Fourth Circuit Holds Employer Health-Coverage Mandates Are Preempted, Strikes Down Maryland’s “Anti-Wal-Mart Law”

January 19, 2007

The U.S. Court of Appeals for the Fourth Circuit this week struck down Maryland’s controversial "Fair Share Health Care Fund Act," popularly known as the "anti-Wal-Mart law." Affirming a ruling by the federal district court in Maryland, the Fourth Circuit ruled that health-benefits mandates like the Maryland Act are preempted by the federal Employee Retirement Income Security Act (ERISA).

Gibson Dunn represented the plaintiff trade group, the Retail Industry Leaders Association (RILA), in both the district court and the court of appeals. Gibson Dunn partner Bill Kilberg argued the appeal, and partner Eugene Scalia argued the successful summary judgment motion in the district court.

The Act mandated that certain large employers spend a certain dollar amount each year on health benefits for their employees. Employers whose benefits did not meet the specified level — pegged at 8% of annual payroll — would be assessed a penalty, payable to a special state fund.

RILA brought suit, asserting that the Act is preempted by ERISA. Maryland asserted various jurisdictional defenses to the lawsuit, and also contended that the Act escaped ERISA preemption because Wal-Mart — the only employer actually affected by the Act — could comply with its mandate by paying the assessment to the state fund, or by providing money to its employees by methods outside its ERISA plan. The District Court struck down the law as preempted, and the state appealed.

In a January 17 opinion by Circuit Judge Paul V. Niemeyer, the Fourth Circuit roundly rejected each of the state’s arguments, and held that ERISA leaves to employers the choice of how much to pay in benefits and allows those decisions to be made on a uniform, nationwide basis. Because, "in most scenarios, the Act would cause an employer to alter the administration of its healthcare plans," the Act’s purported "alternatives" did not change the fact that "the overwhelming effect of the Act [was] to mandate spending increases." ERISA forbids states and localities from enacting such a spending mandate.

Circuit Judge William B. Traxler, Jr., joined the opinion. Circuit Judge M. Blane Michael dissented.

Gibson, Dunn & Crutcher’s Appellate and Constitutional Law Practice Group has played a leading role in a number of recent significant cases in the Supreme Court, and also handles appellate matters in federal and state courts throughout the country. The firm’s Labor and Employment Practice Group has particular expertise in ERISA, employee benefits, and other labor and employment matters. We also handle a range of other labor and employment litigation and counseling matters nationwide.

To learn more about the firm’s ERISA litigation, please contact the Gibson Dunn attorney with whom you work or William J. Kilberg (202-955-8573; [email protected]) or Eugene Scalia (202-955-8206; [email protected]) in Washington, D.C., Joseph Busch III (949-451-3898; [email protected]) in Orange County, or Labor and Employment Practice Group Co-Chair Deborah J. Clarke in Los Angeles (213-229-7903; [email protected]).

For more information on the firm’s appellate practice, please contact the Gibson Dunn attorney with whom you work or any member of the firm’s Appellate and Constitutional Law Practice Group, or call practice group Co-Chairs Miguel A. Estrada (202-955-8500; [email protected]) or Theodore B. Olson (202-955-8500; [email protected]) in Washington, D.C., Theodore J. Boutrous, Jr. (213-229-7000; [email protected]) in Los Angeles, or Daniel M. Kolkey (415-393-8200; [email protected]) in San Francisco.

© 2007 Gibson, Dunn & Crutcher LLP

The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.