MASSACHUSETTS v. MORASH
Legal provision: Employee Retirement Income Security
ORAL ARGUMENT OF CARL VALVO ON BEHALF OF THE PETITIONER
Chief Justice William H. Rehnquist: We'll hear argument next in No. 88-32, Massachusetts v. Morash.
Mr. Valvo, you may proceed whenever you're ready.
Mr. Valvo: Thank you, Mr. Chief Justice, and may it please the Court:
This case is here on certiorari to the Massachusetts Supreme Judicial Court.
The primary issue presented is whether an employer's agreement to pay additional compensation in lieu of vacation is an ERISA employee welfare benefit plan, as the Court below held, or is it a payroll practice outside the scope of ERISA, as the Secretary of Labor concluded.
The facts of the case are as follows:
The employer bank had agreed that employees could forego some or all of an annual vacation leave and, instead, receive payments for the unused vacation time.
These payments came from the general assets of the bank.
In 1985, two employees of the bank were discharged, each with an accumulation of days they had actually worked instead of taking vacation.
Upon their termination, the bank refused to pay for this time worked, and, subsequently, criminal complaints under the Massachusetts Statute, Section 148, were filed.
Upon report from the trial court to the SJC, the SJC held that the prosecutions under the state statute were preempted by ERISA.
Now, if the bank's arrangement is a welfare benefit plan, as the Court below held, then employers with common vacation policies like the bank's, may be required to comply with ERISA's elaborate regulatory provisions, with no real corresponding benefit to employees.
If, however, the practice is a payroll practice, as the Secretary of Labor terms it, the states will continue to enforce statutes like Section 148, which have long been proven to be an efficient and effective means of resolving vacation pay claims, which often amount to no more than a few hundred dollars.
If the SJC is correct, then a disappointed employee's sole remedy, with respect to vacation pay, will be to file a federal ERISA action to claim his... his pay.
Now, whether one views these payments as straight compensation for time worked or as a lump sum amount that aggregates what would have been paid to the employee had he taken vacation, the Secretary's payroll practices regulation controls.
This regulation was promulgated shortly after the enactment of ERISA, pursuant to express and a quite broad delegation of rule-making power to the Secretary, to carry out the provisions of the statute and to define its terms.
And, I might add that, unlike Justice Scalia perhaps, the Secretary had to both read the statute and deal with reality.
He had to make the plan requirements of ERISA work in the real world, so that this payroll practice is a... the regulation is an accommodation of the purposes and history of the statute, as applied to common payroll practices used throughout the nation.
Unidentified Justice: Mr. Valvo, is the regulation in a bit of tension with the language of the statute?
Mr. Valvo: No, Your Honor.
Unidentified Justice: Section 3(1) says,
"Employee welfare benefit plan means any plan, fund, or program maintained by an employer to provide vacation benefits. "
Mr. Valvo: Right.
Now, the Secretary was, in fact, trying to give some scope and clarity to the term, "Employee welfare benefit plan", that would include, of course, such an enumerated benefit.
He, at the time, read that statutory provision to include and mean the pooled vacation arrangements that Congress was aware of, through the provisions in the Taft-Hartley Act.
Unidentified Justice: They covered elsewhere.
Mr. Valvo: Pardon me?
Unidentified Justice: Covered elsewhere in the statute.
If that's all it covers, it covers nothing of the statute doesn't cover elsewhere.
Mr. Valvo: There are several provisions in the enumerated benefits in Taft-Hartley that were also mentioned in ERISA, and some in exactly the same language, some in slightly different language.
For instance, daycare centers versus childcare centers.
It's difficult to assume that Congress meant a different... had a different meaning for some of these terms, just because it used it again in 3(1), than the use of the term in the Taft-Hartley Act.
So, I think that it's fair to conclude, as the Secretary did, that Congress was not so much concerned with defining neat boxes of benefits in ERISA that would be in addition to whatever was in the Taft-Hartley enumeration of benefits.
It was just throwing a lot of things into the scope of ERISA, and one of those things was the funded vacation arrangements that Congress was well aware of in the longshore and construction industries.
Unidentified Justice: Mr. Valvo, why does the regulation cover this?
I mean, you talk as though it's clear that the regulation applies to what happened here, but all the regulation, as I read it, necessarily covers, is... is an understanding between an employer and an employee, that he continues to receive salary when he's on vacation, period.
Mr. Valvo: I have two answers to that, Your Honor.
One, is the (b)(1) portion of that regulation, which--
Unidentified Justice: Why don't we look at where... where is it in the--
Mr. Valvo: --That is at page 11 of the reply brief.
Unidentified Justice: --Is this it?
Mr. Valvo: Yes, Your Honor.
Both the (b)(1) portion and the (b)(3) portion are on a sheet that was provided to the Court, so that you can look at them together.
The (b)(1) portion of that regulation--
Unidentified Justice: It's at page 11?
Mr. Valvo: --Page 11 of the reply.
That provision provides that straight compensation for time worked is a payroll practice and not a benefit under ERISA, because Congress simply did not intend to cover wages and salaries within the scope of ERISA.
Now, if one looks at these payments for salaried employee, as nothing more than the compensation that was earned at a previous time by working on, in effect, the employee's own time, that is, uncompensated time... that is compensation for time worked, and it fits squarely within the (b)(1) portion of the regulation.
Now, If you look at the (b)(3) portion of the regulation--
Unidentified Justice: But one can also read that this is compensation for time not worked.
I mean you--
Mr. Valvo: --(B)(1)?
Unidentified Justice: --It's in lieu of the vacation.
It's not... maybe, I didn't quite understand your argument.
Mr. Valvo: Well, let me give you an example.
A salaried employee works for a set amount for a given year, say $20,000 for a year.
