FORT HALIFAX PACKING CO. v. COYNE
Legal provision: Employee Retirement Income Security
Argument of John C. Yavis, Jr.
Chief Justice Rehnquist: You may proceed whenever you're ready, Mr. Yavis.
Mr. Yavis: Thank you, Mr. Chief Justice, and may it please the Court: This case presents for decision the conflict between ERISA and a Maine statute upheld by the Maine Supreme Judicial Court.
ERISA makes employee benefit plans a subject of exclusive federal concern.
And expressly preempts any and all state laws that relate to such plans.
While the Maine statute requires payment of severance pay benefits included within ERISA coverage.
In summary, our position is, first, that ERISA Section 514 preempts state mandated or state created plans.
And second, that the Section 4(B)(3) exemption does not extend to the Maine severance pay law.
We submit that Maine may not impose a severance pay plan any more than it might impose a pension plan.
Briefly with respect to the facts of this case, Fort Halifax is part of a larger group of companies headed by Corbett Enterprises, Inc. which in 1981 had operations in approximately 11 states.
These were poultry operations and Fort Halifax operated its plant in Maine from 1972 until May of 1981 when the plant closed because of adverse market conditions.
Fort Halifax had a collective bargaining agreement in force at the time of the plant closing and pursuant to that plan it had provided a retirement plan to its production workers and various employee welfare benefit plans including life insurance, combination life and health, major medical and accident and sickness as well as other employee benefits.
The collective bargaining agreement however did not call however, for the payment of severance pay.
And in this action, the Maine Department of Labor, sought to enforce that Maine Severance Pay Statute which covers establishments with basically 100 or more employees that relocate or close, that is the establishment relocates or closes, the statute requires payment of severance pay to eligible employees.
Unknown Speaker: Mr. Yavis, is the employer's compliance with that statute subject to ERISA?
Do ERISA regulations govern anything that occurs in order to comply with that statute.
Mr. Yavis: I don't believe that the ERISA regulations would apply because ERISA in our opinion would preempt the application of the statute.
Unknown Speaker: Make believe it doesn't.
Make believe it doesn't.
Would, in implementing that statute, the employer have to comply with ERISA regs?
Mr. Yavis: The statute does not call for that.
The Maine statute does not call for that.
Unknown Speaker: But does ERISA call for it?
Mr. Yavis: ERISA does--
Unknown Speaker: If it's not preempted by ERISA,--
Mr. Yavis: --Yes, ERISA then--
Unknown Speaker: --would there have to be compliance with any ERISA regulations?
Mr. Yavis: --ERISA does cover severance pay plans expressly and that's in 3(1)(A) where some courts have held that ERISA covers severance benefits as benefits as benefits in the event of unemployment.
Unknown Speaker: Which means what?
What would ERISA require to be done with respect to this plan?
Mr. Yavis: There would be, for example, disclosure to employees, reporting, there would be fiduciary standards, there would be access to federal courts, there would be potential intrusion by the Federal Department of Labor.
Various protective measures to assure that the benefits were received.
Unknown Speaker: I assume it's also true that if there were no state statute, but if a private employer had a plan, a severance pay plan precisely the same as what the statute requires that private employer would also be covered by ERISA.
Mr. Yavis: That is correct.
Unknown Speaker: xxx to that plan.
Mr. Yavis: I should add, Your Honor, that there are alternative grounds in the statute for including severance pay as an ERISA benefit.
In 3(1)(B) there's a severance pay specific reference to severance benefits and in 3(2)(B) which was adopted by Congress in 1980 there's a reference to severance pay arrangements and Congress gave authority to the Department of Labor, to the Secretary to define severance pay arrangements as welfare benefit plans instead of what might have been the case to have them treated as pension plans.
The Department of Labor regulations do define severance benefits as welfare plans and therefore for purposes of ERISA, they are employee benefit plans.
The Maine statute presents an employer with a choice.
Either have a private contract granting, providing is the statutory word, providing severance pay, or pay severance pay according to the statute.
The statute defines eligibility, the type of benefit that will be provided, who may obtain that benefit and when, and what procedure one will follow to collect it.
The eligibility is basically three years or more of employment.
The type of benefit is defined as severance pay.
The amount is one weeks pay for each year of employment at the establishment, and in this case that meant that the judgment below covered periods before the date of acquisition of the plant by Fort Halifax.
The statute covers when payments are due and it provides a procedure for collecting benefits and strangely provides for suit in state or federal court.
The statute has within itself, in other words all the indicia of a plan.
The term plan itself is not defined as such in ERISA.
Is it referred to as a plan fund or program but there's otherwise no formal requirement for what must constitute a plan.
On its face therefore, the Maine plan, the main law purports to regulate a defined ERISA benefit plan, that is severance pay.
And ERISA Section 514 then preempts that law to the extent the law relates to any employee benefit plan.
Now the relationship here we contend is apparent on the face of the statute.
Unknown Speaker: May I just interrupt you, Mr. Yavis for a second.
The definition in the ERISA is it's a plan that's heretofore or hereafter established or maintained by an employer.
And you contend that when the statute was passed, well how does that language fit the statute?
Mr. Yavis: Well in this case, Your Honor, the plan has been initiated by the statutory action of the state of Maine.
Unknown Speaker: Do you think that this language in ERISA covers that plan established or maintained by the state of Maine.
Mr. Yavis: If the plan were solely established by the state of Maine and not maintained by the employer then perhaps the answer would be no.
