Maryland’s so-called “fair share” law, which state legislators passed last year over Gov. Bob Ehrlich’s veto, required employers with more than 10,000 employees in the state to spend an amount equal to at least 8% of payroll on health care coverage or pay the difference into a state fund. The way the law was written, it only would have applied to retailer Wal-Mart.

Upholding a July 2006 ruling by U.S. District Judge J. Frederick Motz, the 4th U.S. Circuit Court of Appeals said the law ran afoul of the Employee Retirement Income Security Act, which pre-empts state rules and laws that relate to employee benefit plans.

Because the Maryland law “effectively requires employers in Maryland covered by the act to restructure their employee health insurance plans, it conflicts with ERISA’s goal of permitting uniform administration of these plans,” wrote Judge Paul Niemeyer in the 2-1 appeals court decision.

Additionally, by including pre-emption as part of ERISA, lawmakers sought to prevent a “regulatory Balkanization” in which multistate employers would have been subject to different state benefit rules, the court said.

The ruling was welcomed by the Retail Industry Leaders Association, an Arlington, Virginia-based trade group that challenged the Maryland law.

“Today’s appeals court decision makes clear that employer health plans are governed by federal law, not a patchwork of state and local laws,” RILA president Sandy Kennedy said in a statement.

—Jerry Geisel

Jerry Geisel is a reporter for Business Insurance, a sister publication of Workforce Management