Lawyer Article

This article was published in the August 28th edition of Southeast Tech Wire.

In Retail Industry Leaders Association v. James D. Fielder, Jr., Maryland Secretary of Labor, the United States District Court for the District of Maryland issued its opinion striking down the Maryland Fair Share Health Care Fund Act (the "Fair Share Act") as preempted by the Employee Retirement Income Security Act ("ERISA"). The Fair Share Act required Maryland employers of more than 10,000 employees to spend at least eight percent of the total wages paid to employees on health insurance costs or to pay to the Secretary an amount equal to the difference between this amount and what the employer actually spent for health insurance costs. The law required this same standard of non-profit employers, but set the benchmark for spending at six percent rather than eight percent. The law became noteworthy because although four non-governmental employers meet the 10,000 employee threshold - Johns Hopkins University, Northrop Grumman Corporation, Giant Food, Inc., and Wal-Mart Stores, Inc. - only Wal-Mart would have failed to meet the eight-percent standard and thereby be affected by the law. The law was largely seen as a way to force large employers (specifically, Wal-Mart) to spend more money on health care or to pay the difference to the state, which would spend the money on public health care.

The Retail Industry Leaders Association, a trade association of which Wal-Mart is a member, brought an action in the federal district court seeking a declaration that the Fair Share Act was preempted by ERISA. After noting that ERISA preempts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan," the Court held that the Fair Share Act was preempted. The Court reasoned that the statute would interfere with one of ERISA's central concerns, the ability of employers to maintain a national, uniform administration of employee benefit plans, and to avoid inconsistent and multiple regulation under state law.

Several other states have considered legislation similar to that of Maryland's, including Arizona, Connecticut, Massachusetts, New York, Pennsylvania, and Tennessee, although none has, as of this date, enacted such a law. New York City and New York's Suffolk County have enacted similar versions of the Fair Share Act. The Suffolk County legislation is being challenged in court by the Retail Industry Leaders Association. No decision has been rendered at this time in that case.

For employers who are sponsors of health and welfare plans or retirement plans (including 401(k) plans), there are two "big picture" lessons from the district court's decision in this case. First, employers should always keep in mind the broad, preemptive effect of ERISA. Any dispute concerning, or in any way related to, health and welfare or retirement plans - whether in actual litigation or in the pre-litigation stage - should be examined to determine whether ERISA will preempt otherwise applicable state law. Because the damages recoverable under ERISA are generally much less expansive than the damages recoverable under state law, and because ERISA provides employers with the opportunity to litigate in federal court, it is always important to make this assessment.

Second, it is likely that other state and local laws similar to the Fair Share Act will be challenged as preempted by ERISA. Whether such laws will be preempted depends on their exact features and the effect that the law will have on health and welfare or retirement plans. The Maryland district court cautioned that ERISA preemption of the Maryland law did not mean that other state or local laws would be preempted in a similar manner. The court explicitly noted that the Massachusetts legislation arguably has only incidental effects upon ERISA plans and may therefore not be preempted. Employers in jurisdictions that are considering such measures, however, should analyze any such law or bill to determine whether it is preempted by ERISA.

If you would like to receive more information about this subject, or if we can be of assistance, please contact any of the following attorneys in Womble Carlyle's Employee Benefits Group.

James E. Daniel
email (704) 331-4931

Bryan L. Tyson
email (704) 331-4973
Suite 3500
One Wachovia Center
301 S. College Street
Charlotte, NC 28202

Diane J. Fuchs
email (202) 857-4457
1200 Nineteenth Street NW
Suite 500
Washington, DC 20036

Michael D. Gunter
email (336) 721-3607

William R. Whitehurst
email (336) 721-3653

Jancie C. Baldwin
email (336) 721-3654

Patrick M. Allen 
email (336) 721-3574
One West Fourth Street
Winston-Salem, NC 27101