Maine’s highest court ruled Tuesday that businesses qualifying for an exemption from the state’s new paid family and medical leave program are not entitled to receive a refund for payments made during the first quarter of the year.

Maine’s Paid Family and Medical Leave program was established in 2023, and labor officials expect it to be fully funded and operational by next May. Under rules the state established last year, Maine has begun to collect a 1% payroll tax that is evenly split between employers and employees and is used to fund the program that allows employees to take paid time off under certain circumstances.

Bath Iron Works and the Maine State Chamber of Commerce sued the state in January, claiming the state was unfairly taxing the company to help fund the paid leave program. BIW said it has its own paid leave program for employees.

Employers with their own plans are allowed to opt out of paying for the state’s program, as long as the Department of Labor approves it. But the department’s rules wouldn’t let BIW apply for an exemption before April 1. Attorneys for the company have estimated that BIW paid the state $620,000 before then.

A spokesperson for BIW did not say whether the company would continue with its lawsuit in light of the high court’s ruling.

“We are disappointed, but respect the outcome and expect the Maine Legislature will have to revisit this law eventually,” BIW Vice President and General Counsel Jon Fitzgerald said in a written statement. “While we continue to support providing our employees with paid leave, issues will become apparent as the PMFL Act is implemented and we hope the Legislature will be more responsive to employer concerns.”

A spokeswoman for the state chamber said officials there were still reviewing the decision and will “evaluate next steps.”

“The Chamber respects the court’s ruling and will continue to work in a bipartisan way with state, legislative and business leaders to ensure the Paid Family and Medical Leave program is aligned with the needs of Maine businesses and workers alike,” communications director Katie Clark said in an email.

Maine Labor Commissioner Laura Fortman, meanwhile, commended the decision.

“I appreciate the court affirming that the Department’s rule was a reasonable interpretation of the Act and was within our rulemaking authority granted by the Legislature,” she said in a written statement. “We will continue to focus on implementing the program in preparation for benefits going live in 2026.”

The state mandated the nonrefundable payments through April 1 to ensure the program was fiscally sound and benefits would be available to covered individuals once the program comes online on May 1, 2026.

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.

The Maine Supreme Judicial Court disagreed that this violated state law, or that the department was exceeding its authority. The court said the rule is in-line with the statute passed by state lawmakers and does not amount to an unconstitutional taking.

“Here, there is no identifiable property right or interest at stake that could form the basis of a takings claim,” justices wrote in an opinion that was published Tuesday. “The statute and rules merely impose an obligation to pay premiums into a fund that exists wholly separate from the (overall state budget).

“Moreover, that an employer can substitute a private plan for the PFML program does not create a corresponding property right in premiums that have already been remitted to the fund, particularly when employers who are not substituting a private plan must also remit premiums for the same period.”

The justices agreed to send the case back to the Maine Superior Court, which had paused the case so the high court could weigh in. What happens next likely will depends on whether BIW and/or the state chamber want to challenge further.