Unidentified Justice: Correct.
Mr. Valvo: If he gets four weeks vacation... what the employer is telling him is... I will pay you $20,000, and you work 48 weeks.
If that employee works the 49th week, he's now worked an extra week for the employer, but he hasn't been paid anymore than the $20,000 that he--
Unidentified Justice: No, but he has been compensated for that week.
Mr. Valvo: --Well, he'll get regular installments of 52 or 12, whatever the arrangement is, of the $20,000.
In a sense, he's not getting any more than he originally agreed to get in return for 48 weeks.
When he works that 49th week, he will be uncompensated, unless the employer has an agreement like the bank has here, to allow him to take a payment instead of taking vacation.
Unidentified Justice: But, if he takes that, he's not getting paid for time worked, cause he got paid during the 49th week.
I mean, one... I'm just saying one can look at this in different ways--
Mr. Valvo: Well, yes.
Unidentified Justice: --If you just look at the language of the regulation.
Mr. Valvo: You... you're right in the sense that he received his regular paycheck, but that regular paycheck was nothing more than an installment on the $20,000 that he was getting for working 48 weeks.
An employer ordinarily divides the $20,000 into 12 or 52 uniform installments, and pays them out regularly.
It doesn't stop sending out the paycheck, if you happen to be on vacation that week.
But, the total compensation for that year for a salaried employee, would be for the 48 weeks, rather than the... anything extra.
It's very similar to working overtime, or on weekends, or holidays.
Those are... that's time that the employee does not originally bargain to work for, and if he does work on a weekend, he expects to be paid over and above the $20,000.
But, again, you can look at it a different way.
You can look at it as a payment to the employee, while he's on vacation.
And, that is covered by the (b)(3) portion of the regulation.
Now, the reason why it appears that it may not cover this particular situation is because these employees were terminated.
They couldn't go on vacation anymore.
The employer, upon termination, had two options.
He could have discharged them, effective immediately, and paid them the cash value of the unused vacation that they still had.
Or he could have said, 20 days' vacation coming...
"you're fired, effective 20 work days from now, and I'll pay you your regular paycheck during each of the weeks for that 20 days. "
That's economically equivalent to a termination with a lump-sum cash out on the last day of work.
Unidentified Justice: Is that a severance benefit then?
Mr. Valvo: No, Your Honor, it's not a severance.
It's... a severance payment would be payable only at termination.
Whereas, a vacation payment is payable during the course of employment up to termination.
Unidentified Justice: Well, what if the employer would allow employees to make an irrevocable deferral of vacation benefits, which would be available to the employee, only on termination of the employment, or in an emergency?
Mr. Valvo: Well, then you're getting... then you're talking about an arrangement, which we don't have here--
Unidentified Justice: Right.
Mr. Valvo: --That may be described by the statutory definition of pension.
Now, no one has ever argued that this is a--
Unidentified Justice: Would that be a severance benefit of some kind?
Mr. Valvo: --Well, the ERISA section 3(2) talks about pension benefits, as opposed to welfare benefits.
The Secretary has treated these kinds of severance payments as welfare plans, but they fit within the definition of pension.
No one has ever suggested that these are pension benefits, because they're not deferred irrevocably to termination.
Unidentified Justice: Well, that... I... do you think a worker who... I mean, do we know that a worker who has, let's say, two weeks of vacation pay that he hasn't taken in a particular year... could he have come up to the employer, and said,
"I want payment for those two weeks that I didn't take. "
Do we know that from the record?
Mr. Valvo: This record permits that inference, but--
Unidentified Justice: Oh, it does?
Mr. Valvo: --But, it also permits the inference that the employee could have deferred vacation time, and taken vacation time.
There's nothing... the record, I agree, is not fully developed on this score.
It was the... a stipulation at a motion to dismiss stage, but--
Unidentified Justice: Well, but, if that makes a difference, then I don't know how we're suppose to handle it?
Mr. Valvo: --Well, there's nothing in the record that requires you to find that there was an irrevocable deferral to termination or beyond.
The records simply states... this is page 19 of the joint appendix,
"It is agreed that the bank made oral, and, or written agreements, and that such agreements promised employees payment, in lieu of unused vacation time. "
That's all it says, and it doesn't say anything about when those payments had to be made.
Another difference between severance and vacation, Justice O'Connor, is that severance would be payable, over and above any wages or other forms of compensation that might be due, whereas vacation pay is payable at termination, only if there's some unused vacation left.
Not all employees will have all of that unused vacation, in which case, when they're terminated, that's it, and they get nothing, unless there's a severance agreement.
Now, the Secretary's (b)... the (b)(3) portion of the regulation, I think, has to be looked at with two interrelated factors in mind.
One, is that these vacation payments are closely akin to wages, for a variety of reasons, some of which I've already mentioned.
But, secondly, and it's an interrelated point, these payments are paid out of the general assets of the employer... not out of a trust fund.
Those two factors, together, both of which are necessary, but not sufficient in and of themselves, come together to create a benefit which the Secretary concluded was not a... the type of benefit that Congress intended to reach, and that they were payroll practices, routine in the... in the--
Unidentified Justice: But, the hypothesis for (b)(3), or one of the hypotheses for invoking it, as I read it, is that, during the time a person, the employee, performs no duties.
Here, these people did perform duties.
They stayed home from their vacation.
So, I don't see how (b)(3) can apply.
Mr. Valvo: --Well, then we're talking about (b)(1).
They stayed on--
Unidentified Justice: Well, but, I mean, I thought--
Mr. Valvo: --It depends on how you look at it.
Unidentified Justice: --Well, how does one look at (b)(3), and get it to apply?