But we do maintain that the--
Unknown Speaker: Say for, take for the example, say you didn't have a plan at all.
You're an employer that just didn't provide for severance or benefits or anything, but you would have to comply with the statute.
Would your compliance with the statute in your view fall within this definition xxx.
Mr. Yavis: --Yes, it would because we would be required to maintain that plan.
The company would be the one that would have to pay the benefits.
The company would be the one that would have to administer the benefits.
To find the people to write the checks and so forth; to perhaps defend claims if any were raised.
So, our position is yes, it is the employer that is required to maintain the plan--
Unknown Speaker: Not to establish it, but to maintain it.
Mr. Yavis: --That's correct.
Unknown Speaker: And you say the act of the writing the checks is enough to be maintaining a plan?
Mr. Yavis: Yes, and--
Unknown Speaker: If you know who the employees are when you fire them, I'm sure.
Mr. Yavis: --But there may or may not be eligibility.
For example, if someone at a covered established is someone employed for three years or not, are there breaks in service and so forth.
Unknown Speaker: But that's not a plan that the employer, that's all a matter of statutory compliance isn't it?
Mr. Yavis: --Well those are, what we say is that the statute in effect presents the plan to the employer, that the employer must thereby maintain that plan.
Unknown Speaker: You say that, in other words, what you're saying is compliance with the statute is equivalent to maintaining a plan.
Mr. Yavis: That is correct.
And in this case it would, if we had the same plan apart from the statute that would be the maintenance of the plan.
Unknown Speaker: Well if you had it voluntarily--
Mr. Yavis: Yes, yes.
Unknown Speaker: --there's no problem.
This is not something that you voluntarily do.
You've got to be hypothetical--
Mr. Yavis: That is correct.
Unknown Speaker: --If you had said--
Mr. Yavis: We are compelled to do it by the force of the statute.
Unknown Speaker: --But here of course, the employer did have some sort of ERISA plan in effect.
Mr. Yavis: Yes it did.
Yes, it had the retirement plan for production workers.
It had a retirement plan for administrative and clerical personnel.
And it had the four employee welfare benefit plans that I mentioned.
I'll take this opportunity to say that in the state of Maine's brief they say to the contrary that we had no other plans besides the retirement plans.
That is not correct.
These other plans I referred to in the Joint Appendix in the collective bargaining agreement, pages 27 to 129.
Unknown Speaker: Tell me what it takes to maintain the plan other than writing checks?
Do you have to fund it?
Mr. Yavis: No you do not, Your Honor.
In the case of a severance pay plan you do not.
Unknown Speaker: ERISA doesn't require that either?
Mr. Yavis: --It does not.
It does not require a trust.
As long as the payment is going to be made out reasonably currently after the severance.
Unknown Speaker: So even if a private employer set up the same kind of a plan under his own authority without a statute compelling it, he would be doing no more than what your client does writing a check.
Mr. Yavis: Right, Your Honor, a person subject to such a plan should go through the publication and disclosure aspects, but up to the time of payment there is no requirement for funding, no requirement for a trust.
The ERISA and the regulations do not require that in the case of the severance pay category of plan.
Unknown Speaker: Does the Maine statute require you to do that publication?
Mr. Yavis: No, it does not.
Unknown Speaker: It does not?
Mr. Yavis: Does it require you to do what?
Unknown Speaker: To do the same kind of publication and notification that ERISA does.
Mr. Yavis: No, it does not.
Unknown Speaker: So unless your plan is covered by ERISA those duties of the employer would be eliminated.
Mr. Yavis: That is correct and those are, of course, the duties considered important by ERISA.
Unknown Speaker: But if it were held, and I am not saying it should be, but if it were held that there is no preemption here then those duties wouldn't apply to compliance with the Maine statute.
All you would have to do with regard to severance pay is do what the statute requires if it were held that there was no preemption.
Mr. Yavis: I suppose that's right.
If ERISA doesn't apply at all.
Unknown Speaker: You wouldn't have to give notice or any of that.
Mr. Yavis: The structure of ERISA supports the congressional intent to have broad preemption of any and all state laws.
That is the phrase, any and all in Section 514 (A) and the relationship here is that one either has to have the statutory plan or the private contract providing for severance pay.
I'd like to point out other aspects of the structure of ERISA that bear on that congressional intent.
The definition of the term, state, in Section 3(10), ten in parenthesis, applies to the overall statute and basically says a state is a state.
But in Section 514 there is a second definition of state in 514(C)(2).
Unknown Speaker: xxx.
Mr. Yavis: Your Honor, 514(C)(2) is at page 66 of the jurisdictional statement appendix.
And the definition of state for the purposes of preemption is now refined, expanded, clarified in a very significant way.
The term state now includes a state which purports to regulate directly or indirectly the terms and conditions of employee benefit plans covered by this subchapter.
And as I've indicated a severance pay plan is one such plan.
State law on the same page, the preceding subsection 1, is also broadly defined, again to indicate Congress' intent to broadly preempt any and all state laws, and it's defined to include other state action.
Unknown Speaker: So you would make the same argument if the state just said, we're not going to say anything about what should be in a plan, but you have to have a severance plan.
Mr. Yavis: Yes.
Our position is that the states may not mandate the award of employee benefit plans or particular levels or types of benefits.
That's a decision left to the private parties.
That's part of the comprehensive scheme of the ERISA statute.
The policy statement in Section 2 of the Act refers to the scope and impact increasingly interstate.
There's a phrase about effected with national public interest; another reference to interstate character and so forth.
