Dunlop v. Tremayne

• Decision Date: 11 February 1965
• Citation: 62 Cal.2d 427,398 P.2d 774,42 Cal.Rptr. 438
• Court: California Supreme Court
• Parties: , 398 P.2d 774, 17 A.L.R.3d 368, 51 Lab.Cas. P 51,262 J. DUNLOP, Plaintiff and Respondent, v. Kenneth TREMAYNE, Defendant and Appellant. L. A. 28186

Page 438

42 Cal.Rptr. 438

62 Cal.2d 427, 398 P.2d 774, 17 A.L.R.3d 368,

51 Lab.Cas. P 51,262

J. DUNLOP, Plaintiff and Respondent, v. Kenneth TREMAYNE, Defendant and Appellant.

L. A. 28186.

Feb. 11, 1965.

Paris & Paris and Bette S. Paris, Beverly Hills, for defendant and appellant.

James H. Denison and Edward S. Stutman, Los Angeles, for plaintiff and respondent

MOSK, Justice.

This is a monothetic case which poses the question whether payments made by an employer, pursuant to an industrywide collective bargaining agreement, into independent trust funds for medical, welfare, and retirement benefits constitute 'wages' as that words is used in section 1204 of the Code of Civil Prodecure. ¹

Cal-Pacific Downey, the employer, entered into collective bargaining contracts with unions representing its employees, as part of an industrywide collective bargaining agreement in the lumber industry in Southern California. The agreements obligated the employers to make monthly payments into two trust funds, one for retirement benefits and the other for health and welfare benefits. Each employer paid a flat sum for each employee who worked for him for more than 80 hours each month. Employees are entitled to benefits only as long as they are employed by one of the parties to the agreements. Employee health and welfare benefits are determined by the terms of a group policy carried by the trust, and retirement benefits are calculated on the basis of an individual's total period of employment in the industry. No relationship exists between amounts contributed by employers and the benefits to which any employee is entitled.

No employee has any rights, vested or otherwise, in the trust funds; he has only contractual rights against the trust for benefits specified in the contracts. Only the trustees are authorized to sue for and collect delinquent payments. No withholding tax deductions are made from or because of the payments, nor are the payments included in social security computations.

Cal-Pacific made an assignment for the benefit of creditors to defendant Tremayne, pursuant to section 1204 of the Code of Civil Procedure. Cal-Pacific then owed $1,057.50 to the welfare fund and $1,269.80 to the retirement fund. Plaintiff, as assignee of the trustees, brought an action for declaratory relief, contending that these claims are entitled to a priority. The trial court entered judgment for plaintiff.

This is a case of original impression in California, and decisions regarding similar statutes of other states and the United States provide no clear or persuasive pattern. Each case appears to rest upon the language and purpose of the statute involved and upon questions of policy.

Section 1204 of the Code of Civil Procedure was originally enacted in 1872, and has remained unchanged as to basic purpose since that time. No illuminating legislative history can be found, but the obvious intent of the section is to ease the economic burden of employees of businesses in financial distress. The social benefits of this public policy are self-evident. How ever, employee 'fringe benefits' are a comparatively recent development in the history of labor-management relations and were not within the contemplation of framers of the statute. Thus the question before us is whether the same policies applicable to direct wages should apply to fringe benefits. While employees generally give up additional direct wages in return for fringe benefits in the bargaining process, the employees do not have a direct claim to monies paid into funds of this type.

Both plaintiff and defendant point to the history of sections 200-229 of the Labor Code in support of their positions. ² These sections deal with the criminal sanctions for failure to pay wages. Under section 216, enacted in 1919, it is a misdemeanor to wilfully fail to pay wages. Section 227 was added in 1955, making failure to pay to a health, welfare, or pension fund a misdemeanor. This action of the Legislature does not have the persuasive effect which has been suggested. A criminal statute requires strict interpretation, and in the absence of specific legislative action, failure to pay fringe benefits could not have been included under the criminal sanctions of Labor Code section 216. On the other hand, the priority provisions of the Code of Civil Procedure may be interpreted less narrowly, and if reasonable interpretation or policy considerations suggest the inclusion of fringe benefit payments in the definition of the term 'wages' for the purposes of this section, no insurmountable barrier exists.

The United States Supreme Court has held that health and welfare fund payments are not entitled to the priority afforded wages in the federal bankruptcy statute in United States v. Embassy Restaurant, Inc. (1959) 359 U.S. 29, 79 S.Ct. 554, 3 L.Ed.2d 601, under facts comparable to those here. However, the court reached its decision on the basis of the particular language of the statute, which spoke of 'wages * * * due to workmen' (30 Stat. 563, sec. 64, as amended, 11 U.S.C. (Supp. V) § 104, sub. a (2)) and held that these payments were not due to workmen and therefore not entitled to the priority. Justice Black dissented in the Embassy case, joined by two justices. The dissent maintained that the payments are compensation for services rendered, that they are not gifts, and that they are looked upon as a form of wages by all the parties to the collective agreements. 'It cannot be argued that a sum paid by an employer for a worker's services loses its status as wages merely because it is used to purchase insurance benefits.' (United States v. Embassy Restaurant, Inc. (1959) supra, 359 U.S. 29, 37-38, 79 S.Ct. 554, 559, dissenting opinion.)

The California provisions are less restrictive than the federal statute, referring only to the 'wages and salaries of (various classes of employees).' Thus the reasoning adopted by the majority in the Embassy case is not necessarily applicable. The language of the California Code section may be interpreted as including any sums that may be defined as wages earned by the employees.

Other cases are not particularly helpful for there has been a division of opinion over whether welfare payments are wages. Two cases which have held that contributions of health, welfare and pension funds are wages are Inland Steel Co. v. N.L.R.B. (1948) 7 Cir., 170 F.2d 247 (cert. den. 336 U.S. 960, 69 S.Ct. 887, 93 L.Ed. 1112) and Trustees of Local 88, Meat and Related Industries, Health and Welfare Fund Trust v. State Tax Commission (Mo.1963) 367 S.W.2d 549. But neither of those cases involved priority statutes. Cases holding contra are In re Well Bilt Box Spring Corp. (1949) 196 Misc. 848, 89...