Com. v. Morash

• Decision Date: 05 May 1988
• Parties: , 28 Wage & Hour Cas. (BNA) 1227, 56 USLW 2688, 10 Employee Benefits Cas. 1245 COMMONWEALTH v. Richard N. MORASH.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 409

522 N.E.2d 409

402 Mass. 287, 28 Wage & Hour Cas. (BNA)

1227, 56 USLW 2688,

10 Employee Benefits Cas. 1245

COMMONWEALTH v. Richard N. MORASH.

Supreme Judicial Court of Massachusetts Suffolk.

Argued Jan. 4, 1988.

Decided May 5, 1988.

Jason Berger (Marcia E. Greenberg, Boston, with him), for defendant.

Marc C. Laredo, Asst. Atty. Gen., for Com.

Before WILKINS, ABRAMS, NOLAN, LYNCH and O'CONNOR, JJ.

O'CONNOR, Justice.

The defendant is charged in two complaints with violating G.L. c. 149, § 148 (1986 ed.). Section 148 requires an employer to make prompt payment of wages owing to employees who have been discharged. Wages include "any holiday or vacation payments due an employee under an oral or written agreement." Section 148 also provides that the president of a corporation, among others, shall be deemed to be the employer of the corporation's employees. The Commonwealth contends that the defendant bank president failed to compensate two discharged vice presidents for vacation time they accrued but did not use.

The defendant moved for dismissal of the complaints, arguing that, in order to prove its case, the Commonwealth would have to establish that the defendant failed to honor an "employee welfare benefit plan" as that term is used in the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001-1145 (1982) (ERISA). Prosecution for not honoring such a plan, the defendant argued, and argues on appeal, is preempted by ERISA. No action was taken on the motion to dismiss. Instead, a judge of the Boston Municipal Court reported the following question to the Appeals Court: "Does the preemption provision, section 1144(a) of ... [ERISA] preclude prosecution of an employer who has allegedly violated G.L. c. 149, § 148, by not compensating a former employee for unused vacation time due such employee pursuant to an oral or written agreement?" We answer the reported question as follows: "Prosecution under G.L. c. 149, § 148, of an employer who has failed to make agreed-upon vacation payments is preempted if the payments were to be made pursuant to an 'employee benefit plan.' " Since the stipulated facts in this case establish the existence of an "employee benefit plan" pursuant to which payments for unused vacation should have been, but were not, made to discharged employees, prosecution of the defendant is preempted by ERISA.

For the purpose of obtaining an answer to the reported question, the parties have stipulated as follows: The defendant is the president of The Yankee Bank for Finance and Savings, formerly known as Home Savings Bank (bank). In May, 1984, the Yankee Companies, Inc., acquired the stock of the bank, which had been in severe financial trouble. On May 29, 1986, two former bank vice presidents, Christopher C. Winslow and William R. Tuttle, were granted the complaints referred to above. Winslow claimed that he had been discharged on May 24, 1985, and that the bank owed him $14,520 for sixty-six unused vacation days. Tuttle claimed that he had been discharged on April 19, 1985, and that he was owed $11,146.38 for forty-two unused vacation days.

The parties also have stipulated, consistently with Winslow's and Tuttle's claims when they applied for the criminal complaints, that Winslow and Tuttle had been employees of the bank, that they had been discharged, and that, although the bank offered to pay them for vacation time they had accrued after January 1, 1985, the bank had not offered to pay them for the vacation time they claimed to have accrued before that date. The parties further stipulated, for the purpose of obtaining an answer to the reported question, that the bank had made oral "and/or" written agreements stemming from handbooks, manuals, memoranda, and practices to pay employees in lieu of unused vacation time, and that, "when the Bank does pay its employees for used or unused vacation time, such payments are made out of the Bank's general assets." Lastly, the parties agree on appeal that, pursuant to bank policy, employees who accrue unused vacation time receive a lump-sum cash payment in lieu of the unused time upon termination of their employment.

The ERISA preemption provision, 29 U.S.C. § 1144(a), provides that "[e]xcept as provided in subsection (b) of this section, the provisions of [ERISA] ... shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 1003(a)." Section 1003(a) does not define "employee benefit plan." It merely describes the employee benefit plans to which ERISA applies. To the extent material here, § 1003(a) provides that ERISA "shall apply to any employee benefit plan if it is established or maintained ... by any employer engaged in commerce or in any industry or activity affecting commerce...."

