Thursday, January 12, 2006

Maryland Wal-Mart Bill Looks Like A Go, But What About ERISA Preemption?

Update: Maryland Attorney General disagrees with my preemption analysis (thanks to Matt Bodie at PrawfsBlawg for the tip).

This just in: House Overrides Governor's Veto on Maryland Wal-Mart Bill.

The Wall Street Journal is reporting in this article:

Maryland's Senate voted today to become the first state to enact a law forcing large employers -- namely Wal-Mart Stores Inc. -- to spend a certain amount of their payrolls in the state on health insurance for their workers.

The Senate voted 30-17 this afternoon to override Republican Gov. Bob Ehrlich's veto of the bill last year. The Maryland House, needing 85 votes for an override, is expected to vote this evening.

The bill proposed requiring employers with more than 10,000 workers in Maryland to pay a penalty to the state's health-insurance program if they fall short of paying the equivalent of 8% of their payroll in the state for health insurance for those employees.

Only four companies are large enough in Maryland to be covered by the bill; Of those, only Bentonville, Ark.-based Wal-Mart might fall short of the 8% threshold and therefore pay a penalty. Wal-Mart representatives told Maryland lawmakers last year that the company's contributions toward health insurance for Maryland workers equaled between 7% and 8% of its payroll in the state. Wal-Mart employs 16,988 workers at 53 stores and two warehouses in Maryland.

Wal-Mart spokesman Nate Hurst declined to comment on Wal-Mart's plans should the override effort succeed.

All of this, of couse, is very interesting to this employee benefits guy, but I wonder whether such a law would survive ERISA preemption?

Recall that Massachusetts and Illinois are considering legislation which would require employers to foot the bill for employee health care through a "pay-or-play system."  My previous post discussing those laws is here

My first impression conclusion here is probably the same conclusion I came to there: it all depends on whether Wal-Mart self-insures its health plans. If it does, the deemer clause should lead to ERISA preemption of the state law; if not (that is, it insures its health plans through another company), it should be saved from ERISA preemption as a law that regulates insurance under ERISA's Savings Clause.

Hat Tip: Peter Lattman


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» Maryland Mandates Wal-Mart Health Care Contribution from U.S. Politics: Current Events
Update 3 - 5.08 pm Pacific Today the Maryland State Senate (30-17) and House of Delegates (88-50, at just after 7 pm Eastern) voted to override Republican Governor Robert Ehrlichs veto of theWal-Mart bill [SB 790, HB 1284] which... [Read More]

Tracked on Jan 12, 2006 5:14:51 PM

» Debate over ERISA Preemption with Maryland's Passage of the "Fair Share Health Care Fund Act" from The ERISA Blog
From the Wall Street Journal--"Maryland Votes To Override Veto Of Wal-Mart Bill": Maryland legislators voted to become the first state to enact a law forcing large employers -- namely Wal-Mart Stores Inc. -- to pay a penalty if they fail... [Read More]

Tracked on Jan 15, 2006 2:14:06 PM

» Wal-Mart Responds to Maryland Law from A Stitch in Haste
When the Maryland legislature prepared to override a veto by the governor of an obnoxious bill to require Wal-Mart and only Wal-Mart to devote at least 8% of its compensation expense to healthcare, I [Read More]

Tracked on Feb 14, 2006 11:17:53 AM


The Maryland House of Delegates also voted to override the veto. I've linked back to this analysis. Question: Did the WSJ only ask you for an analysis or did they also pay you?

Posted by: kathy | Jan 12, 2006 5:18:32 PM

Hi Kathy. No, I was just asked to give my legal analysis, no money changed hands.

Indeed, my analysis is the same for this law as it is for the Massachusetts and Illinois pay or play laws. And finally, just because I believe this is what ERISA currently dictates, does not mean that I support the law of ERISA preemption as it currently stands.