There is a policy statement that conveys Congress' desire to have a broad federal regulation.
And Section 4(B)(3) is also another indication of the congressional intent that is at page 63 of our Joint Appendix for the jurisdictional statement.
And shows Congress' comprehension that there would be state mandated employee benefit plans of which three are excluded from coverage, and only three.
Otherwise, Congress contemplated that state attempts to mandate ERISA benefit plans would be within ERISA's coverage and subject to preemption.
Now there have been subsequent proposed amendments to 4(B)(3).
None have been adopted.
There was an amendment in 1983 that followed this Court's decision, this Court's affirmance in Agsalud, but the decision was left in tact.
Basically, the statute was amended in minor ways to accommodate the Hawaiian statute in part, not in total.
And the basic preemptive scope of 514 was left in place following those amendments.
Those amendments then themselves show Congress' desire to have a broad preemptive scope, broad preemption of any and all state laws.
Now in this Court, Maine is trying to redefine what its statute means in order to avoid 514(C)(2).
Unknown Speaker: May I ask you another question if I may?
Supposing Maine amended its statute and now it has an exception from the requirement if you adopt a, have a severance provision in a plan you don't have to comply with the Maine statute and I guess it's pretty hard to get that if the union knows they can get the statutory business.
Suppose instead of that they passed an amendment said the severance obligation shall not apply to any employer who has an ERISA plan of any kind so that the whole scope of the statutory operation was in, for employers who had no plans other than this, would it still be preempted in your view?
Mr. Yavis: I believe so.
And I believe that that's the congressional intention to leave the type of benefits, the level of benefits to the parties choice basically.
Congress left that decision to the private parties.
Now, Maine here--
Unknown Speaker: Do you conclude that from the preemption clause?
Is that what you conclude from?
Mr. Yavis: --In part.
In part, Your Honor.
Unknown Speaker: Well would you be arguing the same if the expressed preemption clause wasn't even in ERISA?
Mr. Yavis: Well I would think that would be a, certainly a more difficult case but the intent of the statute expressed in the policy in Section 2 and if the same legislative history were there it would be hard to conceive the same legislative history without the expressed preemption provision.
But certainly, hypothetically yes.
Unknown Speaker: Well couldn't you say in this case that the Maine law is not preempted in the sense that it may require the employer to have a severance pay policy but that once he establishes it, it's subject to ERISA?
Mr. Yavis: I don't believe that decision was left to the states.
Unknown Speaker: Well I know.
I know, but if you did establish a severance pay plan as the statute purports to require it would be subject to ERISA then wouldn't it?
Because then you have a plan?
Mr. Yavis: --I believe that if we accepted that plan, yes, it would be a severance pay plan under 3(1)(A) or 3(1)(B)--
Unknown Speaker: And, ERISA, Maine doesn't say that it wouldn't, does it?
It wouldn't interfere.
It doesn't purport to interfere with ERISA coverage once the plan is adopted.
Mr. Yavis: --Well conceivably--
Unknown Speaker: Isn't that right?
Mr. Yavis: --I'm not sure if that's right.
Conceivably the remedies afforded in the state statute could depart from remedies in the federal statute.
For example, Maine certainly isn't giving anyone any right to the Secretary of Labor to come in and advance the cause of participants.
Maine just is not doing that.
What Maine is trying to do in this Court is to tell the Court that the benefit could have been negotiated away completely.
They argue at pages 17 and 18, that the Maine statute really doesn't mandate any benefits at all and therefore 514(C)(2) wouldn't come into play if the statute doesn't purport to regulate employee benefit plans.
Well the express wording of the--
Unknown Speaker: What is 514(C)(2)?
Mr. Yavis: --514(C)(2)?
Unknown Speaker: You have them published in your Appendix with the 29 U.S.C. numbers.
Why don't you--
Mr. Yavis: I'm sorry, Your Honor, that is at page 65.
Excuse me, at Page 66.
And it's under (C) definitions, subparagraph (2).
I simply want to indicate here that Maine is trying to take a different tack than what the express words of the statute say.
The express words of the Statute say you have to have either an express contract providing for severance pay, or you observe the statute.
That's the applicable exception of the statute that I'm referring to.
An express contract providing severance pay.
Here they argue that an employer could have an express contract eliminating severance pay.
That was not the finding of the Maine Supreme Court.
And I refer you to our Joint Appendix of the jurisdictional statement at A-12 for the words that the Maine Supreme Court used in that regard.
In other words, under the statute you either have to have an express contract or face liability under the statute.
I very briefly want to turn to the 4(B)(3) issue which is, the claim is made that 4(B)(3) exempts the Maine severance pay law as an unemployment compensation law.
4(B)(3) exempts plans for compliance with three types of laws: Workman's Compensation, Unemployment Compensation and Disability Insurance laws.
Severance pay is not expressly one of those three categories.
The attempt is made here to fit severance pay within the Unemployment Compensation law category.
Otherwise Maine would be trying to add a fourth category to that statute.
We have five responses to that.
That the plain meaning of the term, Unemployment Compensation law is otherwise.
That Congress' use of different terms in the statute at different places entitles the statute to the normal presumption that different things were meant when different words were used.
The department's regulations do not treat severance pay as unemployment compensation.
Fourthly, Maine itself does not treat severance pay as unemployment compensation and fifth, the Maine law's real thrust is not at unemployment.
Our fundamental position is that the term unemployment compensation law had in 1974, and has today, an accepted meaning.
That is a meaning that is pursuant to the Social Security Act and the Federal Unemployment Tax Act.
