January 17, 2007

WalMart (& RILA) 2, Maryland 0

by PG

Following a July defeat on summary judgment at the district court level, Maryland's "fair share" law has taken an appellate blow at the hands of the 4th Circuit, which agreed with most sensible observers that the state legislation is preempted by federal ERISA in setting benefit requirements for employees. I don't know of a conflicting circuit ruling, so there's little reason for the Supreme Court to take up an appeal; a better political route will be to pressure a newly-Democratic Congress into imposing more benefits requirements for large corporations nationwide.

OK, that made the outcome seem obvious, when in actuality the majority opinion by Judge Niemeyer and joined by Traxler garnered a dissent by Judge Michael. At the district level, the court ruled for Wal-Mart on ERISA but for Maryland on Wal-Mart's claim that the Fair Share Act violated the Equal Protection Clause with an irrational classification. (I dunno how classifying by the number of employees -- which most labor-related law already does, to avoid imposing too much on mom-and-pops -- can be considered irrational, but good litigators throw in the kitchen sink of the 14th Amendment.)

The majority 4th Circuit opinion says that RILA does have standing, despite not being injured in itself and the injury to its members being only impending, and that the district court was right to consider Fair Share a regulation rather than a tax. Had the requirement to spend 8% on employees' health care or else have it levied by the state been deemed a tax, a federal lawsuit to stop it would have been impeded by the Tax Injunction Act, which kicks such actions to state courts when possible.

Related to the attempt to characterize Fair Share as a tax rather than regulation, Maryland also argued that Fair Share isn't really about mandating an employer’s provision of healthcare benefits, but rather is "part of the State’s comprehensive scheme for planning, providing, and financing health care for its citizens," imposing a payroll tax and credit scheme on certain employers, with revenue going to paying for the uninsured's health care. The General Assembly's deliberations before passing the law, however, make quite clear that Maryland expects Wal-Mart to start providing more benefits to its employees, not to pay the state an equivalent amount to go into a fund that would benefit the non-WalMart-employee uninsured as well.

I think this legislative record is important to the case, as otherwise Maryland structured a decent workaround: Fair Share allows companies to spend on health care generally, including inhouse clinics, rather than specifying health care plans that automatically would raise an ERISA flag; and to pay into the state instead of providing health care themselves. However, all the legislature's rhetoric about how Wal-Mart was going to have to insure its employees now utterly undercut the carefully-written statute, and made clear that it was merely a cover for an attempt to regulate Wal-Mart's provision of benefits to employees, in clear violation of ERISA. Having decided that the Fair Share Act is preempted by ERISA, the majority declined to consider the equal-protection claim.

In dissent, Judge Michael takes more seriously the option to pay into the state fund rather than change the company's health care spending, and therefore says Fair Share is not preempted by ERISA. He begins by describing Maryland's Medicaid funding woes at length, and the burden imposed on it by uninsured workers. Michael dodges what would seem to be the Tax Injunction Act barrier to his even considering the case by calling it a "regulatory fee" rather than a tax. At this point, Michael seems to damage his own argument that Maryland is not regulating in violation of ERISA:

The assessment may generate revenue, but its primary purpose is punitive in nature. It assesses employers that provide substandard health benefits or none at all. Any revenue collected serves to recoup costs incurred by the state due to such behavior; collections are not deposited in the general fund. The regulatory purpose is further evidenced by the Act’s creation of a special fund administered by the Secretary of Labor, Licensing, and Regulation and dedicated to defraying the state’s Medicaid costs.
Right, so doesn't all this make Fair Share a benefits regulation? Judge Michael says no, because it doesn't specifically impact "any employee benefit plan," which is the precise phrase used in Congressional legislation to describe the field ERISA fully occupies.

This strikes me as the most plausible argument in favor of the law, though it relies heavily on understanding what is meant by "benefit." In normal usage, "benefit" means something that provides utility; my former employer provided the benefit of free juice and water at the office, as well as use of the company box at FedEx Field and MCI Center. Even if a state decided to regulate such benefits, it would have no conflict with ERISA because no "plan" is involved. ERISA is intended to cover health care and retirement plans, basically to keep employees from getting screwed, and has been amended by COBRA to give employees the option of retaining company coverage even after losing their jobs, and by HIPAA to prevent discrimination based on preexisting health conditions. It would not force a company to, or stop it from, installing an on-site health clinic; ERISA is about plans, a word it uses ad nauseum to describe both health care and pension benefits.

The Maryland law, in contrast, technically did give companies the flexibility to spend money on alternatives to traditional insurance: clinics, free prescription medication from Wal-Mart's own pharmacy, even total health care for employees themselves with nothing for their families. The definitions in the law are muddled -- "'health insurance costs' means the amount paid by an employer to provide health care or health insurance to employees in the state to the extent the costs may be deductible by the employer under federal law; 'health insurance costs' includes payments for medical care, prescription drugs, vision care, medical savings accounts, and any other costs to provide health benefits as defined in Section 213(d) of the Internal Revenue Code" -- but they appear to be anything that fits with the IRS deduction, which in turn allows 'most everything except nip/ tuck.

Judge Michael ignores the legislative record entirely, concluding primly,

The Act also contains no impermissible reference to an ERISA plan. Such a reference occurs only when a statute explicitly refers to or relies upon the existence of an ERISA plan. District of Columbia v. Greater Wash. Bd. of Trade, 506 U.S. 125, 130 (1992) (statute preempted because it applied to "health insurance coverage," which is an ERISA plan). Obligations under the Act are tied to a covered employer’s level of tax deductible health insurance spending. The Act does not make any explicit statement about ERISA plans or rely on their existence.
Legislation that otherwise maybe mighta squeezed under the wire has been derailed by exuberant legislative comment before; the Kentucky Ten Commandments fell mostly because they were found to have an impermissible purpose, while the Texas Decalogue still stands thanks to the ability of the Texas Lege to let a monument be put up without talking too much about it.

UPDATE: Other reactions at Workplace Prof, Jottings and Employment Law blog, the last of which makes the bold move of siding with the dissent.

January 17, 2007 05:24 PM | TrackBack
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