Mr. Valvo: Because, if you see these payments as an aggregation of the monies that would be paid... here's the termination date, and they have unused vacation time left.
If you look at these payments as aggregating what would be payable in that vacation time... payable on the date of termination.
That would be time they would perform no duties.
Unidentified Justice: Well, that really takes some kind of astigmatism to look at it that way, doesn't it?
Mr. Valvo: Well, it's, it's... imagine an employee who has... he's hired with the understanding that he accrues one day of vacation a month.
At the six-month point of his employment, he's fired.
Now, he has six days of vacation coming.
How do we treat that?
Do we treat it as payment for time worked?
We can, and we look at (b)(1).
Or, do we have six days of vacation coming, meaning vacation days which he would be able to take, perform no duties, and still receive regular pay.
If that's the way we look at it, then we look at (b)(3).
We win either way.
Unidentified Justice: Why don't we... the government's brief says,
"that the Department of Labor has interpreted its payroll practices regulation to exclude from ERISA's coverage, all vacation benefits paid from the general assets, including earned, but unused vacation days. "
Mr. Valvo: That's what we have here.
Unidentified Justice: Well, I know.
Well, how did it... what part of its regulation was it interpreting to reach that result?
Mr. Valvo: Well, it's interpreting the payroll practices regulation, which includes--
Unidentified Justice: What part of it?
Mr. Valvo: --(B)(1).
I would say (b)(3), but the brief... I think that's what the--
Unidentified Justice: Well, at least the government has interpreted its own regulation to cover this case, and I suppose we... if, if that's a reasonable interpretation of its regulation, I suppose we would accept it.
Mr. Valvo: --Well, I'm happy to accept that, you know, I would like you to--
Unidentified Justice: But, how can we know whether it would?
How can we know whether it's a reasonable interpretation, unless we know which of two separate regulations it's interpreting?
Mr. Valvo: --Well, Your Honor, the difficulty is that these vacation payments, can be viewed in different ways.
One can look at it in an economic sense--
Unidentified Justice: Well, the government filed a... the government has filed a brief in another case, that it served on you, didn't it?
Mr. Valvo: --Yes.
Unidentified Justice: What did it say in that?
Mr. Valvo: I think that it was referring only to the... a footnote that described severance, the distinction between severance and vacation.
But it... but we're talking about... the Secretary in this case is focusing on (b)(3), interpreting (b)(3) to cover our case, and we're certainly happy to accept it.
In fact, we argue that we rely on (b)(3).
But, we have another string to our bow, and that's (b)(1), and, whether you look at these payments in an economic sense... I think that would steer you to (b)(1).
If you look at vacation payments in the sort of (b)(3).
Either way, we win.
Now, even if the arrangement here is a vacation benefit plan, Section 148 is not preempted, because it's a generally applicable criminal law, saved from preemption under Section 514, (b)(4).
Everyone in the case agrees that a generally applicable criminal law is one that's not specifically aimed at ERISA plans.
We say that if a vacation benefit can be delivered by means, other than a plan, as the SJC contemplated, then a vacation payment statute is not specifically aimed at ERISA plans, and is, therefore, generally applicable.
Unidentified Justice: Well, what type of statute is not generally applicable criminal law, then, in your view?
I'm somewhat troubled by your argument.
Mr. Valvo: A statute... certainly, a statute that made it a crime not to pay pension payments, or not to make contributions into a ERISA welfare benefit plan.
That would certainly be a... not a generally applicable criminal law, because it would be aimed directly at ERISA activity.
I would go one step further.
A statute that made it a crime not to pay wages, and made it a crime not to pay pension payments, would also be preempted, because part of its prohibited conduct can only be engaged in in an ERISA context.
Unidentified Justice: It's an original proposition.
I certainly would have thought that the law here was not a generally applicable criminal law.
Mr. Valvo: --Well, it applies to activity beyond ERISA and, therefore, when we're talking about an exemption from ERISA, we have to assume that Congress, in using the term, which has received no attention in the legislative history, was thinking, in terms of ERISA, what is generally applicable beyond ERISA.
Unidentified Justice: Well, if we agree with you on the first part of your argument, and agree with the government's position, we certainly don't have to rest it on this argument, I assume?
Mr. Valvo: That's correct, Your Honor.
This is an alternative.
Unidentified Justice: But, under your view, the law is applicable, only that applies just to ERISA, and nothing more?
Mr. Valvo: Well, if a generally applicable criminal law--
Unidentified Justice: Just to an ERISA criminal law?
Mr. Valvo: --can be applied to an ERISA activity, but it has to be able to apply to conduct beyond ERISA activity.
Let me give you an example.
Unidentified Justice: Let's take the example you've already given... a statute, you say, that applies to employee benefits, you say, would not be generally applicable?
Mr. Valvo: If those benefits were delivered only by ERISA plan.
Unidentified Justice: Ah, but, all it says is employee benefits.
Mr. Valvo: Well, we don't know that.
If we're talking--
Unidentified Justice: All it says, is,
"any failure to pay employee benefits. "
Now, some of those will be ERISA benefits, and some won't.
So, you say, that would be generally applicable?
Mr. Valvo: --Yes.
Unidentified Justice: So, you pretty much have to have a state law that says... makes it a crime to fail to comply with ERISA?
Mr. Valvo: xxx even if it says--
Unidentified Justice: Do you think that's what Congress meant by "generally applicable"?
Mr. Valvo: --Well, Your Honor, if the activity... if the prohibited conduct, includes activity that can be engaged in, outside of an ERISA context, then Congress was willing to tolerate some supplementation, or touching of ERISA by criminal laws.
Otherwise, there would be no exemption from 514(a)'s general blanket preemption.
Unidentified Justice: It could have said,
"Any state law that applies beyond ERISA... that applies to any activity, other than ERISA activity. "
It didn't say that.