Posted by: Paul | Jan 12, 2006 5:58:42 PM

I don't know what Wal-Mart currently does about insurance, but if it currently is not self-insured, why wouldn't it switch to a self-insured program for Maryland just to avoid the impact of the law? It is certainly big enough to handle self-insurance, and any administrative overhead (if Wal-Mart couldn't do it just as efficiently as any other insurer) would be more than made up by the cost savings of avoiding the new law.

That said, Wal-Mart is attempting to improve its PR image, and such a move would not exactly help.

Posted by: Kieran Ringgenberg | Jan 12, 2006 9:37:22 PM

You spoke of the deemer and savings clauses. In neither clause is the term ERISA plan differentiated by how it is funded.
Yes, the Supreme Ct. over 20 years ago, arrived at this interpretation.
Don't you think this was a bit of a stretch, by actually adding words to the ERISA text? Isn't this one of the hallmarks of an "unreasonable interpretation"?
Don Levit

Posted by: Don Levit | Jan 17, 2006 2:02:51 PM

The Court on numerous occasions has parsed Section 514 of ERISA since the mid-1980s to include this distinction between self-insured and insured health plans.

Although the express funding language does not appear in the statute itself, the savings and deemer language in combo make little sense if one does not accept this dichotomy. I believe the legislative history of this section also bears out this distinction.

That being said, and as I have noted elsewhere, I am no big fan of this distinction and there appears to be an irony in the fact that employers are seeking cover under a law that was primarily enacted to protect workers' retirement and health benefits.

Posted by: Paul | Jan 17, 2006 3:07:54 PM

The title of the Wal-Mart Health Plan is: "Wal-Mart Stores Inc. Associates' Health and Welfare Plan". The Wal-Mart Plan is self-funded, as most really large Plans tend to be.
As a self-funded ERISA plan, it is well beyond the reach of the Maryland Legislature.

Almost certainly, all the parties involved already know that Wal-Mart's Plan cannot be touched by State law, due to ERISA. Thus, the new Maryland statute is probably more about PR than real legislation. The new statute is therefore a form of Kabuki Dance. At some point in the future, when a federal judge holds that the statute is pre-empted by Secton 514 of ERISA, the Maryland Dems can say: "Well, we tried"!!

Posted by: Peter Parrott | Jan 18, 2006 11:55:04 AM

Here's a question for you, Paul, if you have a minute.

Suffolk County, NY recently passed a "fair share" law targeting Wal-Mart. It's basically identical to the Maryland law, but this one expressly exempts unionized employers. I take it you'd reach the same conclusion as above on ERISA, but what about NLRA preemption?

Posted by: sonya | Feb 2, 2006 7:27:41 PM


Interesting. You're right that I think the preemption analysis would be the same as ERISA preempts local laws as much as state laws.

On NLRA preemption, I do not see how the law as you explain would come under Garmon, Machinist, or Section 301 preemption. In short, I do not see how this law implicates the NLRA and why the NLRB would have primary jurisdiction on the matter.

For a related post dealing with the intersection between ERISA preemption and NLRA preemption,see

Posted by: Paul | Feb 2, 2006 8:11:55 PM


On the NLRA point, you may very well be right. I vaguely recalled some language from SCOTUS cases applying the Machinists doctrine that implicitly condemned regulations featuring express distinctions between union and non-union employers, which is what you have in Suffolk County.

Anyway, it looks like we may find out, as a retail industry trade association has filed suits today challenging both the Maryland and Suffolk county laws. Not sure whether the Suffolk county suit alleges NLRA preemption. Should be interesting, though.

Posted by: sonya | Feb 7, 2006 1:08:42 PM

Has there been any consensus of opinion as to whether the San Francisco Health Care Security Ordinance will be struck down as ERISA preempted? I believe its another "pay or play" proposal and that a court ruling is pending.

Posted by: Edward Sullivan | Sep 5, 2007 3:27:42 PM

This very targeted legislation leaves alot to be desired of the Maryland politicians. It is rather irresponsible of the Senate to use the law making apparatus to inact laws, that may have potentially detrimental and long term consequences, to get at a particular company. Is this being considered?

Posted by: Tom Muse | Jan 3, 2008 10:51:53 PM

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