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Retailers challenge 'Wal-Mart' law in Md.

THE BALTIMORE SUN

A retail trade group filed suit yesterday to strike down a Maryland law requiring Wal-Mart to pay more for employee health care, saying federal regulations don't allow states to set worker benefits.

The Retail Industry Leaders Association, a Virginia-based organization that counts Wal-Mart as a member, says Maryland's Fair Share Health Act is illegal under the Employee Retirement Income Security Act of 1974.

That law, known as ERISA, is designed in part to make sure that large employers are subject to national standards for their benefit plans and not a tangle of conflicting state rules.

Association President Sandy Kennedy said the Maryland law and a similar statute in Suffolk County, N.Y., are a "political gimmick" and "hollow gestures that are inconsistent with federal policy."

"These laws discourage business development and stunt growth," Kennedy said.

The group filed federal suits yesterday in Baltimore and New York.

The complaint seeks an injunction preventing the statute - the first of its kind in the nation - from being enforced.

The Maryland law is due to go into effect Saturday, 30 days after a Jan. 12 General Assembly vote to override Gov. Robert L. Ehrlich Jr.'s veto of the measure.

Backers of the bill said they saw the suit as a desperation tactic by Wal-Mart and its allies.

"If they spent as much on health care as they do on lawyers, we wouldn't have anything to worry about," said Tom Hucker, executive director of Progressive Maryland, a liberal advocacy group that was part of a coalition that pushed for the bill.

"They're trying to intimidate other states out of doing the right thing. Their political strategy is based on fear and intimidation."

Wal-Mart spokesman Dan Fogelman said the retailer supports the lawsuit but is not directly involved in the legal action beyond its membership in the trade group. He said he didn't know whether the company will file friend-of-the-court briefs or take action on its own.

"We share RILA's opinion that existing law states that employee benefits plans are regulated by the federal government and not by the states," Fogelman said. "We believe that the challenges facing our country's health system are national problems that require national solutions."

A Wal-Mart executive serves on the association's board, which voted unanimously to file the complaint. The association's Web site says the group has more than 400 members, including other major retailers such as Target and Home Depot.

"The brunt of these laws falls on the retail sector," Kennedy said. "The retail industry needs the flexibility to meet the insurance needs of their diverse work force."

The company's membership in the group is a key part of the legal complaint, though. The suit argues that one of the group's members, Wal-Mart, would suffer irreparable damage from the law, thus giving it standing to sue.

Vincent DeMarco, who as president of the Maryland Citizens Health Initiative helped lobby for the bill, said the lawsuit is the result of mounting pressure on the discount giant, which has come under national assault for its employment practices.

In the days before the veto override vote, the AFL-CIO announced it was undertaking an effort in at least 30 more states to enact similar laws.

"The best thing for them and all these companies to do is just do their fair share," DeMarco said. "They're worried this law is sweeping the nation, and it is sweeping the nation."

Kennedy said she hopes the legal action serves as a warning to the 30 other states considering similar laws.

"We certainly hope other states will pause and look at what we've done in Maryland and in Suffolk County," she said.

The General Assembly sided with labor unions, supermarkets and other businesses a year ago in passing the measure requiring companies with more than 10,000 workers to pay 8 percent of their payroll in employee health care or pay the difference to the state. After Ehrlich vetoed the bill last spring, lawmakers restored it last month.

Of the four largest employers in Maryland, only Wal-Mart does not meet the law's threshold, advocates say. The others are Northrop Grumman, Giant supermarkets and Johns Hopkins - which as a nonprofit has a lower, 6 percent requirement.

Unions and other critics say that Wal-Mart skirts its civic responsibility by not offering affordable health care to its workers, forcing them and their families into taxpayer-financed health programs. The health premiums of other companies rise to make up the difference, they argue.

Wal-Mart counters that it offers a range of plans to workers and that its successful business model would be distorted by government intervention.

The retail group's lawsuit follows a similar argument advanced by the Maryland Chamber of Commerce early last month, just before the legislature was set to vote on overriding Ehrlich's veto. The chamber hired a Baltimore attorney and benefits law specialist, Henry A. Smith III, who concluded that ERISA pre-empted the Wal-Mart bill.

The federal rules were designed to provide nationwide continuity for employers, but laws like Maryland's would create a tangle of conflicting regulations, he said.

"Maryland's Fair Share Health Act was in the bull's-eye of what the Congress was contemplating when they, very wisely I think, enacted the ERISA pre-emption doctrine," Smith said yesterday.

Attorney General J. Joseph Curran Jr. issued his own advice letter last month, arguing that the Maryland law did not conflict with federal rules because it does not force employers to provide a specific level of health benefits. Rather, it gave companies the option of spending a certain amount on health care or paying a tax to the state.

Smith said yesterday that such an argument - if upheld - would cause irreparable harm to the nation's system of employer-provided health benefits. The fact that dozens of other states are considering similar but not identical laws proves the point, he said.

"If we start getting this trend of doing this in other states and it's not checked by the courts or legislatures' own self-discipline, it will certainly have a negative effect on the provision of benefits to workers," he said.

Curran said yesterday that his office has been preparing for weeks to defend the law, suspecting it might be challenged.

"We knew it was controversial," he said. "We weren't going to sit back and wait. If the issue comes up in federal court, we will appear and do everything we can do to defend the statute."

Michael Hayes, a University of Baltimore law professor who specializes in employment law, said the act appears to be unique, with no clear precedents in case law.

Hayes said he could not predict how a court would rule, but he said the retailers group could mount a strong argument.

Maryland's law "might not get them around the [federal] rule," he said.

The lawsuit re-ignited debate in Annapolis over the bill, which was among the hardest-fought issues in the General Assembly in recent years.

House Speaker Michael E. Busch said lawmakers took pains to make sure the law did not conflict with federal regulations.

"We believe there is no ground under ERISA to overturn the legislation," he said.

Ehrlich, who opposed the bill from the start, said he expected litigation.

"I will repeat my observation that Maryland - all of us - we're bit players in this national play," he said. "The unions picked Maryland in its fight against a retailer it does not like. ... We will see how it plays out, since it was never about health care in any event."

andy.green@baltsun.com jill.rosen@baltsun.com

Sun reporter Kelly Brewington contributed to this article.

An article yesterday incorrectly stated the effective date of a state law requiring large corporations -- in practice just Wal-Mart -- to pay a certain amount in employee health care or pay a tax to the state. The effective date is Jan. 1, 2007.The Sun regrets the errors.
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