U.S. Appeals Court Upholds Dismissal of Maryland’s Wal-Mart Mandate

January 18, 2007

The United States Court of Appeals for the Fourth Circuit has affirmed a lower court decision that federal ERISA law invalidates a Maryland law that would have required giant retailer Wal-Mart to offer a certain level of health benefits to its empoyees.

In its opinion, the Fourth Circuit recognized that if it had not affirmed the district court’s decision “surely other states and local governments would follow” Maryland in passing laws that “clash with ERISA’s preemption provision and ERISA’s purpose.”

“Today’s Appeals Court decision makes clear that employer health plans are governed by federal law, not a patchwork of state and local laws,” said Sandy Kenned, president of the Retail Industry Leaders Association, which opposed the law in court. “The court’s decision sends a strong message that similar bills under consideration in other states and municipalities also violate federal law,”

Judge Paul V. Niemeyer wrote the opinion for the Fourth Circuit, which Judge William B. Traxler, Jr. joined. Judge M. Blane Michael dissented.

“Because Maryland’s Fair Share Health Care Fund Act effectively requires employers in Maryland covered by the Act to restructure their employee health insurance plans, it conflicts with ERISA’s goal of permitting uniform nationwide administration of these plans. We conclude therefore that the Maryland Act is preempted by ERISA and accordingly affirm,” Judge Niemeyer stated.

The Fourth Circuit also noted that this decision prevents the very type of “regulatory balkanization that Congress sought to avoid by enacting ERISA’s preemption provision.”

The state law would have required non-governmental employers with 10,000 or more workers to spend at least 8 percent of payroll on health care or pay the difference in taxes. The measure was directly aimed at Wal-Mart Stores Inc., which critics say offers inadequate health care plans that force some employees to rely on state-funded plans.

In the lower court decision, U.S. District Judge J. Frederick Motz decided that the Maryland Fair Share Health Care Fund Act would have hurt Wal-Mart by requiring it to track and allocate benefits for its Maryland employees in a different way from how it keeps track of employee benefits in other states. Motz wrote that the law “imposes legally cognizable injury upon Wal-Mart.”

Motz cited the federal Employee Retirement Income Security Act, which he said pre-empts “any and all state laws insofar as they may now or hereafter relate to any employee benefit plan.”

Retailers applauded this week’s affirmation of Motz’s ruling.

“Congress enacted ERISA, in part, to create uniformity in national health benefit plans,” said Stephen Cannon, outside general counsel to RILA. “Differing state and local health benefit mandates would only increase health care costs and serve as a strong disincentive for employers to offer health coverage.

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