50 states have such laws.
It is a strange reading to look for some other interpretation of that term.
In the statute itself I've already referred to 3(1)(A), 3(1)(B) and 3(2)(B).
Congress itself is using the words severance pay and severance pay arrangements where at another place in the statute it's using the term benefits in the event of unemployment and at still another place using the term unemployment compensation law.
Congress used those terms presumably for the different meanings that each had.
Unemployment compensation means something quite different than severance pay.
Severance pay doesn't connote necessarily unemployment, although there will be a termination of employment.
The regulations of the department cite in our reply brief also do not equate severance pay and unemployment compensation.
Those regulations have been in place, I believe, since 1975.
There's been a 1980 amendment to the statute authorizing the Secretary's regulations.
Those regulations have the force of law and are entitled to great weight.
Now fourthly, I said Maine itself doesn't consider it's severance pay law to be an unemployment compensation law.
It considers severance pay to be wages, that's the way that severance pay is, that's the way the unemployment compensation law defines severance pay.
The severance pay statute is not in the unemployment compensation statute.
It's somewhere else in the Maine statutes under a heading severance pay, in a subchapter that starts out, with wages.
Unknown Speaker: --I suppose you get severance pay even though you go right to another job too, don't you?
Mr. Yavis: That's right.
There's no connection necessarily to unemployment at all.
Our fifth response is that real trust is not unemployment at all.
And the point that you've just made, Your Honor, is just that.
And also, the exceptions that Maine makes to its law shows that its just concerned with unemployment or maybe not concerned with unemployment at all.
It exempts coverage from its severance pay statute for a victim of a fire, or a victim of bankruptcy.
These people are just as injured and yet they are not protected.
As the court stated recently in Guera in determining whether a state statute is preempted our sole task is to ascertain the intent of Congress.
In ERISA Congress has spoken in express terms for preemption.
Unless the Court has other questions, I will reserve my remaining time for rebuttal.
Unknown Speaker: Thank you, Mr. Yavis.
We'll hear now from you, Mr. Warren.
Argument of Thomas D. Warren
Mr. Warren: Mr. Chief Justice, and may it please the Court: I'm going to concentrate this morning as Mr. Yavis did on the ERISA preemption argument.
There is another claim of preemption that has been raised by Fort Halifax.
That's the claim of preemption under the National Labor Relations Act and we believe that that claim is adequately treated in our brief and in the brief filed by the Solicitor General and I'll content myself by saying on that that we agree with the National Labor Relations Board that this case is controlled by the Court's decision in Metropolitan Life on that issue.
Now on the ERISA issue we agree with Mr. Yavis that the fundamental question turns on the intent of Congress and in this case it turns on the intent of Congress as expressed in the ERISA statute and in the express provision in ERISA Section 514 which calls for preemption.
We do not agree, however, that what the state is doing here is requiring an employer to maintain an employee benefit plan within the meaning of ERISA.
Mr. Yavis speaks about the broadness of the ERISA preemption provision and I would just like to look directly--
Unknown Speaker: I understand your position is that Maine does require the type of a plan that ERISA would reach?
Mr. Warren: --That's correct.
Unknown Speaker: And if an employer on his own established precisely the kind of plan that the Maine law requires you say that would not be covered by ERISA?
Mr. Warren: It would depend, if--
Unknown Speaker: Say the union and the employer negotiated and said anytime somebody leaves he gets a week's pay period.
Mr. Warren: --In that case, Your Honor, I think that there is a difference in that and what the Maine law requires.
That would provide for severance pay in every circumstance of an employee termination and what the Maine law does--
Unknown Speaker: Well, let's assume that, let's assume in some other state--
Mr. Warren: --Okay.
Unknown Speaker: --a union and an employer negotiates a severance pay plan and it's identical with what the Maine law requires.
Mr. Warren: If it were, if all you had was a provision in a contract that said in the event of a plant closing we would--
Unknown Speaker: Well, I'm just saying if the plan requires precisely what, sets up exactly what the Maine law requires.
Mr. Warren: --Well then that would be a plan which applied only in the event of a plant closing.
Unknown Speaker: Uh-huh.
Mr. Warren: And in that case, we think that it probably would be covered by ERISA.
Unknown Speaker: ERISA, yes.
But you say the Maine, an employer who establishes a plan in response to the Maine statute is not establishing a plan that is subject to ERISA.
Is that right?
Mr. Warren: Well that's not quite right, Your Honor.
Unknown Speaker: Well that's what you said a while ago.
Mr. Warren: I hope I, what I, let me clarify.
An employer who establishes on his own a plan or any kind of arrangement with his employees to pay severance pay either in the event of a plant's closing or to pay severance pay generally is, we believe, exempted from the Maine law by the very terms of the Maine statute.
Unknown Speaker: Well that may be so.
But now here is an employer who established it because of the Maine law.
Mr. Warren: Well, if an employer creates a plan, they exempt themselves from the Maine law.
I'm not sure, if an employer merely pays what is required by the Maine law we are not suggesting that that creates an ERISA plan.
Unknown Speaker: Well, so that isn't a plan at all if he just recognizes his obligation under the law to make a payment.
Mr. Warren: Well, what we're really suggesting is this.
The statutory obligation created by Maine law does not bear any resemblance to the kind of employee benefit plans which Congress was intending to regulate under ERISA.
Unknown Speaker: Why?
You said that if there was a private plan that required severance payments only upon removal of the plant, it would be covered.
Mr. Warren: I think in that instance it would probably be covered.