It said, "generally applicable state laws".
Mr. Valvo: But, we have to assume, that since it's an exemption from 514(a), that the same rules that apply to generally applicable civil statutes, don't apply to generally applicable criminal statutes, and there are a number of reasons for this.
First of... I think, the language, SJC would limit it to.
For instance, larceny and embezzlement statutes.
If Congress wanted to write a statute like that, it could easily have said "larceny and embezzlement" or "criminal misappropriation of property".
Something like that.
But, it didn't.
It said "generally applicable criminal law".
Secondly, there is a presumption that operates in favor of preserving historic police powers.
Now, I agree, that that presumption has been overcome, with respect to 514(a), and generally applicable civil statutes.
But Congress has not clearly stated an intention to, or at least, where the definition of... where the dividing line is, from separating criminal laws, which it seeks to save, and those which it seeks to preempt.
And we think that the presumption in favor of historic police powers, in the absence of a clear statement by Congress, operates here.
In Massachusetts... in Metropolitical Life v. Massachusetts, the Court used that presumption in, in interpreting the insurance... the insurance law exemption from preemption, and it saved the statute for Massachusetts.
The same presumption has force here, perhaps a fortiori, since criminal law is at least as deserving of, of protection from the presumption as an insurance law would.
Finally, there's no reason to conclude that Congress wanted to give that term, 514(b) would also be subject to regular conflict analysis under preemption.
That is, to say, if a generally applicable criminal law... even like 148.
If that could be shown to actually conflict with a provision of ERISA to prevent the effectuation of the Federal purpose, then it would have trouble under conflict analysis.
So, in conclusion, because Congress did not intend to displace state non-payment of wage statutes, as applied to vacation pay, the SJC's decision should be reversed.
I would like to reserve the remainder of my time, unless the Court has any further questions.
Unidentified Justice: Thank you Mr. Valvo.
Mr. Berger, we'll hear now from you.
ORAL ARGUMENT OF JASON BERGER ON BEHALF OF THE RESPONDENTS
Mr. Berger: Now, Mr. Chief Justice, and may it please the Court:
I'd like to begin with some of the essentials, which I think have been related to by the Commonwealth in this case.
First of all, with regard to the facts of this case.
There's no question but that the facts in this case are relatively... I shouldn't say relatively... very meager.
But one important fact, that the Supreme Judicial Court of Massachusetts focused on, can be found at page 289 and 290 of its decision, and that fact, and I'll read it.
"Lastly, the parties agree and appeal, that pursuant to bank policy, employees who accrue unused vacation time, receive a lump sum cash payment, in lieu of unused vacation time, unused time, upon termination of their employment. "
We submit, Your Honors, that the SJ... the Supreme Judicial Court was focusing on that specific issue in reaching its decision that this plan was like a severance plan, akin to a severance plan and, therefore, an ERISA welfare benefit plan.
Unidentified Justice: The Secretary of Labor says it isn't a plan at all.
Mr. Berger: The Secretary of Labor says... well, I'm not sure, Your Honor, that the Secretary of Labor says--
Unidentified Justice: Well, he has to say that.
It isn't a plan, or whatever those words are.
It isn't a plan or an arrangement, or something.
Mr. Berger: --Well, I'm not sure though, that the Secretary of Labor says this is not a plan at all.
The Secretary of Labor... let me state it somewhat differently.
Petitioners, including the Solicitor, have focused on a general assets test, to determine whether vacation plan is a general assets, everyday payroll practice, or whether, in fact, it's an employee welfare benefit plan.
But, the Secretary of Labor, itself, in one of its own opinion letters, involving American Motors, has found a general assets plan to be a... a general assets vacation-pay plan, to be a severance plan.
Now, in that case, which is cited in the Solicitor's brief, and I think it's given reference to in Petitioner's brief, the exercise... it was a voluntary plan, just as this one.
The employees of American Motors had a right, voluntarily, to set aside time, if they wished, their vacation time, if they wished, for payment upon termination.
Now, the Secretary focuses in its brief on the irrevocability of that exercise, and yet, even in that plan, the exercise by the employee wasn't irrevocable.
It was also revocable.
Unidentified Justice: Okay, the Secretary in this case says this is not a plan within the meaning of the... within the meaning of the statute?
Mr. Berger: The Secretary, in this case, argues that it doesn't agree with the Supreme Judicial Court.
Unidentified Justice: Well, it says it isn't a plan, and its regulation says that,
"the term welfare plan shall not include the following. "
and then it lists certain things then, and among those things that the Secretary says, now, is this very arrangement that we have before us, which is not a plan.
Mr. Berger: My difficulty with that... if that's, indeed, what the Secretary is saying.
My difficulty with that is that I think that creates a very difficult tension with the statute itself.
I mean, the statute itself, in Sections 3(1)(a) and 3(1)(b), lists a variety of benefits, if you will, benefits that are subject to plans that shall come under the definition of Employee Welfare Benefit Plan.
And, in 3(1)(a), it squarely mentions vacation benefits.
And, in 3(1)(b), it squarely mentions--
Unidentified Justice: Well, I know, but it still has to be a plan to provide vacation benefits.
Mr. Berger: --But, but this--
Unidentified Justice: It has to be a plan, and the Secretary says this isn't a plan.
Mr. Berger: --But the Secretary didn't have before it the aspects of a plan.
I think what the Secretary is saying, if I'm correct in my reading, is that it would like to see most general asset programs, viewed as non-plans.
I, I don't believe the Secretary is saying that no vacation benefit program, such as this one, can be a plan.
Unidentified Justice: Well, it certainly... it certainly... he certainly says... the Secretary certainly says that this plan, that this arrangement here, is not a plan.
