domestically and worldwide.

Supporters of the laws being challenged say the law is needed because the public is underwriting the cost of health care for many Wal-Mart employees who can’t afford to pay their share of insurance premiums.

Wal-Mart claims 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 have produced conflicting legal advice on the validity of the law.

Henry A. Smith, a Baltimore lawyer who reviewed the law for the Maryland 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.

However, the Maryland attorney general’s office says 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.

Labor unions support the mandates and have vowed to pursue similar legislation in at least 30 other states.

Source: RILA

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