Unknown Speaker: Okay.
So now you're telling us that Maine can, or any state I presume, can take its employers out of the coverage of ERISA, by simply mandating by law what ERISA would cover had the employers done it voluntarily.
That's a great out for a lot of employers.
Just get the states to enact a law that covers the kind of plan they want to adopt and that plan is out of ERISA.
Mr. Warren: Well we really think that's only true in this context and--
Unknown Speaker: Oh.
Mr. Warren: --let me explain me why.
Unknown Speaker: Well that's nice.
Mr. Warren: It's true in this context for one reason.
What ERISA is really looking at was private arrangements between employers and employees, where employers create promises to pay certain kind of fringe benefits their employees.
And what we would contend under those circumstances is that what Congress was really focusing on were the kinds of problems that had developed with respect to those kinds of private arrangements.
Unknown Speaker: I don't care what they were focusing on, I care about the law they wrote.
Now why is there anything in the law that would allow me to make this kind of distinction.
Mr. Warren: What we're suggesting, Justice Scalia, is that the wording of the statute has to be interpreted in light of the underlying policies of the ERISA statute.
Unknown Speaker: What word would enable this distinction that you can yank a, what would otherwise be a covered severance plan out of ERISA simply by adopting a state statute that covers it but you can't yank anything else out of ERISA by adopting a state statute that covers it?
Mr. Warren: What you've got, the definition of an ERISA plan is a plan or fund which provides certain kinds of employee benefits and which is either established or maintained by an employer.
So what we're suggesting is that if you don't have something which rises to the level of an ERISA plan, and if you don't have a plan which is created by an employer, or which is maintained by an employer, then we think you're out of the statute just on the wording of the statute.
Unknown Speaker: You would draw a distinction, as I take it, to follow up on Justice Scalia's hypothetical, the Maine statute said you must create a fund and pay benefits out of that in certain periodic payments.
You would agree that would be a plan created by the employer in compliance with the statue and therefore be an ERISA plan.
Mr. Warren: I think if you have an ongoing benefit program--
Unknown Speaker: So they couldn't.
Mr. Warren: --that, payable to employees over time--
Unknown Speaker: But your point is that--
Mr. Warren: --But that would be something--
Unknown Speaker: --This statute doesn't require them to establish or maintain any plan.
Mr. Warren: --It does not.
It requires them to make a payment xxx.
Unknown Speaker: As much of a plan as a severance plan ever is.
A severance plan never requires funding as I understand it.
Mr. Warren: Well I don't think that's correct, Justice Scalia.
Unknown Speaker: Oh, okay.
Well that would make a big difference.
Mr. Warren: I think that was what Mr. Yavis--
Unknown Speaker: That's right.
Mr. Warren: --if it were, if you had an ERISA coverage severance pay plan--
Unknown Speaker: It would have to be funded?
Mr. Warren: --totally, privately created it would be subject to all of the obligations and all of the terms and conditions of ERISA and that would include the requirement of maintaining the assets in a separate entity under a trust fund with the various disclosure obligations that would be entailed and we don't think that any of those--
Unknown Speaker: Well the big difference, if I understand is, under your position the employer then would have made a promise to pay some benefits on a certain contingency arising.
Mr. Warren: --That's correct.
Unknown Speaker: And there's no such promise here.
Mr. Warren: That's correct.
Unknown Speaker: Well, say if the employer did set up a plan in response to this statute, but he established it and he wrote out a plan and arranged for funding you would think that wouldn't be an ERISA plan.
Mr. Warren: Well if an employer--
Unknown Speaker: It would be reached by ERISA.
Mr. Warren: --It would be an ERISA plan, or it could be an ERISA plan and in that instance the Maine law--
Unknown Speaker: Well I don't understand why Maine is so insistent on saying that an employer's response to this statute, his obedience to the statute does not create an ERISA covered plan.
Mr. Warren: --Your Honor, I think--
Unknown Speaker: Because I don't know.
Is it necessarily inconsistent to say that Maine's requirement that he establish a plan is not preempted, but that the plan he sets up is an ERISA plan.
Mr. Warren: --Well, I guess if I understand your question, what we are suggesting is that an employer independently, on his own, creates an ERISA plan or reaches a contract with his employees to pay severance pay, that would have two effects.
First, if it created a separate ERISA plan, that would be subject to ERISA.
And second, it would be by its own terms, it would be taken out of the Maine statute pursuant to the express contract exceptions.
Unknown Speaker: But here's an employer who doesn't have a plan, he doesn't want one, but the law requires him to pay severance pay.
This Maine statute requires him to pay, to give his employees severance pay.
Mr. Warren: That's correct.
Unknown Speaker: And he thoroughly intends to obey the law, and he does.
Now why do you insist that that isn't, doesn't establish an ERISA plan.
Mr. Warren: If an employer creates an ERISA plan in response to the Maine statute that would be an ERISA plan.
I don't think that the question is whether the employer's payment of the benefits called for under the statute constitutes an ERISA plan and that's--
Unknown Speaker: Well, the union says to him, do you intend to live up to this Maine statute.
Of course I do.
And that's all that's said and he does.
He just pays severance pay in accordance--
Mr. Warren: --According to the Maine statute.
Unknown Speaker: --Yes.
Mr. Warren: We don't think that that bare fact constitutes an ERISA plan.
Unknown Speaker: Well why is that important to you?
What is it were an ERISA plan?
