Archive for Monday, July 24, 2006

Wal-Mart ruling helps customers

July 24, 2006


U.S. District Judge J. Frederick Motz put at least a temporary hold on Maryland's attempt to force Wal-Mart into providing health care benefits for its employees in the state.

Every person who shops at Wal-Mart or one of its competitors - which means just about all of us - should give Motz three cheers for helping to ensure that a business that has revolutionized the entire U.S. retail sector can continue doing so.

The legal issue in the case - brought by the Retail Industry Leaders Assn. - was straightforward. There is a federal statute that regulates employee benefit and pension plans, the Employee Retirement Income Security Act, known by its initials as ERISA. The reason a federal law regulates these plans, rather each state doing so separately, is to protect employers that operate in multiple states.

If each state regulated benefit plans, multi-state employers would have to hire an army of lawyers and accountants to keep up with the various state laws' requirements. That would make everything their companies sold more expensive.

Under Maryland's "Maryland Fair Share Health Care Fund Act," any private employer with more than 10,000 employees in Maryland that spent less than 8 percent of its total wages on health insurance costs had to pay the difference between its premiums and 8 percent of the payroll to the state.

Why 10,000 employees instead of 5,000 or 15,000? Because the 10,000 employee threshold put Wal-Mart - and only Wal-Mart - under the statute's requirements since the three other private Maryland employers with 10,000 or more workers spent more than 8 percent of their payroll on health care, or were specifically exempted from the law.

The arbitrariness of the Maryland statute makes clear exactly why ERISA pre-empts state laws in this area. If local and state governments could simply instruct employers how much to spend on various categories of benefits, multi-state employers would all soon find themselves entangled in a web of contradictory spending requirements.

Although Maryland's attorney general has vowed to appeal the decision to the Court of Appeals for the Fourth Circuit, that court is notoriously sensible on this sort of case. Maryland's chances of prevailing in court are slim, at best.

The problem with legislatures' attempts to take a "fair share" of employers' revenues won't end here, however. It's easy to see why employers like Wal-Mart present such a tempting target to state legislators looking for a quick fix: They're large and they've got cash. Why not just take their money and spread it around to some local voters? Who could it hurt?

It hurts us all. It hurts Wal-Mart shoppers, because legislative revenue grabs drive up Wal-Mart's costs and thus its prices. It would hurt those who never set foot in a Wal-Mart, because the stores where those people shop would be under less competitive pressure from Wal-Mart to keep costs down.

It would hurt Wal-Mart's shareholders, which includes people with retirement investments in Wal-Mart stock, broad-based index mutual fund investors whose funds own Wal-Mart stock and many people who work at Wal-Mart, which offers employees a chance to buy its stock at a substantial discount.

In short, Maryland's legislature wasn't just trying to tax Wal-Mart - it was trying to tax us all. The men who drew up our Constitution in 1787 likely never imagined stores like Wal-Mart, laws like ERISA, or even products like health insurance. They did, however, imagine that one day the 13 disparate states they represented would truly be one national market in which firms would compete across state lines.

Even if they didn't know the exact nature of the benefits, they welcomed that competition. Unfortunately, today all too many members of state legislatures act as Maryland's did, focusing only on their own narrow political interests.

Seeing a chance to take Wal-Mart's money to spend on their constituents, they couldn't resist. When they did so, however, they taxed not only Wal-Mart but us all.

Judge Motz's well-reasoned and careful opinion was a first step toward reigning in such behavior, but it will take all our efforts to prevent future legislatures from finding new ways to disguise tax increases as a "fair share."

- Andrew P. Morriss is Galen J. Roush professor of business law and regulation at Case Western Reserve University School of Law in Cleveland.


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