This, this specific arrangement is not a plan.
Mr. Berger: I agree that the Secretary argues through the Solicitor that this particular approach is not a plan.
To that extent, we agree... disagree with the Secretary.
However, we don't disagree that the payroll practice regulation is invalid.
What we see... what we say is, that the regulation promulgated by the Secretary has more than one... more than one test within it.
I'm not sure the word "test" is the correct... is the correct word.
But, a close reading of the... of that... of that regulation, which is the second regulation focused by the Commonwealth, sets a number of different employments--
Unidentified Justice: Yes, why the Secretary interprets that regulation to cover this specific arrangement.
Mr. Berger: --But, in that sense, I disagree.
In that sense, I disagree with the Secretary.
I think, if, if the Secretary is, in fact, saying that, and again, I'm not sure the Secretary's saying that, through the solicitor's brief.
I think the solicitor's brief is essentially arguing that most, if not all, general asset plans do not come within the definition of employee welfare benefit plan.
And, I'm suggesting that that's, first of all, contrary to what the Secretary itself has found in another plan... American Motors.
And two, if that is really the Secretary's opinion... that that opinion of, of its own regulation, creates a serious tension with the statute.
And... and a... a better way of reading its own... its own regulation, which it wrote... you have to take into consideration all the words of that regulation, not simply the word "general assets".
And the other words of the regulation involve an employee who's absent while on vacation, or on holiday.
They used those two examples.
And these two employees, just as the employees in American Motors, were no longer on vacation, and they were no longer on holiday.
They were no longer employees, and they no longer had any duty to this employer for that... and for that matter, the employer, I suppose, had no duties to it, since it had terminated the employees in question.
Unidentified Justice: But, it was, nevertheless, some kind... could be viewed as compensation on account of work performed, such as a holiday premium.
Mr. Berger: Well--
Unidentified Justice: You could view it that way, certainly, within the language of the regulation?
Mr. Berger: --I actually feel that the first part of the regulation, which is, (b)(1), where it lists those four criteria, should be read specifically to those four type of criteria, because those four criteria essentially arise immediately.
An employee works overtime, he's paid for his in excess of 40 hours in a week, that week.
An employee works a shift, he gets, or she gets her 35 cents an hour shift differentials.
Unidentified Justice: Well, nothing refers in the regulation to immediate payment though, does it?
Mr. Berger: No, but the examples given, are all immediate-payment examples.
With regard to the premium suggested in (b)(3)(1), that the premium suggested there, is a premium to induce the employees to take vacations at a time favorable to the employer for business reasons.
And, I submit that that premium is a very different kind of a premium.
In other words, if I'm coming up to the end of my vacation year--
Unidentified Justice: But, that's just an example.
Mr. Berger: --The other five... there are four other examples, which are not provided by anyone, it appears.
But, the other four examples are all for periods of absence.
I think they're jury duty, training time, military duty, and sabbatical leaves for educators.
So, with all five examples, the Solicitor... sorry... the Secretary's focusing on absent time, but time, during which the employee's expected to return to work.
All five of those examples are, at best, hiatuses in work time.
Unidentified Justice: Well, in your view, what employee, or employer agreements to provide vacation benefits are not plans?
Mr. Berger: Are not plans?
Unidentified Justice: Yes.
Mr. Berger: We would agree that any vacation time taken within a year, and paid for within that year, or any vacation time taken and paid for, is not a plan.
In other words, if, if it's the normal everyday vacation time, that I think we all understand as normal everyday vacation time.
I take two weeks off.
I'm paid for that two weeks.
That's not a plan.
In fact, if I saved my two weeks... if I save my two weeks until next year, and took my two weeks next year... say, my employer allowed me to do that... that would still be... I'm still within... I'm taking vacation time.
I'm just being paid for it.
It's just a continuation of wages.
Unidentified Justice: What if he gives you money for the two weeks that you didn't take?
Mr. Berger: I think--
Unidentified Justice: At the end of this year, he gives you money for the two weeks you didn't take?
Mr. Berger: --I think when a cash payout becomes involved, there begins to become an implication toward a plan.
But our opinion, and we submit to you the correct opinion on this issue, is that a deferral is necessary.
In other words, once an employee begins, in a voluntary way, to defer vacation time for some later cash out purpose and, therefore, gets no money and pays no taxes in the year in which the money is earned, and can defer that, that payment until some later time, and the employee is then... the employer, I'm sorry... is entrusted with that fund, with that money.
It begins... it begins to become more like a plan.
Unidentified Justice: How important are those words, "entrusted with that fund", because the point of the regulation is, there's no trust fund.
It's just payment by the employer directly.
He hasn't set aside anything in a trust.
Mr. Berger: I think that's why the... I think that's the distinction, exactly.
Unidentified Justice: That's a distinction the government draws.
Mr. Berger: That's exactly the distinction I'm drawing, too.
The distinction I'm attempting to draw--
Unidentified Justice: But then, why don't you lose under that distinction... that what I don't understand.
Mr. Berger: --Well, let me--
Unidentified Justice: Because the regulation just reads right on it.
"Payment by an employer of compensation, on account of work performed. "
Mr. Berger: --Well, let me try to explain it somewhat differently, then.
First of all, let me try to bring... for one moment at least... the Court back to the case at issue.
The case at issue involves payment upon... after... termination, and only payment after termination.
Unidentified Justice: Yes, but on account of work that had been performed prior to termination, because he had earned so many days of vacation, for which he had not been paid.
In other words, if he gets two weeks a year, he works six months, and he gets fired without having taken the two weeks, he's entitled to one week's pay, on account of the six months he had previously worked.
Mr. Berger: He accrued that time.
