A federal judge in Baltimore struck down yesterday a pioneering state law that sought to require Wal-Mart Stores Inc. to boost spending for employee health care, saying the legislation violated a federal law that promotes uniform treatment of employers.
The ruling is expected to ripple across the country as the nation's largest retailer battles other states and localities considering similar legislation. In Maryland, the issue could galvanize both political parties during the coming elections.
The governor told reporters yesterday that he felt vindicated by the court's decision and accused Senate President Thomas V. Mike Miller and House Speaker Michael E. Busch of endorsing an anti-business bill that threatened to harm one of the state's largest employers.
"It's overreaching," he said. "It's irresponsible."
The contest in the courts will continue in the coming months. A spokesman for Maryland Attorney General J. Joseph Curran Jr. vowed to appeal the ruling to the 4th Circuit Court of Appeals in Richmond, Va.
Miller called the ruling a "minor setback" that could be remedied, if necessary, during next year's legislative session.
"What we'll do is look at the law and find out exactly what the judge said and see if we can craft a bill that comports with his decision but [achieves] the same goal," he said. "It's a good law. It's a fair law. And it's a law that needs to be enacted in every state in the union. This is certainly not the end."
Ehrlich's likely competitor in this fall's election, Baltimore Mayor Martin O'Malley, said: "I don't think that any corporation, no matter how large, how powerful or how connected to the Republican Party, ought to be able to push their health care costs off on the people of Maryland."
The Maryland Fair Share Health Care Fund Act requires that companies with more than 10,000 workers spend at least 8 percent of their payroll for employee health care or make up the difference in an equivalent payment to the state.
Of the four companies that size operating in the state, only Wal-Mart matched the criteria set out in the law, leading the company to charge that it had been singled out unfairly. The law was due to take effect in January 2007.
Lawyers for the state argued that Wal-Mart had options under the new law to pay a tax to the state, estimated at $6 million a year, in lieu of additional health care payments for employees.
That alternative meant the Maryland statute would not conflict with federal law, the state's lawyers claimed.
But in February, a trade group filed suit in federal court on behalf of the Wal-Mart to strike down the law as passed, saying federal rules don't allow states to spell out how companies allocate benefits.
In the 32-page decision released yesterday, U.S. District Court Judge J. Frederick Motz largely agreed, writing that his ruling adhered to "long established Supreme Court law that state laws which impose employee health or welfare mandates on employers are invalid under" the federal Employment Retirement Income Security Act of 1974, known as ERISA.
Motz, who was nominated to the bench by President Ronald Reagan in 1985, further ruled that the law harmed Wal-Mart by requiring the company to make reports to the state about its payroll and health care contributions, a requirement that was not imposed on other employers in the state.
Those problems were enough to doom the law, the judge ruled. But Motz separately concluded that Wal-Mart had not proved its case on another front - the argument that the retailer had been the victim of the kind of particular discrimination banned under the Constitution's equal protection clause.
"The Supreme Court has made it clear that equal protection is not a license for courts to judge the wisdom, fairness or logic of legislative choices," Motz wrote.
Michael Hayes, a professor of law at the University of Baltimore who specializes in unemployment law, said he wasn't surprised at the overall ruling because the Maryland statute conflicted with federal law.
"I thought under existing ERISA law that the opponents had a pretty good argument," Hayes said.
The law professor said the chances of the case being overturned in a higher court are slim.
"The attorney general's office made some good points," Hayes said. "It will still be a tough sell to the 4th Circuit. Most of the judges on the 4th Circuit are conservative."
Wal-Mart and its allies cheered yesterday's ruling, calling the overturned law onerous and misguided.
"The decision sends a clear signal that employer health plans are governed by federal law, not a patchwork of state and local laws," said Sandy Kennedy, the president of Retailers Industry Leaders Association, a trade group that spearheaded the lawsuit. "It also is a clear message that similar bills under consideration in other states and municipalities violate federal law as well."
Added Wal-Mart spokeswoman Sarah Clark: "This law did nothing to control the cost of health care or improve access to health care."
Stephen Cannon, the lawyer for the Virginia-based retailers association, said in a statement that the law would have given employers "an incentive to reduce employee health benefits, not to increase them."
Wal-Mart officials defended the company's track record of providing benefits to its employees, which has come under fire from critics as wholly inadequate and a burden on taxpayer-funded health care programs such as Medicaid.
Pointing to signs of progress, Clark cited new health care insurance that Wal-Mart now provides to children of part-time employees and a reduction in the waiting period for part-time workers to become eligible for insurance coverage.
Wal-Mart operates 6,500 stores in 15 countries that serve more than 176 million customers around the globe each week. Long an unreachable target for organized labor, Wal-Mart has been chided for reportedly providing health care benefits to less than half of its workers.
Vincent DeMarco, president of the Maryland Citizens Health Initiative, which supported the law, called it a reasonable measure that a majority of Marylanders support.
Labor unions championed the bill as part of a nationwide campaign to change labor practices at Wal-Mart, which they asserted have been driving down wages and benefits for workers across the country.
In 2006, about 30 state and local governments considered health spending mandates similar to the Maryland law.
AFL-CIO President John Sweeney called the ruling an affront to working people, adding in a statement that Maryland's "Fair Share Health Care law would stop large, profitable corporations from shifting their employees' health care insurance costs onto workers, taxpayers and smaller businesses."
In an earlier court hearing on the issue, the state argued that the law was a worthy attempt to offset the state's spiraling Medicaid costs for providing health care to the poor.
Motz expressed skepticism that Wal-Mart's compliance with the law would significantly lower Medicaid costs. Still, the judge said there was hope that despite federal regulations, the state would continue to experiment with ways to provide heath insurance to more Americans.
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Sun reporters Andrew A. Green and Jennifer Skalka contributed to this article.
A federal judge struck down Maryland's first-in-the nation law that effectively required just one company -- Wal-Mart -- to spend more on employee health care. U.S. District Judge J. Frederick Motz ruled that only the federal government can impose such mandates.
Attorney General J. Joseph Curran Jr. said he will appeal the decision, and leading Democratic lawmakers who backed the plan over the veto of Gov. Robert L. Ehrlich Jr. promised to pass replacement legislation next year if necessary.