The state supreme court is considering whether one of Maine’s biggest employers was unfairly taxed to fund a statewide paid family and medical leave program set to begin next May.

An attorney representing Bath Iron Works — and the Maine Chamber of Commerce — argued before the Maine Supreme Judicial Court on Tuesday that the state created arbitrary delays by not allowing businesses to request an exemption from a new 1% payroll tax until April 1. The business association says the delay harmed several other companies as well.

“This is not about the enforceability or the validity of Maine’s paid family medical leave act as a whole. Instead, this is about whether the Department of Labor has the ability to alter the Legislature’s policy determinations through rulemaking,” attorney Sara A. Murphy said in her opening remarks at the Cumberland County Courthouse. “The law says employers opting to use a private plan need not pay. The rule mandates the opposite. That should be the end of this case.”

About 1,500 companies, or 3% of the state’s total, have been approved to offer private plans, according to the state Department of Labor. Those businesses employ almost half of Maine’s workers. If the justices side with the shipyard and chamber, it’s unclear what would happen to money already paid into the fund.

The pair of groups sued the Mills administration in January, the same month the state began collecting the tax, which is split evenly between employees and employers. The public fund those taxes are building is intended to cover up to 90% of regular wages for up to 12 weeks for workers who are ill or need to take care of newborns or other family members, among other reasons.

Employers with fewer than 15 workers are exempt from paying into the program, but workers at those small businesses still pay a 0.5% payroll tax and will be eligible for benefits. That means people who are self-employed only need to pay 0.5%.

Larger companies that have or plan to create equivalent leave programs can apply to opt out of the state’s program, but they were not allowed to do so until April 1 and are on the hook for payments until their plans are approved.

Speaking before the court, Murphy charged that the labor department “manipulated the timing provisions of the rule to make it impossible for employers to even apply for an exemption” until April, despite private insurance plans being made available as early as February.

Nancy Macirowski, counsel for the Department of Labor, said the April date was determined based on feedback from the insurance industry, which said during the rulemaking process that it would likely take several months to design plans so companies could adhere to the new rules.

“The department was quite surprised that then in February (the plans) started rolling in, but the rule was already written and finalized,” she said.

Opening applications in April, rather than a month or two earlier, also aligned the start date with traditional business quarters and with wage reports and premium payments that must be submitted quarterly, Macirowski said.

“It is not an artificially delayed date,” she said. “The department did not want to be put in the position that there were applications for private plan substitutions, and the commercial private plan had not been approved. … What the rule sought to do is keep all the quarters intact.”

BUILDING UP THE FUND

Between January and April, the state took in about $82 million in revenue for the fund, according to Department of Labor spokesperson Jessica Picard. All told, the state expects about 650,000 employees to be eligible for the program, but that figure will fluctuate seasonally, Picard said in an email.

The state had approved private plans for 1,544 businesses and denied applications for six as of Tuesday, Picard said. Twelve applications are pending, while three have been canceled or withdrawn by the applicant. Picard said more than 52,000 businesses reported wage data during the first quarter of this year.

“Roughly 3% of employers have a private plan approved, but they represent a larger number of employees because they are generally large companies,” Picard said.

Those approved plans represent more than 266,000 workers, about 40% of the state’s total — though some may have other jobs in and out of the state program, Picard said.

Bath Iron Works submitted its plan in mid-April and was approved shortly after, Macirowski told the court.

Company spokesperson David Hench said in a written statement that BIW’s private plan “will be available to provide benefits to our employees starting in 2026 when the PFML begins making benefits available.”

Hench said the private plan will ultimately cost workers less than the state’s 0.5% rate, but he declined to provide the specific price per employee.

While the company will not be charged for any further premiums, it is still on the hook for about $620,000 it paid during the program’s first quarter. The program rules also bar companies from getting a refund for any money paid into the fund before securing an exemption.

“The word ‘refund’ is not in the statute,” Macirowski said. “Nothing suggests that they’re then entitled to a refund back.”

An earlier draft version of the rules would have required employers to pay into the program for the first 16 months without being permitted to opt out. But after complaints by the chamber and others, the state shortened the time before accepting opt-out applications to the first three months of the year.

Chief Justice Valerie Stanfill said the court plans to issue a written decision “in due course” but did not provide a specific timeline for its deliberations.

The state plans to begin paying benefits in May 2026.