I guess I'm not yet sure about the question that you've presented.
Unidentified Justice: Well, but the point is that then the regulation just reads right on your case.
Mr. Berger: No, because the regulation reads... the way I read the regulation is for periods of time not worked where pay continues.
Unidentified Justice: No, no.
I'm talking about the (b)(1) part, the (b)(1) part.
The (b)(1) payments, and just as we've described it... it's a payment by an employer of compensation, as compensated, on account of work performed, during the six months with... where he never got any vacation.
He's earned a week's free vacation that he didn't get, and that's... that's exactly what the regulation says.
Mr. Berger: First of all, I think that if the Secretary had intended to cover a vacation premium, within (b)(1), he would have written it within (b)(1), just as he did within (b)(3).
In (b)(3), the Secretary seems to cover the type of vacation premium he's concerned, or she's concerned with.
I guess it was he at the time.
With regard to (b)(1)--
Unidentified Justice: What if you get a Christmas bonus every year of $10 a month, say for every month where he had... so he got $120 coming at Christmas.
He worked six months, and they fire him, or terminate, and so he would normally get the $60.00.
Would that be covered by this or not?
Wouldn't that be just like the vacation?
Mr. Berger: --No, I don't think it would be just like the vacation.
I don't think it would be like the vacation situation we're faced with in this case, where... where employees were allowed to defer their vacation, with pay upon termination.
And, I don't think that... I don't think--
Unidentified Justice: Yes, but on this record, we don't know, or do we... I'm not entirely clear.
We don't know whether this is just accrued vacation within a given year, when there was a termination, or they had saved up vacation for two or three years.
Mr. Berger: --In fact, the bank paid the two employees for time accrued within that year.
Unidentified Justice: Oh, that's right, up to January.
Mr. Berger: They did.
They paid them.
I think the year was 1985, and they paid him for the period, January of '85 to the termination date, April '85.
Unidentified Justice: Maybe the answer to Justice Stevens questions is, that you can't (b)(1) that way, because the Secretary doesn't read it that way, because the Secretary acknowledges that if you have a joint vacation arrangement... the employee is working for a number of different employers, and the vacation is funded, then it would, indeed, be an employee welfare benefit plan.
But, the reason being, that it's not a payment by an employer.
It's a payment by a trustee.
That's the key words here... "payment by an employer".
Mr. Berger: But, in fact--
Unidentified Justice: If you have several employers, and you have a trustee funding the whole thing, it doesn't fit.
Mr. Berger: --But, but, in fact, the payment out of these vacation trust funds--
Unidentified Justice: I think you're not understanding here [inaudible].
Mr. Berger: --I can only think of one case, and not a case by this Court.
But, I can think of one case, in which payment out of a vacation trust fund was discussed, and in that case... I did write it down some place... Ashton v. Cory, which is a decision of the Court of Appeals for the 9th Circuit.
I believe a decision of Justice Kennedy.
Unidentified Justice: But, the regulation wouldn't read on that case.
Mr. Berger: Well, but, it wouldn't read on that case, but the same issues are involved.
Unidentified Justice: Well, except it's not payment by an employer in that case.
Mr. Berger: Well, in that case, the employer made the entire payment to the fund, and the fund distributed the payment in a year period.
But, the same exact payments were made.
The same exact type payments were made.
And, to that extent--
Unidentified Justice: Except for the distinction that the government relies on.
Distinction between a funded plan, and a non-funded plan.
Mr. Berger: --But, a distinction again, that I think creates a great tension with the statute.
I mean, the statute doesn't make that... doesn't seem to allow that kind of distinction.
And, and frankly, as I read the regulation of the Department of Labor, I don't think the Department of Labor... again, is, is, focusing solely on the general assets test, if they had been.
If it had been... it would not have written that opinion later on American Motors, in which it says that a general assets plan can be an ERISA benefit plan dealing with vacation pay.
Unidentified Justice: How do you understand the Secretary's position... or what do you understand the Secretary of Labor's position to be, with regard to an irrevocable deferral of vacation benefits, payable only on termination?
Mr. Berger: From, from my review of the solicitor's brief, which is all I have on that position... the solicitor seems to point to the word "irrevocable" to be the distinction between that situation and this situation.
Unidentified Justice: And, to acknowledge that that might be a covered ERISA plan?
Mr. Berger: That's the way I read it.
Unidentified Justice: Now, do you take the position that there is evidence in this record that this is that kind of plan?
Mr. Berger: I can't take that position.
Unidentified Justice: You cannot?
Mr. Berger: I cannot take that position, because I'm not... I don't see the evidence of that within the record.
On the other hand, the only fact pattern, before the court, involved two employees who, upon termination, were compensated for their unused vacation time.
And, that was a stipulation that we arrived at to present the issue before the court, that it would require termination before such payment.
And, there's nothing in the record at all, which speaks to the other issue.
But, but... to get back, I think to Justice Stevens' question about the deferral nature, and perhaps I... there is something to argue, I think, that any deferred... anytime that vacation time is deferred to a later period of time, and not paid for, until... except in... except in a lump-sum distribution... that that speaks to an employee welfare benefit plan.
And, I think that the Secretary's own regulation supports that, because the Secretary's regulation in (b)(3)(1) talks about the type of premium that it considers to be... in the vacation context... that it considers to be a payroll practice.
In there it says,
"a payment to induce employees to take vacations at a time favorable to the employer for business reasons. "
I think one can argue from that, that the Secretary envisioned a situation where there was a deferral of vacation time for lump-sum payment that wasn't required or induced by the employer.
And then, at that later time, with cash out... focusing mostly on cash out... that this would speak to more of the plan issue.
There's one other thing about the irrevocable nature of the plan at American Motors, and that is, that that wasn't totally irrevocable.