Mr. Warren: Well, if it were an ERISA plan I think that an argument could be made that in that point the Maine law was relating to the ERISA plan, or forcing it--
Unknown Speaker: So then Maine could no longer then require them to maintain the plan.
Mr. Warren: --Well Maine, if the Maine law were interpreted to relate to an ERISA plan then the Maine law would be preempted.
Unknown Speaker: I take it a state could not, a state like Maine, can't say to employers within the state, we want you all to set up ERISA plans that meet this minimum standard.
Then, of course, they will all be governed by ERISA.
A state can't say that.
Mr. Warren: I think that that would create a preemption problem, Your Honor, yes.
What I'm really trying to do is--
Unknown Speaker: Well, Mr. Warren, the Solicitor General of the United States has also filed a brief in this case suggesting that this Court's opinion in Shaw v. Delta Airlines indicates that the ERISA preemption provisions also prohibit and preempt state laws which simply require employers to provide certain specific benefits to employees.
Mr. Warren: --That's correct, Your Honor.
Unknown Speaker: Regardless of the question of whether it requires, whether Maine's law requires you to set up a plan, or not.
Mr. Warren: I think that is what the Solicitor, the position taken by the Solicitor General.
Unknown Speaker: Right.
He would go far beyond this discussion of whether Maine law requires a plan and say that what this Court said in Shaw means that a state can't tell employers what fringe benefits to provide.
Mr. Warren: He would and let me explain why I think that's wrong.
The preemption provision of ERISA, which is the source of the preemption argument in this case relates to the, it contains the following language: It preempts state laws insofar as those laws relate to an ERISA covered plan.
And we would suggest that the Solicitor General's argument would essentially re-write the statute to say that it preempts state laws which relate to employee benefits.
And if that's correct, then we would concede that the Maine law would be preempted.
But we don't think that's correct.
We think Congress focused on the word, plan, in the preemption provision as it focused on the word, plan, throughout the ERISA statute with specific intent to subject only ERISA plans to federal regulation.
Unknown Speaker: It's important to me, this is going back over earlier ground whether a plan adopted by the employer under the statute is the same as a plan that he might adopt under ERISA.
That is, you assert that if adopted under ERISA it would have to be funded?
Is that so despite the fact that Section 1002(2)(B) says that the Secretary may proscribe rules under which severance pay arrangements shall, for purposes of this chapter be treated as welfare plans rather than pension plans.
Does that make any difference in--
Mr. Warren: --I think that's, it might, Your Honor.
Unknown Speaker: --Do welfare plans have to be funded?
Mr. Warren: I believe they do.
And I think if you look, and I'm not sure if its in the Statutory Appendix.
I believe if you look in, I believe it's Section 1101 of 29 U.S.C., it talks about the various funding requirements that assets be held in a trust and so in that sense I think you're talking at least about trust assets.
I don't know whether the employer would actually have to set aside monies for those plans, but I think you would at least have to create a separate entity which met the definitions of the trust and the fiduciary requirements under ERISA.
To go back to the point I was making in response to Justice O'Connor's question.
I think that really that's what the fundamental issue in this case turns on, which is the question of whether ERISA preempts state laws relating to employee benefits, or whether ERISA preempts state laws relating to employee benefit plans.
And if I may, what I'd like to do is just point out the specific meaning of plan as I understand it, in light of the congressional intent behind ERISA.
Unknown Speaker: You mean plan as defined in ERISA?
Mr. Warren: --I mean plan as defined in ERISA.
The word plan is obviously something that in the, outside the statutory context could be made susceptible to many meanings.
Unknown Speaker: And in the statutory context you have both employee welfare benefit plan and employee pension benefit plan, don't you?
Mr. Warren: That's correct.
And I'm referring to both.
The plans that I think Congress was focusing on were these private arrangements created between employer and employee and what they were specifically worried about were some of the abuses that began to be seen in the context of those plans.
And those abuses were--
Unknown Speaker: I'm sure of that.
But what I'm worried about at least, is that I'm sure that Congress didn't intend to enable one of those private plans that is, the same kind as if it had been adopted in negotiations with a union to be yanked out of ERISA simply by having it required by state law.
And so, if this severance plan is in fact no different from what the employer would be doing under ERISA, I'd be very reluctant to find that the state can in effect, yank it out of ERISA by mandating it.
Mr. Warren: --Your Honor--
Unknown Speaker: It is not the mandating of it by the state alone that can possibly take it out of ERISA right here.
Mr. Warren: --No.
And maybe I can clarify that.
We are not suggesting that it's the state mandate that that takes a plan out of ERISA.
The question is whether what the state is mandating is an ERISA covered plan.
And that is really, I think, the question that's before the Court today.
And that's the issue that I think we're interested in arguing about.
That's where we really part company with Mr. Yavis.
Unknown Speaker: xxx even though other pension plans, or even though other severance plans are subject to ERISA, this one is not subject to ERISA.
That the employer has no ERISA obligation with regard to this.
Mr. Warren: If all the employer does is comply with the Maine law then we would say that the employer is not subject to any ERISA obligation.
Unknown Speaker: Do we know what position the Secretary takes on this?
Mr. Warren: I think the Secretary's position is that the Maine law itself requires the creation of an ERISA covered plan and following from that premise, it would argue that the Maine law is preempted.
I don't think that if the Secretary--
Unknown Speaker: Or, put it put differently.
The position he takes is that the plan required to be established by the Maine law is an ERISA plan.
Mr. Warren: --That is, I think, the Secretary's position.
