ERISA Preempts New York Health Care Law Targeting Wal-Mart

July 18, 2007 ( - The U.S. District Court for the Eastern District of New York has ruled that the Employee Retirement Income Security Act (ERISA) bars a law forcing large employers such as Wal-Mart Stores Inc. to provide certain levels of health care benefits to their employees.

U.S. District Judge Arthur D. Spatt wrote in his opinion that the Suffolk County Fair Share Health Act bore similarities to a Maryland law that was struck down by U.S. District Judge J. Frederick Motz last year, which regulated the amount Wal-Mart had to provide to employees in the state (See Judge: ERISA Trumps MD ‘Wal-Mart’ Health Care Law ).

The decision by the New York federal court trumpets another victory for Retail Industry Leaders Association (RILA), a trade group representing Wal-Mart and 400 other large companies (See Wal-Mart, Other Retailers Challenge MD Health Care Law).

In ruling in favor of RILA, Spatt agreed said that even though the law doesn’t require that employers increase contributions in ERISA plans, the other alternatives it suggests like setting up health savings accounts (HSAs), are not viable for employers. Spatt went on to note in his opinion that HSAs must be created by the choice of the employee.

Spatt also said that changing the amount of contributions required for Suffolk Country employees would mean Wal-Mart would have to make different expenditures foremployees in Suffolk County than for employees in other states.

“[T]he present Act would interfere with employers’ administration of their ERISA plans because employers would have to vary benefits for New York employees; the law would inhibit the administration of a uniform plan nationwide; and the law would disrupt uniform plan administration,” Spatt wrote in the opinion. “In order to comply, employers would be required to alter their ERISA plans to meet the spending requirements of the Act.”

The initial version of the Suffolk County law was signed in October 2005 and required that:

  • Employers file an annual report with the county’s department of labor.
  • Large retail stories selling groceries to pay health care costs for their employees that amounted to no less than $3 per hour worked by their employees in Suffolk County.
  • If employers did not meet that amount in health care expenditures, they would have to make up the difference and pay civil penalties to the county.

RILA filed suit against Suffolk County in February 2006 and sought a summary judgment on the grounds that ERISA preempted the law. This prompted the county to makes some changes to the law that included:replacing the $3 per hour worked health care expenditure requirement with a “public health cost rate” that was to be posted each year by the county and forcing covered employers to make minimum employee health care expenditures equivalent to the public health care cost rate multiplied by the total number of hours worked by their employees in Suffolk County.

RILA argued that the law couldn’t be enforced because it forced employers to provide a certain minimum of health benefits; however; the county said that ERISA does not apply because the law does not require that an ERISA plan be established, nor does it demand any changes to an ERISA plan.

The county further argued that the law simply gave employers a choice of contributing to: an HSA, reimbursing employees for their health care expenses, providing health services in the workplace, or contributing to a community health center.

Along with ruling that creating HSAs were not a viable option, the court also said that allowing employers to build on-site health services was an “unrealistic, impractical option.”

The court also rejected a provision in the Fair Share Health Act that allowed employers to refund employees for health care expenses rather than modifying their ERISA-governed health plans, because such reimbursement would require a plan and plan administrator to ensure that employers regularly reimbursed employees, according to the opinion.

The opinion is Retail Industry Leaders Assoc. v. Suffolk County, E.D.N.Y., No. 06 CV 00531 (ADS)(ETB), 7/14/07).