If I remember the facts of that situation, an employee could apply for monies, based on hardship, very similar to a 401(K) arrangement, and "hardship" is a word that's subject to a great deal of difference of opinion.
But there could... there were ways employees could draw from their account, if you will, during the term of their employment.
And that, the Solicitor and the Department of Labor did not see, as taking that program out of the definition of an employee welfare benefit plan.
Unidentified Justice: Mr. Berger, I haven't read the American Motors opinion.
Is a citation of that in your brief?
Mr. Berger: It's in the Solicitor's brief.
Unidentified Justice: It's in the Solicitor's brief?
Mr. Berger: In fact, it's in a footnote of the Solicitor's brief.
Unidentified Justice: Would you... do you happen to have it handy?
Well, I can find it, I guess.
Mr. Berger: Well, we just happen to have it handy.
It's in footnote 12 on page 19.
Unidentified Justice: Thank you.
Mr. Berger: I'd like to turn to... one argument the Commonwealth makes in their brief... in their reply brief... not here, with regard to vacation being equated with wages.
The Commonwealth makes reference to bankruptcy preference... the bankruptcy preference code, Section 507.
And in its reply brief states that vacations there are treated as wages, and since they're treated as wages there, they must, or should be treated here as wages as well.
Now, the Commonwealth has conveniently used ellipses in quoting that statute, because the word next to 507, is the word "severance", and it says,
"that for the purpose of 507, severance payments shall be equated with wages, as well. "
Now, since it's acknowledged by this Court that severance plans are already seen as an employee welfare benefit plan, Section 507 gives the Commonwealth no help, whatsoever, with regard to the argument of wages.
Finally, the Commonwealth argues that there's no administration necessary, with regard to this plan, and attempts to argue, I think, that the Fort Halifax case... decision of this Court... is controlling.
But, that, as the Supreme Judicial Court found, is not all true.
A plan such as this one, which is again, very much akin to a severance pay plan, requires a great deal of administration by an employer.
There's... there's the need to keep records, with regard to vacation time earned, vacation time not taken, vacation time saved.
There could be a periodic--
Unidentified Justice: May I ask you another question, Mr. Berger?
Mr. Berger: --Sure.
Unidentified Justice: I guess I really didn't understand this case.
What if an employer had a practice of... every time it fires an employee, he gives them two weeks pay.
He doesn't give two weeks notice.
That's the customary practice.
Is that a severance plan... and just pays it out of general assets?
Mr. Berger: I believe that's a severance plan.
Unidentified Justice: That would be covered by ERISA?
Mr. Berger: I think, if--
Unidentified Justice: Every employer who has that kind of practice is covered by this statute, must maintain all the recordkeeping, and all the rest of it?
Mr. Berger: --I believe it is.
I think if an employer has a consistent approach to severance, and the example you're giving me, is a consistent approach, that that's a plan.
And, that if every employer--
Unidentified Justice: Well then, I think probably every employer in the country must be covered by the statute.
Because everybody has some kind of severance policy, I suppose, when they--
Mr. Berger: --I think we'd all like to believe that's true.
I'm not sure--
Unidentified Justice: --I mean, even if they give him one day's pay, or a watch, or something, that would be a--
Mr. Berger: --I'm not sure the watch would be covered.
I think the cash would be covered.
Unidentified Justice: --Have to be cash?
Mr. Berger: I think so.
Unidentified Justice: Why?
Mr. Berger: Why wouldn't the watch--
Unidentified Justice: Does the statute require benefits be payable in cash?
Mr. Berger: --No.
But, to the extent that the statute was very concerned with employers' not keeping their promises, and the statute was also concerned with tax treatment.
You know, that certain types of benefits... most benefits, for that matter, if not all benefits under ERISA, aren't taxed in one way or another, are subject to a favorable tax treatment.
In that sense, I suppose, a watch could be taxed, if it's construed to be wages and not a gift.
But, I think it was mostly concerned with promises not kept, in the area of money... actual compensation.
I suppose it would depend on the cost of the watch.
Back to the administration issue.
The plan that is at issue in this case creates a periodic demand upon the employer.
If you will accept, as we believe, that this plan paid only upon termination, and those are the only facts before the Supreme Judicial Court, at least then, with every termination, there was a possibility that the employer would have to make some determination, after eligibility, to make a payoff.
So, I think there's clearly enough administration here, to bring the program squarely within ERISA.
Today, the Commonwealth does not make an, an argument before this Court, with regard to the question of ERISA welfare benefit plan.
Now, if the plan is an ERISA welfare benefit plan, as we say it is, I can't see any argument, whatsoever, that the Commonwealth statute doesn't relate to the plan.
Now, the Commonwealth statute is a clear effort to enforce the plan.
It attempts to enforce it by a criminal action, and in my experience, many employers are more concerned about a criminal finding than they are about paying.
No one wants to be found guilty of a misdemeanor.
So, clearly, the Commonwealth is attempting to enforce a welfare benefit plan, with regard to its Section 149... 148, 149.
And they've just as much, admitted that here, today, I think.
Secondly, in its brief, again, it says that there's no restitution available, which is not true.
There's restitution available through the Massachusetts Criminal Court system, as there is for many criminal court systems, if not all.
And, and there's a case that I brought with me today, or to cite, because we did not have chance to file a reply to their reply, which is Commonwealth v. Nawn.
That's a 394 Massachusetts decision, page one, which talks about a criminal... the right of a criminal court to grant restitution.
So, clearly, an individual who was pursuing this statute, would have a right to restitution, as well as a right to enforce the plan.
Enough, I think, is said about "relates to".
And, that leaves a question of general applicability, whether this is a generally applicable criminal law.