Section 1002(3) defines "employee benefit plan" or "plan" as "an employee welfare benefit plan or an employee pension benefit plan...." There is no contention in this case that the bank's agreement to pay discharged employees for accrued but unused vacation time constituted an employee pension benefit plan. Rather, the defendant contends that the bank's agreement constituted an employee welfare benefit plan. Section 1002(1) defines "employee welfare benefit plan" as "any plan, fund, or program ... established or maintained by an employer ... to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants ... vacation benefits...." The statute does not define the words "fund" or "program," or further define the word "plan."

In Barry v. Dymo-Graphic Syss., Inc., 394 Mass. 830, 478 N.E.2d 707 (1985), former employees sued the defendant to recover severance pay and vacation pay. Their action was based on booklets, manuals, a memorandum, and company practices. Id. at 832-833, 478 N.E.2d 707. We held that the plaintiffs' claims were preempted by ERISA. We concluded that neither a formal, written plan nor a separate fund is a prerequisite to the establishment or maintenance of an ERISA employee benefit plan. We concluded that a Department of Labor regulation, 29 C.F.R. § 2510.3-1(b)(3), which provides that payments of compensation out of an employer's general assets while an employee is on vacation are not made pursuant to an employee welfare benefit plan, was not controlling. Barry, supra at 837, 478 N.E.2d 707. Relying on California Hosp. Ass'n v. Henning, 569 F.Supp. 1544, 1546 (C.D.Cal.1983), rev'd subsequent to our decision in Barry, 770 F.2d 856 (9th Cir.1985), modified, 783 F.2d 946 (9th Cir.), cert. denied, 477 U.S. 904, 106 S.Ct. 3273, 91 L.Ed.2d 564 (1986), we interpreted the Department of Labor regulation as applying only to an employer's discretionary practices and not to those contractually required. Barry, supra, 394 Mass. at 837-839, and 837 n. 7, 478 N.E.2d 707. We need not decide now, whether, in light of the Ninth Circuit Court of Appeals' reversal of the District Court decision in California Hosp. Ass'n, supra, we should modify our interpretation of the Department of Labor regulation, because, in any event, the applicable portion of that regulation deals only with an employer's payments of compensation out of general assets to an employee while he or she is on vacation, see California Hosp. Ass'n v. Henning, 770 F.2d at 858, and does not apply to the present case which involves a lump-sum payment for unused vacation time upon discharge. Such payments are more akin to severance pay than to ordinary wages. See Scott v. Gulf Oil Corp., 754 F.2d 1499, 1503 (9th Cir.1985).

Relying heavily on Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 107 S.Ct. 2211, 96 L.Ed.2d 1 (1987), the Commonwealth argues that Barry v. Dymo Graphic Syss., Inc., supra, should not control the result in the present case. Fort Halifax Packing Co. was a civil action to recover severance pay due under a statute of the State of Maine. The statute required a one-time severance payment to employees in the event of a plant closing. The Supreme Court held that ERISA did not preempt the action, reasoning that the Maine statute "neither establishes, nor requires an employer to maintain, an employee welfare benefit 'plan'...." Id., 107 S.Ct. at 2215.

Despite its holding, the Supreme Court's rationale in Fort Halifax Packing Co. supports rather than negates preemption in this case. The Court focused in that case on Congress's purpose in providing ERISA preemption: "An employer that makes a commitment systematically to pay certain benefits undertakes a host of obligations, such as determining the eligibility of claimants, calculating benefit levels, making disbursements, monitoring the availability of funds for benefit payments, and keeping appropriate records in order to comply with applicable reporting requirements. The most efficient way to meet these responsibilities is to establish a uniform administrative scheme, which provides a set of standard procedures to guide processing of claims and disbursement of benefits. Such a system is difficult to achieve, however, if a benefit plan is subject to differing regulatory requirements in differing States.... A patchwork scheme of regulation would introduce considerable inefficiencies in benefit program operation, which might lead those employers with existing plans to reduce benefits, and those without such plans to refrain from adopting them. Pre-emption ensures that the administrative practices of a benefit plan will be governed by only a single set of regulations." Id., 107 S.Ct. at 2216-2217.

In Fort Halifax Packing Co., the Court based its conclusion that the Maine statute neither establishes nor requires an employer to maintain an employee benefit plan on the fact that "[t]he requirement of a one-time lump-sum payment triggered by a single event requires no administrative scheme whatsoever to meet the employer's obligation. The employer assumes no responsibility to pay benefits...