And, I think that the Secretary--
Unknown Speaker: Well, I'm not sure that's accurate because apparently the Solicitor General's speaking for the Secretary would say that states cannot direct specific benefits to be provided if they are the type of benefits covered by ERISA.
Mr. Warren: --And I think that's both right, Justice O'Connor, and what I'm really suggesting is that the Secretary's position, or at least as reported by the Solicitor General, seems to be that merely requiring a benefit is, that statement alone, that requirement alone is sufficient to create an ERISA covered plan.
Unknown Speaker: One of the things that the Solicitor General relies upon is the fact that in ERISA and in the preemption section, Congress specifically carved out Hawaii's law which provided for a specific kind of health benefit.
Mr. Warren: --That's correct.
Unknown Speaker: And opted not to protect any other type of state law.
That might indeed be an indicator that Congress was trying to be very specific about what states could do or not do, and intended to preclude a law like Maine's.
Mr. Warren: Well the Hawaii Pre-paid Health Care Act which is the Act that you're referring to is an Act which really goes way beyond what Maine does.
It doesn't just require a one-time payment in the event of a plant closing, it required employers to establish a comprehensive, on-going system of providing health benefits.
And it included within that, it was, that system was imposed upon existing ERISA plans.
It required employers to alter and amend their existing ERISA plans and it also contained certain reporting requirements which went beyond, or conflicted with, what ERISA itself requires.
So it seems to me that the issue of the Hawaii Act was a fairly easy case and what Congress then did in response to a court decision was to suggest that certain features of the Hawaiian law, not all of them, not the conflicting reporting provisions, but certain features would not be preempted.
And the legislative history on that as the Solicitor General's brief I think itself includes is somewhat conflicting in that the Senate Committee said that it felt that preemption of the Hawaii law was inadvertent.
And there is other statements made that the decision in the Hawaii case was exactly correct.
And we would suggest that the statements are not necessarily a reliable guide to what Congress meant when it enacted the original preemption provision in ERISA.
But in any event that those statements really don't provide guidance here in view of the fundamental differences between this law and the Hawaii law.
And that, I think, gets me back to the issue of why this law does not create an ERISA covered plan.
And it seems to me that there's really three reasons for that.
The first is the one that I already mentioned, which is it does not create a private arrangement between employer and employee and it is not subject to the kinds of abuses, the kinds of problems that motivated--
Unknown Speaker: Mr. Warren, you have fairly complicated definitions of plan and do you think it really lends itself to these kind of generalizations that this was what Congress was getting at or wasn't getting at rather than kind of a parsing of the section?
Mr. Warren: --I think you have to do both, Your Honor, but as Mr. Yavis stated that the term plan itself is not defined in ERISA and I think to gain enlightenment as to what Congress was worrying about you have to look at the congressional findings and declaration of policy--
Unknown Speaker: The term employee welfare benefit plan and the term employee pension benefit plans are both defined.
Mr. Warren: --They are indeed.
But I'm focusing now on--
Unknown Speaker: Why does that definition reach severance plans at all?
Mr. Warren: --Well the argument that that reached the severance plans is based upon the incorporation within the definition of a reference to certain benefits provided under the Taft-Hartley Act.
Unknown Speaker: 186(C).
Mr. Warren: 186(C).
And 186(C) refers to severance benefits.
So that's how severance benefits come in although I can--
Unknown Speaker: So you don't dispute that ERISA does reach severance arrangements.
Mr. Warren: --We don't dispute that ERISA would govern a plan which provided severance benefits and what we're suggesting is that ERISA does not necessarily cover the entire topic of severance benefits.
Unknown Speaker: I see.
Mr. Warren: Going back to the issue of whether this creates a plan, it seems to me that you first got the question of private arrangements.
You've second got the question which I think is presented in the unique form by this case of whether a one time statutory assessment constitutes the kind of plan that was contemplated under ERISA.
The ordinary ERISA plan involves an ongoing system of paying benefits over time.
It's a system that of necessity has to be maintained xxx--
Unknown Speaker: Not a severance plan under ERISA.
I mean, every severance plan that I'm familiar with, it's a one shot severance plan.
That's the normal one.
Mr. Warren: --From the point of view of each employee--
Unknown Speaker: Right.
Mr. Warren: --it might be a one shot severance pay, but--
Unknown Speaker: Well the same with the statute.
Mr. Warren: --Well from the point of view of the employer, the ordinary severance plan is paid to a group of employees as they depart the employment relationship over time.
In other words,--
Unknown Speaker: I see.
Mr. Warren: --they're talking about administering the payment of benefits over--
Unknown Speaker: You're talking about a plant closing.
Mr. Warren: --I'm talking about a plant closing and that's exactly what Maine law is talking about.
Unknown Speaker: And that is one shot.
Well, death benefits are a one time benefit.
And yet surely you wouldn't argue that ERISA doesn't reach those.
Mr. Warren: But for the same reason, we agree that ERISA does and it's the, from the point of view of the beneficiary, Justice O'Connor, the death benefit is probably a one payment.
And from the point of view of the employer however, you're talking about death benefits that are going to be paid to a group of employees over time.
You're not talking about a one time payment in the event of a single contingency to all the employees who are eligible at once.
It's a one time payment and we suggest that there's language in the 9th Circuit Martori Brothers case and in Donovan v. Dillingham which is the 11th Circuit en banc decision which suggests that a one time payment would not be subject necessarily to ERISA because it would not constitute a plan.
And a lot of courts have tried to grope with what constitutes a plan.
But we would submit that what falls outside of a plan is a one time payment.