There's really very little I can add to the questions already raised by the Court about that, that phrase... that term.
First of all, to the extent again, as we submit, that the plan before us is, in fact, an ERISA welfare benefit plan... this statute squarely deals with employee welfare benefit plans.
It might say wages, which are vacation benefits.
But, to the extent that it deals with vacation benefits, is absolutely and squarely directed at a welfare benefit plan.
I don't see any way around that argument.
Now, to the extent that it also deals with wages... there's nothing to say that the statute isn't valid as a whole.
And, the Supreme Judicial Court of Massachusetts did not find it to be invalid as a whole.
They found it invalid only to the extent that it reached employee welfare benefit plans, which were, in fact, welfare benefit plans under ERISA.
So, from that point of view, I think the statute is directed right at... right at an ERISA cover topic, and, therefore, invalid to that extent.
To the extent that it is... to the extent that the Commonwealth values that are generally applicable in any sense... again, under that analysis, anything would be generally applicable, because it applies to everyone within a specific group or classification.
A state... a state could draw a 15-person statute, and I'm not saying an inappropriate one, and say, this would be criminal if any one of these 15 people commit this crime, and it would apply, generally, to all those individuals.
But, that certainly does not make the statute generally applicable.
Additionally, ERISA really chose... the Congress, when it promulgated ERISA, really chose a very comprehensive scheme for enforcement.
And, it shows for participants and beneficiaries, a civil remedy.
It did not choose for them a criminal remedy.
So, again, it shows its disfavor with regard to criminal remedies in that same area.
The definition of "generally applicable" that the Supreme Judicial Court found, which I think is the definition held by most people, is a statute which applies to the public, in general.
And, by creating such a statute, what the Congress, I think, was intending to do, was to say, if you steal from a plan... if you're an individual, and you steal from a plan... don't look to ERISA to protect you against prosecution for stealing.
Anybody who steals can be prosecuted, and stealing from a plan does not protect it.
But, Congress certainly did not want the states to be able to promulgate specific laws and hide them, with... within general language, that would apply to ERISA.
And finally, I disagree strongly with the Commonwealth argument that this exception should be read broadly.
It should be read narrowly, such as any exception to the statute.
But I do agree that the exception is subject to a conflict analysis.
In other words, if it is a generally applicable law, it still must pass the test as to whether it is in conflict with ERISA as a whole.
And here, it clearly is.
First of all, as I said before, ERISA set up a civil enforcement requirement.
The courts discussed that in a number of recent cases.
This is criminal... certainly, something not chosen, and clearly not chosen on purpose by Congress.
Therefore, it's in conflict in that it is criminal.
It's in conflict in terms of the payment procedures.
Under ERISA, you have approximately 90 days to pay a benefit.
Under the Mass statute, it's immediately upon discharge, that day, and approximately six days later... the payroll period later.
So there's a second conflict.
And, the third conflict, and a very extreme conflict, at that, is that this statute is directed at any officer of the corporation.
It need not be an individual who had any involvement, whatsoever, with the ERISA plan.
The statute doesn't require any involvement at all, just the names and number of officers, including the president.
And then, these individuals have personal liability for that plan... for the payment of that plan, both personal and criminal.
ERISA certainly did not choose personal liability for people not related, in any fashion, to the plan at issue.
And, it certainly didn't choose criminal responsibility for those individuals, except under specific problems, such as disclosure.
So, again, that's the third conflict.
In closing, let me again, go back to the primary question I think I've been asked by this Court, with the few minutes I have remaining.
Unidentified Justice: You have about one minute.
Mr. Berger: That's all it will take, I think.
And, that is that, "vacation benefits" are a word used squarely within the statute.
No question, whatsoever, about that.
It's used twice.
It's used in 3(1)(a) and 3(1)(b).
In 3(1)(b), the word is "pooled vacation benefits".
Just the type of benefits that the solicitor, I think, suggests, and petitioner certainly suggests, are the only types of benefits precluded... included within ERISA.
If that were true, 3(1)(a), as it applied to vacation benefits, would be superfluous.
There would be no reason in the world to have those words.
Unidentified Justice: Mr. Valvo, do you have anything further?
Mr. Valvo: Unless the Court has questions, I can rest on my arguments, sir.
Chief Justice William H. Rehnquist: Very well.
The case is submitted.
Argument of Speaker
Mr. Speaker: The opinion of the Court in No. 88-32, Massachusetts against Morash will be announced by Justice Stevens.
Argument of Justice Stevens
Mr. Stevens: This case which comes to us on writ of certiorari to the Supreme Judicial Court of Massachusetts requires us to determine whether a company’s policy of paying its discharge employees’ vacation time constitutes an employee welfare benefit plan within the meaning of Section 3(1) of the Employee Retirement Income Security Act.
In May of 1986, petitioner, the Commonwealth of Massachusetts, started criminal complaints against the president of a bank alleging that he had violated the Massachusetts payment of wages statute by failing to compensate two discharged bank vice presidents for vacation time they had accrued but did not use.
Leaving that the bank’s policy to pay employees accrued vacation pay in lump sums upon termination be in ERISA plan, the Supreme Judicial Court held that the prosecution was preempted by the federal statute.
In an opinion filed with the Clerk of the Court today, we hold that the reference in ERISA to a “plan, fund, or program that provide vacation benefits” should be understood to include within the scope of ERISA vacation benefit funds in which the employee’s right to a benefit is contingent upon a future occurrence or the employee bears a risk different from his normal employment risk that should not be construed to include a single employer’s policy to pay employees for unused vacation time from its general assets.
The bank’s policy to pay employees a good vacation time upon termination does not constitute an employee welfare benefit plan and the prosecution, accordingly, is not preempted by ERISA.