The other problem with the argument that the Maine law creates an ERISA covered plan in this case is the one averted to by Justice Stevens in one of his earlier questions which is that if this law is deemed to create an ERISA covered plan then it would preempt state law even in a circumstance where an employer had no plan.
And under those circumstances we really think that Congress could not have intended ERISA preemption to apply.
Unknown Speaker: Say that again.
You lost me.
Mr. Warren: If this--
Unknown Speaker: Beginning with the, if.
Mr. Warren: --Right.
If this law were interpreted to require an ERISA covered plan and were therefore preempted on the basis that it relates to an ERISA covered plan--
Unknown Speaker: Right.
Mr. Warren: --which it, itself creates then that law would be preempted even in the case of an employer who had no absolutely no existing ERISA plan at the time.
And we suggest that that goes way beyond what Congress intended to preempt in the ERISA preemption section.
Unknown Speaker: Why would that be any stranger than any other state law that proscribes or specifies, let's say a standard retirement plan?
A state enacts a law that requires a specific retirement plan.
Will you come before us and say, well it can't possibly be preempted in the case where the employer has no retirement plan of his own anyway.
Mr. Warren: It seems to me that if a state requires something and it doesn't relate to a plan within the meaning of Section 514, then the state's proscription is not preempted.
In other words, as I think this Court ruled in Shaw v. Delta Airlines, the state law is only preempted insofar as it relates to the ERISA covered plan.
So if you don't have any relationship with an ERISA covered plan, the state law remains in effect.
And what we're suggesting here is where an employer has no plan it would in our view stretch congressional intent beyond what it's proper bounds to suggest a preemption.
What I really want to, in focusing on this there's this one principal I'd like to get back to and that is this, that the issue of preemption and the interpretation of the preemption provision it seems to me has to be interpreted in light of the fundamental principle that preemption is not a favorite doctrine and that has been stated by this court in, I think, as early as the Florida Lime and Avocado case is saying that preemption should not be found unless Congress unmistakably intended to displace state law.
That follows from principles of preemption which we believe this court is fully familiar with.
It follows from respect for state law.
It follows from a respect for the states as sovereign entitles and a respect for state's authority to meet the problems of its residents through its police power and we submit that that's exactly what Maine has done here.
The problem of plant closings is not unique to Maine, but it's a particular problem in Maine because of the number of Maine towns where one major plant is a dominant employer.
So Maine has adopted a statue which no other state has adopted to meet this problem.
It's designed to deal with the specific unemployment problem created by a plant closing and we submit that Maine is entitled to devise its own response to this particular problem absent a clear expression by Congress that the Maine law is preempted on this subject.
And this brings me back to where I began, I think, which is that we do not think that the arrangement, or whatever you want to call it, created by Maine law, the statutory obligation which is a bare statutory obligation to pay severance benefits.
We do not believe that that resembles the kind of employee benefit plan which Congress was intending to regulate when it enacted ERISA.
I see my time has almost expired.
Let me just say about the other argument that we have raised, the unemployment compensation law argument, that I would like to direct the Court's attention to, not only to our arguments on that subject, but to those submitted by the AFL-CIO in its amicus brief.
And specifically the point that they make which is that the average, traditional unemployment compensation law is not a law which resembles an ERISA covered plan.
Therefore the exemption from ERISA for plans maintained solely to comply with unemployment compensation laws really doesn't make much sense when applied to a traditional law.
Unknown Speaker: Thank you, Mr. Warren.
Mr. Yavis, you have four minutes remaining.
Rebuttal of John C. Yavis, Jr.
Mr. Yavis: Your Honor, I'd very briefly like to clarify the pension plan aspect versus the welfare benefit plan aspect as they relate to severance pay.
A severance pay plan under the statute which at page A-61 of our jurisdictional statement appendix, 1002(2)(A), defines the term pension benefit plan and pension plan.
And part of the definition is that it will be a pension plan where the plan fund or program results in a deferral of income by employees for periods extending to the termination of covered employment or beyond.
Typically a severance pay payment is made after the close of, after the termination of employment.
Unknown Speaker: But doesn't that mean that the employee contributes to it.
Mr. Yavis: No, no.
In the severance pay case, no.
The statute was passed in '74.
In '75, regulations were adopted that despite the statute defined severance pay plans as welfare benefit plans.
Those statutes remain in force.
In 1980, Congress added (3) on that same page, A-51 to in effect ratify what the department had done treating severance pay plans as welfare benefit plans.
And the significance of that is that no funding is required.
One may pay out of general assets and I refer the Court to the Burlington Industry cases which are cited in our briefs.
One in the Second Circuit, one in the Fourth Circuit.
At 7721144, the Court refers to the structure of the statute and says that both pension benefit plans and welfare benefit plans must comply with ERISA's reporting and disclosure requirements and it's fiduciary standards.
But only the pension plans are subject to the more stringent requirements of vesting and funding.
And that's in accordance with the regulations that the department has adopted treating the severance pay plan not as a pension plan, but as a welfare benefit plan.
Although there may be circumstances where even a severance pay plan can become a pension plan where the payment strings out long enough.
But basically, funding does not apply to that.
No separate trust is required.
Payments may be made in both these Burlington cases say payments may be made out of general assets.
Unknown Speaker: No separate entity either as Mr. Warren referred to xxx.
Mr. Yavis: No separate entitles required, Your Honor.
Payments may be made out of general assets.
Chief Justice Rehnquist: Thank you, Mr. Yavis.
The case is submitted.